results of operations - Aboitiz

CONTENTS
Financial Highlights 2
Report to our Stockholders
from your Chairman 3
from your President & CEO 4
from your Chief Operating Officer 10
(Results of Operations)
from your Chief Financial Officer 28
from your Chief Compliance Officer 29
Features: Powered for Growth
THE 360-MW MAGAT HYDRO PLANT 33
Boosting power generating capacity
HEDCOR DAVAO HYDRO PROJECTS 35
Powering Mindanao with Cleanergy
DAVAO LIGHT AND POWER COMPANY 37
Preparing for future growth
VISAYAN ELECTRIC COMPANY 39
Powering booming Cebu
ABOITIZ ENERGY SOLUTIONS, INC. 39
Expanding its services
UNIONBANK 41
Moving closer to FOCUS 2010
CITY SAVINGS BANK 43
Positioning for more growth
THE FOOD GROUP 45
Gearing up for major expansions
ABOITIZ TRANSPORT SYSTEM 47
Providing complete logistics &
supply chain solutions
ABOITIZ GROUP FOUNDATION, INC. 49
Enhancing programs to serve
more beneficiaries
CHRISTMAS OUTREACH PROJECT 50
Expressing passion to serve
TYPHOON MILENYO 51
VOLUNTEER ASSISTANCE
Service beyond our borders
ABOITIZ FUTURE LEADERS’ 53
BUSINESS SUMMIT
Developing tomorrow’s leaders today
Location of Operations 54
Corporate Structure 54
The Board of Directors 55
Corporate Officers 56
Financial Statements 58

Growth
POWERED FOR

FINANCIAL HIGHLIGHTS
06
05
04
Revenues
(IN MILLION PESOS)
06
05
04
EBITDA
(IN MILLION PESOS)
06
05
5,860
04
2,452
Net Income to Common
(IN MILLION PESOS)
06
05
04
Earnings per share
(IN PESOS)
06
05
04
497
6,527
3,159
0.51
597
Cash Dividend to Common
(IN MILLION PESOS)
22,411
6,995
3,754
0.65
736
26,711
26,923
0.76
04 15,909
Market Capitalization
(IN MILLION PESOS)
04 36,593
Total Assets
(IN MILLION PESOS)
23,792
04
17,211
Stockholders' Equity
(IN MILLION PESOS)
06
05
04
AEV Stock Price High Low Close
January 2006 to April 2007 9.90 4.75 9.10
Outstanding Shares as of April 30, 2007 5,694,599,621
06
05
06
05
06
05
38,276
4,623
4,568
Cash & Cash Equivalents
(IN MILLION PESOS)
20,161
23,078
40,844
8,010
34,665
FINANCIAL SUMMARY
For the Year (in million pesos)
2004
As restated * 2005 2006
% change
06 vs ‘05
REVENUES 22,411 26,923 26,711 -0.8%
OPERATING PROFIT
Operating profit from ordinary activities 1,811 2,142 2,328 8.7%
Equity in Net Earnings of Associates 1,532 2,155 2,115 -1.9%
Interest Expense - net (1,018) (1,012) (877) -13.3%
Other Income 821 401 743 85.4%
Income before income tax 3,146 3,686 4,308 16.9%
Provision for income tax (531) (469) (494) 5.4%
Income before minority interest 2,615 3,217 3,814 18.5%
Minority interest (162) (58) (60)
Net Income to Common 2,452 3,159 3,754 18.8%
At Year End (in million pesos)
Total Assets 36,593 38,276 40,844 6.7%
Total Liabilities ** 18,223 16,936 16,561 -2.2%
Minority Interest 1,158 1,178 1,205 2.3%
Equity Attributable to Equity
Holders of the Parent ** 17,211 20,161 23,078 14.5%
EBITDA 5,860 6,527 6,995 7.2%
Per Share (in pesos)
Earnings 0.51 0.65 0.76 16.9%
Book Value 3.57 4.11 4.66 13.4%
Cash Dividends (Common) 0.10 0.12 0.15 25.0%
Financial Ratios
Current Ratio 1.31 1.29 2.07 60.3%
Debt-to-Equity Ratio 1.06 0.84 0.72 -14.6%
Net Debt-to-Equity Ratio 0.55 0.37 0.17 -55.8%
* Figures were restated as a result of the full adoption of Philippine Financial Reporting Standards (PFRS) and of the reorganization of the Transport Group.
** 2004 figures were adjusted to treat redeemable preferred shares as debt, to be comparative with 2005 and 2006 figures.
2 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

REPORT TO OUR STOCKHOLDERS
FROM YOUR CHAIRMAN
Growth
POWERED FOR
Dear Shareholders and Friends,
We are pleased with what your company accomplished in 2006,
reaching record levels in sales and profits. It was an interesting and
exciting year as we formed strategic business partnerships and
acquired major investments that have well positioned your company
for future growth. We now find ourselves on the throes of further
expansion and our businesses are certainly powered for growth.
Not only are we preparing our operating systems for future growth,
we are also focusing on talent management programs across our
organization. We continue to be relentless in honing the talents
of our team members, training them to handle the challenges of
growth. The development and empowerment of our human
resources are most crucial to your company’s future success.
We are fortunate to have driven, energetic, results-oriented people
who seek innovative yet practical solutions to their day-to-day
work. Our teams are passionate about succeeding, constantly raising
the bar, pursuing excellence in everything that they do. They
know the importance of keeping stakeholders satisfied and happy.
They demonstrate personal discipline, living out our time-honored
corporate values of trust, fairness and integrity. Furthermore,
our branding initiatives have renewed our teams’ passion to be
driven…driven to lead, driven to excel, driven to serve.
As we confront our future with optimism, we remain committed
to our strategy to focus on our core investments, our people,
our customers and our systems. We will continue to be low-cost
producers, maintain a balanced investment portfolio, and aim to
become world-class. We reconfirm our belief that the surest way to
sustained and profitable growth is to stick to what we do best and
rely on our proven competencies to fuel our growth.
We thank you, our shareholders, for your continued support and
confidence over the years. We too are grateful to our business
partners for their trust and cooperation. And of course to all the
team members that make up Aboitiz Equity Ventures (AEV), we
thank you for your untiring efforts and valuable contributions to the
company. Let us continue to work together to pursue our growth
goals for the benefit of all stakeholders.
Roberto E. Aboitiz
CHAIRMAN OF THE BOARD
As we confront our
future with optimism,
we remain committed
to our strategy to
focus on our core
investments, our
people, our customers
and our systems.
We will continue to be
low-cost producers,
maintain a balanced
investment portfolio,
and aim to become
world-class.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 3

REPORT TO OUR STOCKHOLDERS
FROM YOUR PRESIDENT AND CHIEF EXECUTIVE OFFICER
Growth
POWERED FOR
We are very pleased
to report that 2006
was again another
record year for your
company as it posted
a profit of π3.7
billion, an increase
of 19% over 2005
earnings. Return on
equity was 19.2% as
all companies were
profitable.
Dear Shareholders and Friends,
We are very pleased to report that 2006 was again another record
year for your company as it posted a profit of π3.7 billion, an
increase of 19% over 2005 earnings. Return on equity was 19.2%
as all companies were profitable.
Your company remained focused on enhancing and maximizing the
value of all our existing businesses and new investments while
continuing to provide shareholders with attractive dividend yields.
POWER
In 2006, AEV’s power group remained the largest contributor to
the company’s profit, up 12% from the previous year. The electricity
generation and distribution businesses turned in almost equal
contributions to AEV’s income.
Our power distribution utilities generally experienced little growth
in energy sales volume due to a very slow first half 2006. But sales
volume picked up in the second half, making us optimistic about
future growth. Increased efficiency and productivity across all our
utilities and strong contributions from Visayan Electric Company
(VECO) and Davao Light and Power Company (DLPC) were
responsible for the 21% increase in contribution over 2005.
The distribution group also spent 2006 consolidating its gains and
preparing for the future. In March, San Fernando Electric finally
received approval for its rate unbundling. VECO and DLPC completed
the process of obtaining regulatory approvals for existing power
supply, and both successfully searched for new sources of power
for their future requirements, given the limits of National Power
Corporation's (Napocor) available capacity.
Our distribution utilities also concluded agreements with National
Transmission Corporation (TransCo) for the acquisition of all subtransmission
assets within their franchise areas, including the creation
of several consortia with neighboring cooperatives for shared assets.
In generation, our hydro plants in Luzon and Davao performed
well exceeding their budgets for the year in kilowatt-hour (kwh)
sales and profits. All plants had very high availability factors
thereby maximizing production during the rainy season.
4 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

The winning bid by SN Power Aboitiz, a joint venture between
Aboitiz Power Corporation and SN Power of Norway, for the
360-megawatt (MW) Magat power plant was the major
highlight in 2006. To date, the plant located in Isabela is the
largest hydroelectric facility to be privatized by government.
BANKING
UnionBank, in continuing to take steps towards its Focus 2010
goals, acquired the International Exchange Bank (iBank) in
June. At yearend 2006, it was No. 7 among private domestic
universal banks in terms of size with close to π183 billion in
total resources. It is the eigth largest in branch network with
186 branches. Its organic expansion pushed asset base equivalent
to a growth rate of 71.3%. Deposits almost doubled.
UnionBank has maintained its rank as among the best banks
in the country on key performance ratios of liquidity and
return on assets.
2006 was a record year for City Savings Bank (CSB) with
resources up by 77% over the previous year. Total deposits
grew by 82%, allowing the bank to expand its loan portfolio
by 98% and still maintain a strong capital adequacy ratio.
With the lifting by the Bangko Sentral of the moratorium on
branch expansions, CSB bought all the assets of CSB Finance
branches and opened new branches in Cagayan de Oro City and
in Roxas City. These bring to 16 the total number of branches
in the Visayas and Mindanao.
TRANSPORT
Although the transport group experienced another challenging
year, it ended 2006 with a profit. We continued to deal with high
fuel prices coupled with stiff competition in passage from low
airline fares, short Roll On-Roll Off (RoRo) ferries and buses.
The group continued to make substantial gains in our pure
RoRo and logistic services, which have been widely accepted
by the market for being very efficient and cost effective.
We began to focus our operating model more towards the
freight part of the business and chartered the container ship
2GO1 to serve Southern Mindanao.
In December, we concluded the sale of two
SuperFerries resulting in booking a gain on
the sale of the first vessel delivered that
same month. The second ship will be
delivered in the second quarter of
2007. In re-aligning our investments,
we also divested of
DIPPSCOR, the port service
company we own in
Davao, also realizing a
gain on the sale.
Proceeds from the
sales allowed Aboitiz
Transport to reduce its
interest-bearing debt
by π1.2 billion,
strengthening the
company’s balance
sheet and reducing
interest expenses.
UnionBank, in continuing
to take steps towards
its Focus 2010 goals,
acquired the International
Exchange Bank (iBank) in
June. At yearend 2006, it
was No. 7 among private
domestic universal banks
in terms of size with π183
billion in total resources.
It is the 8th largest in
branch network with
186 branches.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 5

We intend to list
Aboitiz Power
Corporation (APC)
on the Philippine
Stock Exchange
through an initial
public offering.
AEV will put all its
distribution assets
in APC and make it
the Philippines’only
truly integrated
power company.
FOOD
The food group again turned in a very
strong performance, increasing its income
contribution to AEV by 34%.
Volumes in the flour business were sluggish
and remained at par with that of 2005.
Feed volumes, on the other hand, grew by
an aggregate 18%, coming from increases
in internal use and from commercial sales.
It was a year characterized by high volatility
in the prices of raw material and consistent
increase in both local and international
freight rates. In spite of this, the group was
successful in managing its profit margins.
Fil-Am Foods continued to finalize its
expansion plans for breeder and finisher
From the mill, sacks of flour are shipped direct to the
widest network of dealers throughout the country.
farms in Luzon, as well as for another
feedmill in Mindanao. These projects are
expected to come on line towards the latter
part of 2007 and beginning of 2008.
Pilmico divested 50% of its holdings in its
joint venture yeast business and is
now focusing on projects in
the flour business, as well
as on new ventures that
may come forward.
OUTLOOK
We approach our
future with great
optimism, excitement
and high expectations of
what we, as a group, will
achieve through initiatives
we are ready to implement.
All our companies are
powered for growth.
Power
As disclosed on January 11, 2007 and
approved by AEV shareholders on February
27, 2007, we intend to list Aboitiz Power
Corporation (APC) on the Philippine Stock
Exchange through an initial public offering
(IPO). AEV will put all its distribution assets
in APC and make it the Philippines’ only truly
integrated power company.
Through this IPO, we intend to raise capital
to continue our expansion in the power
sector through investments in new projects.
On April 25, 2007, the Power Sector Assets
and Liabilities Management Corporation
(PSALM) turned over the 360-MW Magat
hydro complex to SN Aboitiz Power.
We have began upgrading the facility to
improve efficiency and production.
Our Norwegian partners SN Power are
also conducting studies on the possible
expansion of the plant’s facilities.
After winning a competitive bid to supply
power to Davao Light, Hedcor is developing
the 42-MW Sibulan and 31-MW Tamugan
hydro projects in the Davao area. We hope
to break ground on the Sibulan project in
the first half of 2007.
We will continue to vigorously bid for
selected Napocor assets and expand our
generation business with greenfield plants
especially in areas where they can work
with our distribution utilities.
6 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

We also hope to capitalize on the strengths provided by our
strategic partners in areas like energy trading and optimizing
production. Anticipating retail competition in the industry,
we have already obtained licenses for retail electricity supply
and for wholesale aggregation.
In power distribution, we plan to leverage our expertise by
looking for opportunities to expand our power distribution
business. We look forward to moving our utilities to the
Performance Based Ratemaking system where we believe
the efficiency of our operations can be properly rewarded.
Banking
For banking, 2007 will be a year of both financial and
operational consolidation to create a solid platform for
renewed growth in the future. We expect to complete the
full integration of iBank, produce cost synergies and improve
revenue from increased and new products distributed
throughout our expanded network.
In April 2007, UnionBank undertook an offering of new
shares to the domestic and international markets wherein
it proposed to raise about US$ 111 million, not only to
strengthen the bank’s capital structure but also to increase
business and expansion opportunities. The new shares will
also increase and improve the liquidity of the stock.
City Savings Bank will continue its spectacular growth by
expanding its branch network in the VisMin area. We are
also planning to enter the Luzon area. We will continue to
grow our loan portfolio without sacrificing credit quality.
Food
In food, we expect the business to continue to excel. Our
business units will pursue further market expansion and focus
on auxiliary investments that will further bring down costs.
We are in the process of constructing a
new feed mill in our Iligan complex
to serve our Visayas and Mindanao
customers more efficiently.
Transport
Since the first quarter of 2007,
our transport group has been
operating on a new business
model that enables us to be
more competitive, flexible and
profitable. The direction is to
recreate the freight business
model, one that would focus on
increasing capacity and RoRo
movement. The entry of the 2GO1
container ship and the conversion
of some passenger capacity in existing
passenger vessels to more RoRo and cargo
capacity are part of that direction.
In January 2007, 2GO launched its Supply Chain Division as
part of providing customers with a fully integrated supply
chain management system that will not only distribute
products more efficiently and faster but also reduce cost
of shipping, handling and storage.
ATS also intends to continue the expansion of its crewing,
manning and ship management businesses.
The company will also focus on liquidating debt, lowering
fuel-to-revenue ratios with the ultimate aim of becoming
the lowest cost operator in the country with a strong
balance sheet.
In April 2007,
UnionBank undertook
an offering of new
shares to the domestic
and international
markets wherein it
proposed to raise
about US$ 111 million,
not only to strengthen
the bank’s capital
structure but also
to increase business
and expansion
opportunities.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 7

Market Capitalization
(in billion pesos)
35
7
8
11
15
16
24
00 01 02 03 04 05 06
Our market
capitalization at
the end of 2006
increased by
π10.9 billion from
π23.8 billion at the
start of the year
to π34.7 billion at
yearend, and has
doubled from
yearend 2004.
Treasury Share Sale
On January 26, 2007, AEV successfully
placed its entire treasury shareholdings
representing 742,511,938 shares at a price of
π8.20. The transaction raised approximately
π6.1 billion, equivalent to US$124 million.
The offering saw high demand from
approximately 60 institutional investors
in the USA, Europe and Asia which significantly
increased the company’s free float
by 15% and strengthened AEV’s shareholder
base. International investors took
up 89% of the offering while domestic
investors took 11%.
Creating value for shareholders
There was a sharp increase in AEV’s shareholder
value in 2006. The share price increased
from π4.80 at the beginning of January to
close at π7.00 at the end of December or a
45.8% price appreciation for the year.
Our market capitalization at the end of
2006 increased by π10.9 billion from π23.8
billion at the start of the year to π34.7
billion at yearend, and has doubled from
yearend 2004.
Cash Dividend
On January 11, 2007, your Board of Directors
approved a cash dividend of 20 centavos
per share that was paid out on February 23,
2007. The total payout amounting to π1.14
billion was the biggest ever, representing
over 30% of the previous year’s earnings.
In the same meeting, the Board also adopted
a policy of distributing at least one third of
the Company’s previous year’s earnings as
cash dividends to shareholders.
Corporate Social Responsibility
implementation of corporate social responsibility
initiatives, disbursing a total of π178
million for various projects.
Programs in the area of education continued
to be at the heart of the Group’s initiatives
to assist host communities where our
companies operate. We likewise continued
to implement projects on primary health
and child care, and enterprise development.
BRAND
2006 saw the further strengthening of
AEV’s brand identity, as we continued
to deliver on our promise of “Passion for
Better Ways”. To prepare ourselves for
future growth, we have taken steps to
align our strategic intent throughout the
entire Group. This is in order to ensure a
powerful and sustainable impact in all
our undertakings and to have a common
sense of purpose across the Group.
To all our team members in the AEV Group,
thank you for your support and for your
commitment to deliver the highest standards
of service. Let us continuously seek
to find new and better ways to serve all
our stakeholders.
To our stockholders, partners and customers,
our sincere gratitude for your continued
trust and confidence.
The performance growth of Aboitiz
Group of Companies gave us
more resources to pursue
social development projects.
It was a banner year
for the Group in the
Jon Ramon Aboitiz
PRESIDENT AND CHIEF EXECUTIVE OFFICER
8 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

Operations
RESULTS OF

RESULTS OF OPERATIONS
FROM YOUR CHIEF OPERATING OFFICER
Growth
POWERED FOR
Despite the challenges,
the power group
continued to be the
largest contributor
to AEV's income,
turning in π2.26
billion, up 12% from
2005. This represents
56% of the total
income contribution
from AEV's various
business segments.
Dear Shareholders and Friends,
Aboitiz Equity Ventures, Inc. (AEV) ended 2006 with a net
income of P3.7 billion, a 19% increase from 2005. This translates
to an earnings per share (EPS) of π0.76. Earnings before interest,
taxes, depreciation and amortization (EBITDA) increased by 7%
reaching π7 billion.
POWER GROUP
The power group had a slow start in 2006 and as projected,
growth in electricity consumption remained benign throughout
the year. The hydro projects we are developing in Davao
encountered some delays. The privatization process of the
Napocor assets did not proceed as fast as expected. Despite
these challenges, the power group continued to be the largest
contributor to AEV’s income, turning in π2.26 billion, up 12% from
2005. This represents 56% of the total income contribution from
AEV’s various business segments.
The year’s highlight was AEV’s winning the bid for the 360-MW
Magat Hydro Power Plant in December 2006. The acquisition
was very strategic for AEV and will more than double the
generation capacity of Aboitiz Power Corporation bringing it to
390 MW of beneficial ownership.
Distribution Companies
The combined income of AEV’s power distribution companies
in 2006 was π1.18 billion, up by 21%. The group sold a total of
3,498 gigawatt-hours (Gwhrs), an increase of 2.5% percent over
2005. These power utilities provided electricity to 617,106
customers across the country, 3% more than the previous
year. Over the last 9 years, annual kilowatt-hour (kwh) sales
posted a compounded growth rate of 7%.
Davao Light and Power Company (DLPC) contributed a profit of
π809 million, 19% higher over 2005. DLPC’s kwh sales of 1,269
Gwhrs was up very slightly in 2006. The number of customers
increased by 2.9% to 238,612. Peak load increased to 238 MW
from 230 MW of the previous year. System losses increased
slightly to 8.89% from 8.45% in 2005, but still within the 9.5%
mandated cap set by law.
10 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

RESULTS
OF OPERATIONS
In preparation for further load
growth, Davao Light completed
the π286-million Don Ramon
Substation in December 2006.
The substation will address
increasing demand especially
in the northern part of the
company’s franchise area.
DAVAO LIGHT AND POWER COMPANY
POWER DISTRIBUTION
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 11

RESULTS
OF OPERATIONS
VECO extended its primary lines
to the South Road Properties
(SRP) project, a Special Economic
Zone of 300 hectares of prime
property on reclaimed land
developed by the Cebu City
government.
VISAYAN ELECTRIC COMPANY
POWER DISTRIBUTION
12 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

RESULTS OF OPERATIONS
In the fourth quarter of 2006, DLPC completed its 138/69 kilovolt
(kV) Don Ramon Aboitiz substation increasing transformation capacity
by 200 mega-voltampere (MVA). The π286-million substation was
built to improve voltage delivered to customers, improve system
reliability, reduce system losses, and address the increasing demand
in its franchise area, particularly in the north.
In December 2006, DLPC completed a 31-kilometer fiber optic link from
its ERA Substation to San Vicente Substation in Panabo at a price of π6
million. This link will provide a more robust communications link between
the various substations, control centers and the company’s offices.
In preparation for increased demand, DLPC added a 14 MVA transformer
to its Bajada Power Plant (BPP) and increased its capability by as much
as 21%. As of December 31, 2006, the rated capacity of BPP’s 12
generators has risen to 53 MW.
In February 2007, DPLC awarded Hedcor, Inc. a 12-year power supply
contract to purchase from them annually, starting August 2009, with
400 million kwh of Cleanergy, Aboitiz Power’s brand of clean and
renewable energy. This reiterates the company’s commitment to
support the development of alternative and environmentally-friendly
sources of energy. The supply contract assures DLPC customers of
enough power at a time when the Mindanao grid is expected to be
tight of supply.
Visayan Electric Company (VECO) contributed π237 million in 2006,
up by 50% from 2005. The Cebu-based utility sold 1,571 Gwhrs, up
by 3.9% from the previous year. Number of customers increased
by 2.4% to 282,634. In spite of its growth,
system losses continued to creep down to
9.82% in 2006 from 9.90% a year ago.
Peak load increased by 5.8% to 308 MW.
To gain more control of its power delivery
infrastructure, VECO purchased two
sub-transmission assets from TransCo:
the Naga-Sibonga-Dumanjug 69
kV line, and the Banilad-Mandaue 69
kV line, for a total price of π77 million.
VECO has implemented various improvement
projects in anticipation of the growing
needs in its franchise area. Its Pakna-an substation in Mandaue has
been upgraded to 50 MVA and energized in September 2006. The
π30-million project involved the installation of an additional 25 MVA,
69/23 kV power transformer.
To further improve system reliability, VECO is halfway through its
3-year program of upgrading its substations with the goal of having a
uniform distribution system voltage of 23 kV from the present 13.8 kV.
The upgrade will give the electricity provider more flexibility to source
power from nearby substations as needed, increasing reliability and
ensuring uninterrupted power supply.
To accommodate expected locators, VECO extended its primary lines
to the South Road Properties (SRP) project, which is 300 hectares
of prime property on reclaimed land developed by the Cebu City
government. The SRP is a Special Economic Zone expected to bring
in more manufacturing, commercial, tourism, IT and other service
enterprises to Cebu.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 13
Power

RESULTS
OF OPERATIONS
Subic EnerZone continues to
raise its level of efficiency
as system losses dropped to
4.26% in 2006 from 6.45%
in the previous year.
SUBIC ENERZONE CORPORATION
POWER DISTRIBUTION
14 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

RESULTS OF OPERATIONS
Cotabato Light & Power Company (CLPC) contributed π40 million in
2006, down 23% from the previous year. The company sold 113 Gwhrs in
2006, a slight decrease from 2005. The number of customers increased
by 2% to 26,911. Peak load also went up 2% to 22 MW. CLPC’s system
losses, however, deteriorated to 10.8% versus 8.8% in 2005 mainly due
to higher pilferage. The management team in CLPC is committed to bring
down these losses to levels within the government’s mandated cap of 9.5%.
In 2006, CLPC signed a π22-million contract with TransCo for the purchase
of the latter’s Tacurong-Cotabato-Nuling 69 kV line to further improve
the delivery of its services to customers.
San Fernando Electric Light & Power Company (SFELAPCO) contributed
π41 million in 2006, up 26% from the previous year.
The company sold 365 Gwhrs in 2006, up by 2% from 2005. Despite an
increase in its franchise area after acquiring the electric distribution system
of Mansons Corporation, SFELAPCO’s system loss was 6.21% in 2006,
substantially lower than the government-mandated cap of 9.5%. Peak
load increased by 2.4% to 75 MW in 2006. The company’s customers
increased by 3.9% in 2006 to 66,477. The utility is also expected to
benefit from the opening of the new Subic-Clark-Tarlac Highway, which
traverses through its franchise area.
Subic EnerZone Corporation (SEZ) contributed π30 million in 2006,
down by 15% from its 2005 earnings due to higher interest and
depreciation costs as the company implemented the capital expenditures
mandated in the Distribution Management Service Agreement (DMSA)
with the Subic Bay Metropolitan Authority (SBMA).
A CLPC crew prepares hotline tools for live lineworks at the Cotabato City Hall known as "People's Palace".
Power
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 15

RESULTS
OF OPERATIONS
Hedcor, Inc. contributed
π291 million, up by 102%
from the previous year.
HEDCOR, INC.
POWER GENERATION
16 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

RESULTS OF OPERATIONS
The company sold 179 Gwhrs in 2006, up by 7% versus the previous year.
Peak load increased 5% to 34 MW. Its customers increased 4% to 2,472.
SEZ continues to raise its level of efficiency as system losses dropped
to 4.26% in 2006 from 6.45% in the previous year.
When the company took over the power distribution system at the Subic
Freeport Zone in October 2003, system losses stood at 14.1%. With the
continuing drop in system losses, SEZ has been able to lower power cost
by as much as π0.67 per kwhr (π0.40 decrease in the distribution charge
and π0.27 from the reduction in systems loss), which the company
passed on totally to its customers.
In October 2006, SEZ completed its Cubi Substation at a total cost of π41
million. It also completed the fiber optic installation connecting various
substations for the utility’s Supervisory Control and Data Acquisition
(SCADA) system and wide area network. SCADA is a state-of-the-art
computerized control system installed in substations that automatically
reads and monitors loading, energy, voltage registration, power factor
and allows full control of the system from a single control point.
When SEZ signed the DMSA with SBMA in May 2003, it committed to
make identified capital improvements estimated to cost π350 million
over five years to improve the Freeport Zone’s distribution system.
To date, SEZ has spent a total of π214 million on improvement and
rehabilitation projects.
Generation Companies
In 2006, the combined income of the power generating companies rose
to π1.08 billion, 3.4% higher than its combined contribution in 2005.
The generation group produced a total of 829 Gwhrs, a 19% decrease
from the previous year.
In June 2006, Aboitiz
Power Corporation (APC)
and SN Power Holdings
Singapore, a unit of SN
Power Invest of Norway, formed a consortium named SN Aboitiz Power
(SNAP). In December, the consortium submitted and won the bid for the
360-MW Magat hydropower plant after it submitted the highest bid of
US$530 million for the facility located in Ramon, Isabela Province. Under
the terms of the agreement, SN Aboitiz Power will pay US$212 million to
PSALM upon turn over and the balance of US$318 million plus interest
over the next seven years under the deferred payment scheme offered
by PSALM. Within the year, however, the company plans to refinance its
obligations to PSALM under more favorable terms from commercial
banks. The Magat facility was turned over to SNAP on April 25, 2007.
SNAP intends on selling the power generated from the Magat facility
through the Wholesale Electricity Spot Market (WESM).
Hedcor, Inc. (Hedcor) contributed π291 million to AEV’s income in 2006,
a 102% jump from the previous year. This was due to a combination of
higher generation and an increase in selling rates billed to Napocor.
Heavier rainfall earlier in the year has allowed Hedcor’s plants to generate
158 Gwhrs of electricity in 2006, up by 8%. There was also a 17%
increase in the average selling price of its power from π4.12 in 2005 to
π4.79 in 2006.
In the first quarter of 2006, Hedcor completed the rehabilitation of its Talomo
plants in Mintal, Davao. As a result, generation improved to 28 million kwh
at the end of 2006 or a 24% improvement versus the previous year.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 17
Power

RESULTS
OF OPERATIONS
Luzon Hydro achieved
record generation in 2006
as it produced 254 Gwhrs
of power, 11% higher than
in 2005 and the highest in
its 6 years of operations.
LUZON HYDRO CORPORATION
POWER GENERATION
18 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

RESULTS OF OPERATIONS
Hedcor’s plants in Talomo, Davao were ISO certified in 2006. This
makes Hedcor, Inc. a fully ISO-certified company with all of its 15
generating facilities in Benguet and Davao awarded ISO 9001 and ISO
14001 recognition.
The development of the 42-MW Sibulan and the 31-MW Tamugan
hydro projects in Davao is proceeding. Ground breaking for Sibulan is
expected in the first half of 2007 while Tamugan will commence 12
months after Sibulan.
The Board of Investments (BOI) approved on a pioneer status the grant
for fiscal incentives to Hedcor’s Sibulan and Tamugan hydro power
projects. Incentives include, among others, a 6-year income tax holiday
that is granted to power projects using renewable energy and indigenous
sources. Combined, both Sibulan and Tamugan have a total installed
capacity of 73 MW and are expected to generate over 400 Gwhrs of
Cleanergy annually to augment the energy requirements in the
Mindanao region.
Power generated from these plants will also be sold to Davao Light &
Power Company. As earlier mentioned, Hedcor will supply DLPC
400 million kwh of new capacity starting August 2009. It had earlier
submitted the lowest bid price of π4.0856 per kwh versus the π5.0985
offered by the other compliant bidder.
Luzon Hydro Corporation (LHC) turned in a net income contribution
of π655 million in 2006, down by 19% from the previous year. LHC
achieved record generation in 2006 as it produced 254 Gwhrs of power,
11% higher than in 2005 and the highest in its 6 years of operations.
Despite higher generation, LHC’s contribution declined primarily due
A Southern Philippines Power Corporation (SPPC) crew ensures efficient plant operations to augment
power supply in the Mindanao grid.
to lower capacity fees in accordance with its Power Purchase Agreement
with Napocor.
In its first full year of operations, the Kayapa supplemental water
project contributed 7,219 Mwhrs, approximately 3% of Bakun AC’s
annual energy output.
Western Mindanao Power Corporation (WMPC) and Southern
Philippines Power Corporation (SPPC) had a combined contribution of
π134 million in 2006, up by 56%. WMPC’s power output decreased by
44% to 225 Gwhrs in 2006 from 401 Gwhrs of the previous year, while
SPPC posted a 21% decrease in generation producing 192 Gwhrs.
These two plants deliver all of the power they produce to Napocor to
augment the supply of electricity in the Mindanao grid.
Power
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 19

RESULTS
OF OPERATIONS
UnionBank’s acquisition of iBank,
as well as organic growth,
pushed its asset base to π183
billion, an increase of 71%.
Deposits almost doubled to π116
billion at the end of 2006.
UNIONBANK OF THE PHILIPPINES
BANKING
20 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

RESULTS OF OPERATIONS
BANKING
The banking group’s contribution to AEV’s income in 2006 increased by
6.7% to π1.1 billion, representing 28% of the total income contribution
from the company’s various business segments.
Union Bank of the Philippines (UnionBank) contributed π1.07 billion, a
4% increase from the previous year’s contribution. The bank’s performance
was affected by the interim impact of expenses related to the purchase
of International Exchange Bank (iBank) and the industry-wide margin
compression as interest rates continued to decline.
The year 2006 was a milestone year for UnionBank as it moved closer to
realizing its Focus 2010 goal when it acquired iBank. On August 28, 2006,
the Securities and Exchange Commission (SEC) approved the merger
of UnionBank and iBank, with the latter as the absorbed entity and
UnionBank as the surviving entity. This merger has made UnionBank the
seventh largest private domestic universal bank in the country, with an
aggregate resource base of over π183 billion. Both UnionBank and iBank
customers can look forward to eventually having access to a broader
range of products and services, a total branch network of 186, more
distribution channels, and more technology-based solutions.
With the integration of iBank, UnionBank’s core earnings - net revenues
less trading gains and miscellaneous items - expanded by 36% to π5
billion in 2006. Net interest income went up by 29% to π4.2 billion as
the bank's loan portfolio doubled. Service charges, fees and commissions
almost doubled to π721 million.
UnionBank’s return on average equity was 13.5% while its return on
average assets stood at 1.8% in 2006, comparing favorably with the
industry average of 11.5% and 1.3%, respectively. The NPL ratio improved
further to 5% in 2006 from 7% in 2005.
The acquisition of iBank, as well as organic growth, pushed UnionBank’s
asset base to π183 billion, an increase of 71%. Deposits almost doubled to
π116 billion at the end of 2006. Strong internal capital generation increased
capital to π20 billion.
On April 27, 2007, UnionBank commenced a primary offering of up to 90
million new shares. This offering is aimed at increasing the capital base
of UnionBank by US$ 111 million. The additional funds will be used to
expand the bank's balance sheet, increase its lending activities and
seize opportunities for future growth.
Banking
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 21

RESULTS
OF OPERATIONS
City Savings will continue
its expansion in the
Visayas-Mindanao area and
plans to eventually enter
the Luzon market.
CITY SAVINGS BANK
BANKING
22 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

RESULTS OF OPERATIONS
City Savings Bank (CSB) showed stellar performance in 2006, contributing
π48 million, a 159% leap from the previous year. CSB’s return on equity
catapulted to 52% in 2006 from 22% in 2005. Its return on assets
jumped to 7.5% in 2006 from 4.4% of the previous year.
Total deposits grew by 82% to π1.98 billion in 2006, allowing the
bank to expand its loan portfolio to π1.7 billion, up by 98%, and still
maintain a strong capital adequacy ratio of 14.7% at yearend. Its nonperforming
loan ratio remained under control at 4.3%. At the end of
2006, the bank’s resources reached π2.4 billion, a 77% increase from
2005. The bank’s depositor base also increased by 19% to 58,948 in 2006.
With Bangko Sentral ng Pilipinas’ (BSP) lifting of the moratorium on
branch expansions, CSB purchased all the assets of seven CSB
Finance branches and converted these into City Savings Bank branches.
In addition, 2 new branches were opened in Cagayan de Oro City and in
Roxas City bringing CSB’s total branch network to 16 as of yearend 2006.
CSB will continue its expansion in the Visayas-Mindanao area and has
plans to eventually enter the Luzon market.
A loans and collection officer at City Savings Bank Cagayan de Oro attends to teachers applying for loans.
Banking
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 23

RESULTS
OF OPERATIONS
ATS has converted excess
passenger capacity in its
SuperFerries into container
and RoRo capacity to satisfy
increasing demand and
improve flexibility.
ABOITIZ TRANSPORT SYSTEM
TRANSPORT
24 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

RESULTS OF OPERATIONS
TRANSPORT
In 2006, Aboitiz Transport System Corporation (ATS)
contributed π142 million to AEV’s bottom line, an increase of
313% over the same period last year. The transport group
contributed 3.5% of the total income contributed by AEV’s
business units. Despite a decline in freight and passenger
volumes, ATS was able to book a profit in 2006 and reduce
its interest-bearing debt by π1.2 billion.
Faced with continued challenges of high fuel prices, intense
competition and increasing customer demands, the company
focused on realigning its efforts to be able to capitalize on
the economic upturn and sustain profitability in the long term.
ATS sold four vessels during the year: Our Lady of Fatima, Our
Lady of Guadalupe, SuperFerry 17 and SuperFerry 18. It also
sold its entire shareholdings in Davao Integrated Port and
Stevedoring Services Corporation (DIPPSCOR), its cargo handling
operations in Davao. These moves generated book gains of
π489 million and brought in π1,328 million in cash to ATS.
Focus was therefore placed on reducing debt, rationalizing
cost structures, increasing earning capacity of all assets and
improving service delivery across the organization.
The 2GO freight business has evolved towards increasing
freight capacity and Roll-on Roll-Off (RoRo) movements. This
was marked by the entry of the 2GO1 container ship with
capacity of over 400 TEUs. The company also collaborated
with customers to provide them with a new service, 2GO
RoRo, a self-driven cargo service that is given priority loading
to ensure faster delivery lead-time.
The newly converted SuperFerry 12 adds RoRo capacity to the ATS freight business.
Moving forward, ATS will continue to support what it has set out to do: capitalize
on its integrated transport businesses to achieve higher operating efficiencies and
provide complete logistics solutions to its customers.
SuperCat Fast Ferry Corporation’s (SFFC) operating profit was significantly affected
by the increase in fuel costs. Consequently, it contributed a loss of π4 million in 2006
versus a loss of π2.8 million in the previous year. The company transported 1.2
million passengers in 2006, down by 19% from 2005. In the last quarter of 2006,
SFFC had 4 operating vessels versus 2 in 2005.
The company re-tooled its fleet in 2006 with more fuel-efficient monohull propellerdriven
vessels chartered from Penguin Boat International Ltd of Singapore. These
boats now to serve the Batangas-Calapan and Cebu-Ormoc routes.
In November 2006, SuperCat resumed servicing the Cebu-Tagbilaran route with
trips scheduled three times daily.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 25
Transport

RESULTS
OF OPERATIONS
The increase in the Food Group’s
contribution to AEV’s income
came from higher margins in the
flour business, as well as increases
in sales volumes in its swine and
feeds businesses.
PILMICO FOODS CORPORATION
FOOD
26 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

RESULTS OF OPERATIONS
FOOD
Pilmico Foods Corporation (PFC) posted a 34% increase in income
contribution to AEV, turning in π510 million in 2006. This represents 13%
of the total income from AEV’s business segments.
The increase in the Food Group’s contribution came from higher margins in
the flour business, as well as increases in sales volumes in its swine and
feeds businesses. Despite the high volatility of raw material prices and
increasing freight costs, the Group was able to effectively manage
margins and turn in a respectable profit.
In August 2006, Fil-Am Foods, Inc. completed the π33-million expansion
of its breeder capacity at its Breeder Farm 1 in Aranguren, Tarlac using
modular American swine breeding equipment.
Fil-Am Foods currently grows hogs out-to-market size in a combination
of rented and contract-growing “offsite” farms spread around Central
Luzon. The company intends to increase its owned-farm capacities with
the additional investment of π62 million. This new farm in Cutcut 2, Tarlac,
is expected to start producing prime hogs by the last quarter of 2007.
Plans are also underway for the construction of a π500-million feed mill
in Iligan, in Mindanao to address the growing demand in the Visayas and
Mindanao areas.
Fil-Am Foods currently grows hogs in both rented and contract-growing “offsite” farms spread
around Central Luzon.
We are pleased with the overall performance of the company and look
forward to continued growth in the coming years. We believe the company
and its various businesses are well positioned to take advantage of
opportunities that arise as the country’s economy picks up. We have
both the financial and managerial resources necessary to exploit growth
when it comes.
We would like to thank all the team members that make up AEV for
their contributions to the company’s success and their unwavering
commitment to achieve the group’s goals. To our shareholders, partners
and other stakeholders, thank you too for your continued trust and
confidence.
On November 28, 2006, PFC sold its 50% stake in Pilmico-Mauri Foods
Corporation (Pilmico-Mauri) for π100 million to ABF Overseas Limited
(ABF Overseas). The divestment has allowed PFC to further concentrate
on growing its flour milling, animal feed and swine businesses.
Erramon I. Aboitiz
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
Food
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 27

REPORT TO OUR STOCKHOLDERS
FROM YOUR CHIEF FINANCIAL OFFICER
Growth
POWERED FOR
We look forward
to another year of
growth in 2007, as
we complete various
initiatives started last
year: the takeover
of the Magat hydroelectric
facility, the
full integration of
iBank into UnionBank,
the new business
strategy for our
Transport Group, and
the completion of
capacity expansion in
our food business.
Dear Shareholders and Friends,
Aboitiz Equity Ventures, Inc. (AEV) turned in another commendable
performance in 2006. Over the last five years, AEV has grown its net
income attributable to common shareholders by an annual compounded
growth rate of 18.9%, its revenues by 13.1%, and its earnings per
share by 20.1%.
AEV, being a holding company,
derives its cash flow primarily
from dividends from its different
business units. Over the year,
total cash dividends received from
subsidiaries and associate companies
amounted to π2.91 billion, a
77% increase over the previous
year. Cash dividends paid out to
shareholders in 2006 increased
by 23%, to π736 million.
The company took advantage of the low interest rate environment
prevailing in 2006 and completed various financing initiatives during
the year. The parent company for one, refinanced an existing π1.2
billion preferred share issue, resulting in a reduction in the annual
interest coupon from 12.78% to 8.25%, and an extension of the loan
maturity by two years to 2011.
Luzon Hydro Corp. also refinanced its debt at a lower interest rate,
securing a long-term US$65 million loan from two domestic banks.
Aboitiz Transport (ATS) was able to pay down a considerable portion
of its debt with the proceeds from the sale of certain assets. For the
year, ATS reduced its debt by 34%, to π2.4 billion, and consequently
improved its debt-equity ratio to 1.14, from 1.56 at the end of 2005.
AEV’s balance sheet is stronger than ever, with stockholders’ equity
increasing to π23.08 billion. Its current ratio at end-2006 improved
to 2.07 from 1.29 in the previous year, while debt-equity ratio further
dropped to .72 from .84. The company ended the year with π8 billion
in cash and cash equivalents.
We look forward to another year of growth in 2007, as we complete
various initiatives started last year: the takeover of the Magat hydroelectric
facility, the full integration of iBank into UnionBank, the new
business strategy for our Transport Group, and the completion of
capacity expansion in our food business.
On behalf of management, I thank the various stakeholders – our
team members, our customers, our partners, our suppliers, and our
creditors, for their contributions in making 2006 another successful
year for AEV. And to our shareholders, thank you for your continuing
trust and confidence in our future.
Stephen G. Paradies
SENIOR VICE PRESIDENT/ CHIEF FINANCIAL OFFICER
28 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

REPORT TO OUR STOCKHOLDERS
FROM YOUR CHIEF COMPLIANCE OFFICER
Growth
POWERED FOR
The Board of Directors, Management, employees, and shareholders
of Aboitiz Equity Ventures (AEV) believe that corporate governance
is the crucial component of sound strategic business management.
To ensure that AEV remains true to its tradition of integrity,
trust and fairness as a cornerstone for its corporate governance,
we continue to foster a system of checks and balances in the
management of our businesses. This is achieved through open
and constant dialogue among the Board, management, employees
and investors, allowing for better risk management and monitoring
of company performance against strategic goals.
AEV’s different board committees - Audit, Nomination,
Compensation and Investor Relations-play a pivotal role in ensuring
that the company’s system of checks and balances is in place
and functioning well. They perform oversight function over key
management areas and report to the Board on a regular basis.
Audit Committee
The Audit Committee, which is chaired by independent director
Roberto R. Romulo, reviewed and approved the 2005 audited
financial statements during its first meeting in 2006. The
Committee also approved in subsequent quarterly meetings the
interim financial statements for the first three quarters of the year.
It also reviewed issues relating to the new accounting standards
and their impact on AEV and its business units. Four meetings
were held during the year, with full attendance by the three
Committee members.
The Committee likewise reviewed and approved the internal audit
plan for 2006 as well as various reports from the Internal Audit
Division on significant risk and audit issues, tax compliance,
Information Security and Business Continuity Planning.
The Committee also reviewed the performance of AEV’s external
auditors SGV & Co. It endorsed to the Board of Directors the
reappointment of SGV as the company's external auditors for 2006.
Nomination Committee
The Nomination Committee, chaired by Jon Ramon Aboitiz, had two
regular meetings in 2006. Pursuant to its mandate, the Committee
evaluated the qualifications and competence of the nominees for
independent directors and other directors in accordance with the
guidelines set by AEV and regulatory authorities.
On January 26, the Committee met for the nominations for AEV’s
independent directors and on May 9, approved all five nominations
for the company’s directors for 2006-2007 as they had all the
qualifications to be Board members. All three Committee members,
including independent director Roberto R. Romulo, were present at
both meetings.
AEV’s different
board committees–
Audit, Nomination,
Compensation and
Investor Relations–
play a pivotal role
in ensuring that the
company’s system of
checks and balances
is in place and
functioning well.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 29

REPORT TO OUR STOCKHOLDERS
Growth
POWERED FOR
Compensation Committee
The Compensation Committee has exclusive authority
to establish and review policies on compensation for
directors and executive officers from Senior Vice
President and above. It likewise performs oversight
functions over the company’s Human Resources
Committee (HR Com) and its various programs.
These programs include the following: annual
review of executive performance through AEV’s
Evaluation of Executives (EVALEX) program; the
development and implementation of the company’s
training plan to ensure continuous professional
development of all team members; competency
profiling of top and middle management to establish
competency levels and standards as well as for
succession planning; an annual review of compensation
of team members and management team;
and the group-wide Culture Quality Assessment
Survey (CQAS) to determine employee satisfaction
and perception.
In 2006, the three-member Committee chaired by
Jon Ramon Aboitiz, had four regular meetings.
Independent director Jose C. Vitug is a member of
the Committee.
Investor Relations Committee
There can be no proper checks and balances unless
there is transparency in the relationship between the
company and its shareholders. The Investor Relations
Committee regularly monitors and evaluates the
implementation of programs and activities of the
company’s Corporate Communications Group geared
towards providing investors with easy and timely
access to accurate corporate information. The
Committee also works closely with AEV’s Stock and
Transfer Agent to ensure timely and sufficient
response to shareholder concerns.
In May 2006, the Corporate Communications Group
organized a briefing in Makati City to give shareholders
and investors unable to attend the annual shareholders’
meeting in Cebu City an opportunity to
dialogue with the company’s board members and key
officers. It also organized regular meetings of AEV’s
key officers with institutional investors and financial
analysts. The constant updating of the company’s
website and the regular release of the Online
Newsletter ensure that the latest information about
AEV is made available to shareholders and investors.
AEV Quarterly Bulletin
With the ever-evolving regulatory landscape, the
Corporate Secretary and the Compliance Team,
under the direction of the Board, publish an AEV
Quarterly Bulletin to advise Board members on
relevant developments in regulatory compliance as
well as jurisprudence that could have a bearing on
decisions the Board may have to make.
As AEV gears up for further growth and the challenges
that go with it, keeping the Board informed and
updated will allow them to render their responsibilities
more effectively.
M. Jasmine S. Oporto
CHIEF COMPLIANCE OFFICER
30 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

Growth
POWERED FOR

SN ABOITIZ POWER, INC.
With four generating
units of 90-MW
each, Magat is the
largest hydroelectric
power facility to be
privatized thus far.
Located at the
border between
Ramon, Isabela and
Alfonso Lista, Ifugao,
the complex has a
historical average
annual generation of
916 million kwh. It
supplies irrigation to
85,000 hectares of
mostly riceland.
POWER GENERATION
32 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

THE 360-MW MAGAT HYDRO PLANT
Boosting power generating capacity
Without a doubt, it was the most valuable
power asset auctioned off by the Power
Sector Assets and Liabilities Management
Corp. (PSALM) in 2006.
Consider these: It is the biggest dam facility
in the Philippines, combining the functions
of power generation, irrigation, and flood
control. With four generating units of 90
MW each, Magat is the largest hydroelectric
power facility to be privatized thus far.
Constructed in 1980, the plant became
fully operational in 1983.
The 360-MW complex, which is located at
the border between Ramon, Isabela and
Alfonso Lista, Ifugao in Northern Luzon, has
a historical average annual generation of 916
million kwh. It supplies irrigation to 85,000
hectares of mostly riceland.
In pursuing its overall growth strategy to
actively participate in the privatization of
Napocor’s power generating assets, SN
Aboitiz Power, Inc. (SNAP), the joint venture
between Aboitiz Power Corporation and SN
Power of Norway, submitted a bid to acquire
the Magat facility. Its offer of US$530 million,
the largest price tag so far among stateowned
power assets to be privatized, won
the bid for SNAP.
Napocor formerly owned Magat and several
power generating plants until they were
transferred to PSALM, which is in charge of
privatizing these power facilities.
SNAP is currently conducting technical
studies to determine the best way to
increase the capacity and efficiency of the
plant. It is fortunate to have the technical
support of SN Power, whose principal owner
Statkraft is Europe’s second largest producer
of hydroelectric power. Its experience in the
Nordic electricity pool will be a big advantage
as it is anticipated that most of the electricity
generated from the Magat facility will be sold
through the Wholsesale Electricity Spot
Market (WESM).
The Magat plant is the second hydro asset
to be acquired by Aboitiz Power from the
government. In early 2005, Hedcor, Inc., a
wholly owned subsidiary of Aboitiz Power,
took over the 3.5-MW Talomo facility in
Davao Del Norte, the first generation asset
privatized by Napocor.
Vertically-arranged Francis-type spiral turbines produce mechanical rotation by using
the flow of water from the Magat River to drive the generators of the Magat plant.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 33

HEDCOR, INC.
A Hedcor engineer
uses a Global
Positioning Station
(GPS) handheld
device to establish
coordinates of a
proposed hydropower
station in Davao.
Hedcor has been
studying hydropower
potentials in the
region since 1993.
POWER GENERATION
34 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

HEDCOR DAVAO HYDRO PROJECTS
Powering Mindanao with Cleanergy
Cleanergy:
Clean and
renewable
power from
Aboitiz
Hedcor, Inc., with its track record of operating and
maintaining hydroelectric power plants mostly
located in Luzon, is well positioned for further
growth, continuing to seize opportunities to
expand its generating capacity.
The largest developer of mini hydropower plants in
the Philippines, Hedcor is bringing
more of its hydro expertise and
experience to Mindanao, in line
with its vision to lead in the
promotion and development
of clean energy.
After its successful acquisition
of the Talomo mini hydros
in 2005, Hedcor is building new
plants in southern Mindanao specifically to supply
the future energy requirements of Davao Light and
Power Company (DLPC) under a Power Supply
Agreement won through a competitive bidding
early this year.
The plants will be developed by Hedcor subsidiaries
Hedcor Sibulan, Inc. and Hedcor Tamugan, Inc.
These projects have been registered with the Board
of Investments, which has approved on pioneer
status incentives for both companies because of
their use of renewable energy.
Among the incentives are a six-year income tax
holiday, tax-free and reduced duty on importation
of machinery, equipment and materials, and tax
credits for locally purchased capital equipment.
The incentives will make it possible to deliver clean
energy at competitive rates benefiting both
the consumer and the environment. The sale of
electricity sourced from renewable sources is also
VAT exempt, resulting to even further savings to
DLPC consumers.
Hedcor has earmarked π10 billion for the development
of the new run-of-river plants in the region in
the next four years. These plants will have a total
capacity of 73 MW and are projected to generate
more than 400 million kwh of Cleanergy annually,
approximately 20 percent of DLPC’s power needs
when these plants become operational.
The Sibulan project, which is composed of two
plants, will have a combined capacity of 42 MW of
electricity and can generate 212 million kwh annually.
The plants utilize the waters of the Sibulan and
Baroring Rivers in Davao del Sur. Construction of the
project, estimated to cost π5.06 billion, will start
shortly and is projected to start supplying the incremental
load requirements of DLPC by August 2009.
Hedcor Tamugan, Inc.’s project will include three
plants with a total capacity of 31 MW. The biggest
among them is the 19-MW Tamugan project,
which will utilize the waters of the Tamugan River
and will generate 126 GWhrs annually. The 6-MW
Panigan and 5.5-MW Suawan plants will combine
for 75 GWhrs by year 2010. The project is currently
in the detailed engineering phase of its development.
Construction of the three plants is targeted
to start in early 2008 and will cost an estimated
π4.8 billion.
Hedcor engineers conduct one of many river flow measurements. This
process is one of the essential phases of a feasibility study to determine
the optimum capacity of a proposed hydropower plant.
The host communities will benefit from Hedcor’s
power projects through real property taxes and
contributions for the community. The projects will
prioritize local employment during its construction
and operations stages, aside from providing electricity
to the host communities. The company will
also support infrastructure projects (roads, bridges
and irrigation projects), education and community
development in the host barangays.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 35

DAVAO LIGHT AND POWER COMPANY
Davao Light
engineers check the
giant mimic board
inside the control
center of the ERA
substation. The
board monitors the
entire system to aid
engineers to quickly
respond to any
power abnormalities.
The automated
system is linked
to SCADA.
POWER DISTRIBUTION
36 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

DAVAO LIGHT AND POWER COMPANY
Preparing for future growth
Davao Light and Power Company, the third
largest electric utility in the Philippines,
holds the franchise for distributing electric
power to Davao City and Davao del Norte’s
Panabo City and its municipalities of
Carmen, Dujali, and Sto. Tomas, serving a
combined population of over 1.4 million.
The Davao del Norte area of the company’s
franchise has seen substantial economic
growth in recent years, fueled mainly by a
vibrant banana industry. This growth has
translated to an increased power supply
demand of 24 MW in 2006 from only 5 MW
in 1994. In fact, about 24% of the additional
transformer capacity in 2006 was installed
in the Davao del Norte franchise.
In anticipation of further load growth in
this area, Davao Light completed the
π286-million Don Ramon Substation in
December 2006. The substation, scheduled
to be energized in May 2007, will also
improve voltage delivered to customers,
improve system reliability, and reduce
system losses.
To better serve the increasing number of
its Davao del Norte customers, Davao
Light spent π11 million in 2006 to renovate
its Panabo branch office. The improvement
ensures the branch is almost an independent
service provider, much like a mini Davao
Light head office delivering the same type
of complete service to customers in its area.
One of the service improvement initiatives
in the Panabo branch was the creation of
a team to handle rotten pole detection
and replacement, thereby helping lessen
unscheduled power outages. An anti-pilferage
team was formed as well. A new emergency
crew named ORBIT was also added to two
existing teams. With the additional team,
the branch had a 92% average emergency
response time within three hours in 2006,
exceeding the standard of 90% set by the
Davao Light Engineering Team.
Davao Light is also building a new substation
in Tibungco to accommodate the expected
aggregate load growth in the area of
about 15 MW, mainly due to the increased
With additional emergency teams, Davao Light’s average response time
has even exceeded the standards set by the company.
refrigeration requirements of the different
fruit companies there. Moreover, the
substation will improve the reliability of
the distribution system around Panacan,
Tibungco and Bunawan in Davao City, the
slowly industrializing areas entering into
the Davao del Norte boundary.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 37

VISAYAN ELECTRIC COMPANY
VECO linemen
reach out to do live
lineworks beside
the Marcelo Fernan
Bridge in Mactan.
POWER DISTRIBUTION
38 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

VISAYAN ELECTRIC COMPANY
Powering booming Cebu
Visayan Electric Company (VECO), the second
largest electric utility in the Philippines, is
banking on growth resulting from Cebu’s
continued economic boom. Cebu remains an
attractive investment proposition because of its
strategic location, business-friendly economic
zones and first-class infrastructure facilities.
VECO serves more than 280,000 customers in
the cities of Cebu, Mandaue and Talisay and five
municipalities of the greater part of Metro Cebu
(including Consolacion, Liloan, Minglanilla, Naga
and San Fernando). Its franchise service covers
an area of about 672 square kilometers with an
estimated population of 1.54 million.
In order to ensure the reliability of its supply
needs, VECO in 2006 entered into an arrangement
with the Philippine National Oil Company-
Energy Development Corporation (PNOC-EDC).
Under the five-year deal, the PNOC-EDC will
sell to VECO 133 Gwhrs of electric energy
annually from its Northern Negros Geothermal
Power (NNGP) plant starting February 2007. The
arrangement reinforces VECO’s commitment to
support the development of clean and renewable
energy. NNGP produces power from geothermal
resources, which are not only friendly to the
environment but competitively priced as well.
To further boost its system reliability, curb
system losses and address the growing demand
of industrial Mandaue City and the neighboring
North, VECO last year energized its new 69-kV
line connected to TransCo’s new Gas Insulated
Substation (GIS) in Mandaue City. The GIS
supplies power to VECO's Mandaue and
Paknaan substations.
Investments in equipment also figured prominently
in VECO’s plans in 2006. It purchased
state-of-the-art test equipment such as the
Calport Tester and Meter Test Station, as well
as highly specialized vehicles like the Insulated
Bucket Trucks, for the proper maintenance of
its sub-transmission and distribution system.
Better customer service is also in the company’s
agenda as it has began the renovation of its
office in Talisay City into a full-service center
patterned after the first one in SM City Cebu.
The refurbished center will provide a complete
array of services to VECO customers in southern
Cebu. Services include application processing,
payment and collection arrangements, complaints
handling, and metering services.
ABOITIZ ENERGY SOLUTIONS, INC.
Expanding its services
In 2006, Aboitiz
PowerSolutions, Inc.
(APSI) changed its
name to Aboitiz Energy
Solutions, Inc. (AESI).
Formally organized in August 1998, the company provides
integrated customer solutions that reduce power costs,
promote energy efficiency and improve electrical system
performance of industrial, commercial and electric
cooperative customers.
In January 2007, the Energy Regulatory Commission (ERC)
granted AESI a Retail Electricity Supplier (RES) license,
allowing the company to market its retail electricity supply
business and to secure supply contracts with the contestable
market. This new license will further expand the business
of AESI from purely energy efficiency products to actual
retail supply of power to its existing customers nationwide.
In March 2007, AESI was also awarded by the ERC with
a Certificate of Registration for the company’s wholesale
aggregation business. With a Wholesale Aggregator’s
Certificate, AESI is allowed to engage in consolidating
electric power demand of distribution utilities for the purpose
of purchasing and reselling electricity on a group basis.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 39

UNIONBANK OF THE PHILIPPINES
UnionBank is
well on its way
to achieving
its FOCUS 2010
vision to become
a top 3 universal
bank in the
country by the
year 2010.
BANKING
40 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

UNIONBANK
Moving closer to FOCUS 2010
Union Bank of the Philippines took a big step
towards realizing its FOCUS 2010 vision when
it acquired the International Exchange Bank
(iBank) in June 2006. The acquisition further
catapulted UnionBank’s resources, branches,
loans, customer base and distribution reach.
Total resources jumped to π183 billion, a
growth of 71% from yearend 2005. Deposits
almost doubled to π116 billion in 2006.
Nationwide, the bank’s network increased
from 111 to 186 branches, and from 117 to
217 ATMs.
Given the consolidation in the Philippine
banking industry, UnionBank becomes the 7th
largest private domestic universal bank in the
country in terms of total resources, rising
from being the 9th ranked. The bank’s thrust
is to build its loan portfolio as the industry
enters a new credit cycle.
The acquisition and merger puts together
the complementary strengths of two banks:
the financial strength and technological
sophistication of UnionBank, and the culture of
service excellence of iBank. It is a story of size
complementing service, technology enhanced
by personal touch, thus further boosting
UnionBank’s Hi-Tech, Hi-Touch brand.
The merger was approved by the regulatory
authorities and took effect in August 28,
2006. iBank is UnionBank’s second acquisition
after InterBank in 1993.
In 2006, UnionBank produced a net profit of
π2.5 billion notwithstanding the impact of the
acquisition and merger on operating costs.
At yearend, return on equity was 13.5%, return
on assets was 1.8%, and revenue/expense
ratio was 1.8x. These are among the best
financial ratios in the industry.
UnionBank is well on its way to achieving its
FOCUS 2010 vision to become a top 3 universal
bank in the country by the year 2010. It has
had an impressive track record of being one
of the top 5 banks in financial results, and
counted among the world’s 25 soundest
banks for four consecutive years by The
Banker of London. Euromoney, Asiamoney and
Finance Asia have also ranked it as among
Asia’s best-managed companies.
The UnionBank Plaza, the bank’s corporate headquarters, stands
tall at the heart of the Ortigas business district.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 41

CITY SAVINGS BANK
Moving forward,
City Savings Bank
will continue
its expansion in
areas where it can
serve its identified
market niches. The
bank’s 14th branch
is located in the
business district of
Cagayan de Oro.
BANKING
42 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

CITY SAVINGS BANK
Positioning for more growth
2006 was a milestone year for City Savings
Bank. At yearend, the bank’s total resources
grew by 77% to π2.4 billion from the previous
year, while its non-performing loans ratio
remained at 4.3%, well below industry
standards. Deposits also jumped by 82%
to π2 billion from π1.1 billion in 2005.
When it opened in 1966, at a time when most
banks served only commercial businesses,
City Savings defined itself as a bank for the
working class. Its customers were people
of moderate means: teachers, policemen,
jeepney drivers, market vendors and small
business owners.
With eight employees and an initial capital of
π500,000, the bank first began operations in
a small rented space at the Aboitiz Building
along Juan Luna Street in Cebu City. Today,
it has its own building, a growing network of
16 banking offices with 250 employees across
the Visayas and Mindanao serving 49,000
borrowers and 59,000 depositors.
While in the past, City Savings continued its
development at a slow and steady pace, in
recent years, this thrift bank has started to be
more aggressive in its growth and expansion.
Consistent with the vision of its founders to
provide a first-class bank for the ordinary
working person, City Savings continues to
serve clients with its distinct homestyle brand
of banking. It offers various types of loans and
very competitive rates for savings products
with minimum deposits as low as π100.
True to its commitment to passion for better
ways, the bank’s operations are now automated
to better serve its clients’ needs. Its technology
allows faster service for the convenience of
clients, including one-day loan processing.
Moving forward, City Savings Bank will continue
its expansion in areas where it can better serve
its identified market niches. It plans to open
more branches in the Visayas and Mindanao
and venture out into the Luzon market.
City Savings offers clients various types of loans and very competitive rates for saving
products with minimum deposits as low as π100.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 43

PILMICO FOODS CORPORATION
Living up to its vision
to be world-class,
Pilmico adheres to ISO
and HACCP standards
to ensure quality
products and quality
management systems.
FOOD
44 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

THE FOOD GROUP
Gearing up for major expansions
The Food Group approached 2006 as a time for
consolidation and preparation for future growth.
While the improvement of operational efficiencies
continued as a core initiative, the group used
2006 to plan for major expansions in 2007.
Foremost among these is the establishment of a
feedmill at Pilmico Foods’ Iligan Milling Complex
that will produce complex animal feeds from a
variety of raw materials. The Fil-Am Foods plant
in Capas, Tarlac currently serves the market for
this type of animal feed. Pilmico expects to
benefit from this project due to the operational
synergies the feed milling plant will share with
the flour milling infrastructure already in place.
The new feedmill is targeted to be operational
by the first quarter of 2008.
Pilmico also plans to build two brand-new silos
in its Iligan plant to increase its wheat storage
capacity. This would allow larger shipments of
various types of wheat to be brought in at any
one time. The company intends to install a flour
blending facility to further increase its operational
efficiencies in producing quality flour. Flour
blending is a process whereby flours of different
grades are blended together to create a particular
flour grade or to serve the customized requirements
of industrial customers.
In 2006, Fil-Am Foods expanded its hog breeding
capacity at its breeder farm in Aranguren,
Tarlac using modular American swine breeding
equipment. The company currently grows hogs
out-to-market size in a combination of rented
and contract-growing “offsite” farms spread
around Central Luzon. It intends to increase its
owned-farm capacities with the addition of a
grower-finisher farm. This new farm in Cut-Cut,
Tarlac is expected to be producing prime hogs
by the last quarter of 2007.
The heart of a major commercial swine operation
is its capacity to breed hogs. As Fil-Am Foods
expands its swine operations, it needs to have a
nucleus breeder farm to supply quality breeding
stock to its existing main breeding farm. The
company is developing a nucleus farm in Capas,
Tarlac that is scheduled to come on line by the
2nd quarter of 2008.
In November 2006, Pilmico divested its shares in
Pilmico-Mauri Foods, Inc., which had produced
yeast and other bakery ingredients. It was a 10-
year joint venture with Burns Philp of Australia,
whose yeast business was acquired in 2004
by Associated British Foods. The π100-million
divestment will allow the Food Group to
concentrate on the expansion of its core
business, i.e., flour milling and animal feeds.
The Food Group posted a significant growth in 2006 and is setting the
groundwork for major expansions in 2007.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 45

ABOITIZ TRANSPORT SYSTEM
The entry of the
container ship
2GO1 is expected
to increase the
operating efficiencies
of ATS while providing
more solutions to
customers’ needs.
TRANSPORT
46 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

ABOITIZ TRANSPORT SYSTEM
Providing complete logistics & supply chain solutions
In 2006, Aboitiz Transport System
Corporation (ATS) began to reconfigure
its business model to carry more freight
and focus more on its Roll-On Roll-Off
(RoRo) movements.
This was marked by the entry of the
container ship 2GO1 that has a capacity
of over 400 TEUs. 2GO1 is expected to
further increase the company’s operating
efficiencies while providing more solutions
to customers’ needs.
The RoRo service of 2GO is a self-driven
cargo system that is given priority
loading and unloading to ensure faster
delivery lead-time. The service has
already brought in over π500 million in
revenues after only a year since it was
introduced to the market. To satisfy
growing demand, ATS is converting
excess passenger capacity from its
existing vessels.
Moving forward, the expansion of the
overall 2GO business will focus on
providing a fully integrated supply chain
management service. It will leverage on
ATS’ integrated transport businesses
in order to provide customers with
complete logistics and supply chain
solutions.
The 2GO supply chain service includes
warehouse management, order entry
and releasing, transport planning and
routing, delivery to customers nationwide,
and document management. It has
invested in an 8,000-square-meter
warehouse in Pasig City for this service.
The expansion of the overall 2GO business will focus on providing a fully integrated supply chain
management service.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 47

ABOITIZ GROUP FOUNDATION, INC.
In 2006, the enhanced
scholarship program
of the Aboitiz Group
Foundation supported
747 scholars in all
levels through financial
assistance and
scholarship grants.
CORPORATE SOCIAL RESPONSIBILITY
48 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

ABOITIZ GROUP FOUNDATION, INC.
Enhancing programs to serve more beneficiaries
In 2006, Aboitiz companies were given more
opportunities to implement corporate social
responsibility (CSR) programs. In partnership
with the Aboitiz Group Foundation, Inc. (AGFI),
these companies implemented projects in the
areas of education, primary health and childcare,
and enterprise development.
Their passion to serve was evident in the way
they helped conceptualize and put into action
social initiatives for communities in their
respective areas of operations.
Last year was a banner year for AGFI in terms
of fund allocation and projects implemented
for the welfare and development of its beneficiaries.
It appropriated π54 million for projects
conceptualized by the Group companies. The
companies themselves also directly implemented
various social development initiatives totaling
π90 million. Together with personal and
restricted donations of π34 million, the Aboitiz
Group’s total for CSR projects amounted to
π178 million.
Education remains at the heart of the
Foundation’s efforts to alleviate poverty, with
more than 50% of its budget allocated for
education-related projects. It has so far built
a total of 142 classrooms now being used by
about 15,000 public high school students
nationwide. It has also donated 616 new
computers with licenses and printers to various
public schools, and refurbished 46 computer
laboratories. In addition, 16 day-care centers
have been built to prepare pre-school children
for formal education.
In 2006, the Foundation’s enhanced scholarship
program supported 747 scholars in all levels
through financial assistance and scholarship
grants.
AGFI and its member-companies also support
organized groups in their livelihood activities
and capital build-up requirements through
microfinancing. Since the start of the microfinance
program, the Foundation has released
120 loan packages valued at π21 million.
The success and growth of the financing
program is attributed to the credible projects
being financed and the enviable track record of
on-time payments by borrowers. Nine cooperative
training centers have been constructed to
serve the needs of these diligent payors. The
Foundation has identified microfinance as an
intervention it intends to grow over the years.
AGFI continues to pursue its primary health
and childcare programs to promote good
health and well-being in its communities. So
AGFI builds day-care centers to prepare pre-school children for formal education.
far, it has allocated funds for the construction of
16 Level 3 water systems and 12 health centers in
various areas benefiting over 2,000 households.
Moving forward, the Foundation commits to
further expand its programs and projects to
serve more beneficiaries. It also commits to
enhance its processes to gain the greatest
value from donations and projects implemented
not only by the Foundation but also by
companies across the Aboitiz Group.
AGFI remains driven by passion to serve communities
where Aboitiz businesses are located.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 49

CHRISTMAS OUTREACH PROJECT
Expressing passion to serve
The Christmas Outreach project is a tradition
initiated and organized by Aboitiz team members, in
coordination with the Aboitiz Group Foundation.
In early December, Aboitiz executives and team
members play big brothers and big sisters to over
400 children, guiding them through a day replete
with fun, food, games and lots of surprises.
The Aboitiz Corporate Center grounds are
transformed into one big playland offering a host
of activities. Special treats await the kids, aged
4 to 10 years old, including a photo opportunity
with Santa.
At the end of the day, these tired but happy kids
each bring home a box stuffed with assorted
gifts, a backpack filled with school supplies and
clothes, and a bag of groceries for their families.
As the buses drive away with smiling children in
tow, the Aboitiz big brothers and big sisters feel a
profound sense of fulfillment for having shared
the true spirit of Christmas to those who need it
most. They have expressed their passion to serve
in this outreach project.
50 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

TYPHOON MILENYO VOLUNTEER ASSISTANCE
Service beyond our borders
Davao Light and Power Company (DLPC), Visayan
Electric Company (VECO), Subic EnerZone
Corporation (SEZ) and San Fernando Electric Light
& Power Company (SFELAPCO) were among private
utilities that volunteered to help the Manila Electric
Company (MERALCO) restore electricity service in
its franchise area in the aftermath of typhoon
Milenyo that badly hit Luzon on September 28, 2006.
The devastation wrought by the typhoon caused
a massive blackout in Metro Manila and other parts
of Luzon. The four utilities immediately formed and
deployed teams to assist in the power restoration
activities. DLPC and VECO each mobilized a six-man
lineman crew equipped with their own bucket
trucks that traveled all the way from their points of
origins. SEZ also sent a six-man line trimming crew
and a corresponding service vehicle.
The teams were later assigned to various line-clearing
and power re-establishment works in Cavite City,
Quezon City, Pasig City, Navotas and Albay.
DLPC, VECO, SEZ and SFELAPCO personnel conduct power line restoration works along EDSA as voluntary assistance to MERALCO customers.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 51

ABOITIZ FUTURE LEADERS’ BUSINESS SUMMIT
The two-day summit
gathered 85 topranking
3rd and 4th
year students from
seven universities
and colleges in Cebu.
52 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

ABOITIZ FUTURE LEADERS’ BUSINESS SUMMIT
Developing tomorrow’s leaders today
It was the first-of-its-kind event for the
Aboitiz Group. Dubbed as the Aboitiz Future
Leaders’ Business Summit (AFLBS), the
convention held on August 17 and 18, 2006
gathered 85 top-ranking 3rd and 4th year
students from seven universities and colleges
in Cebu. Among them were working scholars,
honor students, organization leaders and
varsity athletes.
The two-day summit aimed to prepare
delegates for their crossover from the campus
arena to the corporate world. “Your Turn to Ask
a CEO” was the overriding theme for the highly
successful event that had top executives
of AEV and other Aboitiz Group companies
personally imparting valuable business lessons
and sharing practical experiences with the
student delegates. AEV President and CEO Jon
Ramon Aboitiz revealed the humble beginnings
of the Aboitiz Group, igniting in his young
audience the passion to excel.
Other valuable lessons were on business
strategy, becoming a world-class company,
financing a business, branding, business
and technology, and becoming a customercentered
company. It was pretty much a
mini-MBA program.
But there was something more to these
sessions. The CEOs also talked about vision
and values, leadership and integrity, building
trust, earning and maintaining an honorable
reputation, and giving back to the community.
The summit was also packed with workshops
and fun-filled activities that captivated the
students. They too had dinner with the CEOs
and other executives.
Through the AFLBS, Aboitiz aimed to help
delegates realize their future role in nation
building, to inspire them to develop renewed
faith and hope in the Filipino and in the
country, and to encourage them to strive for
excellence in all areas.
The students were also challenged to step out
of their collegiate mindset, look into the future
and aspire to be leaders in whatever field they
plan to pursue, business or otherwise.
The summit brought a deep sense of
achievement to Aboitiz for having been able
The student delegates had an up close and personal encounter with Aboitiz executives.
to influence the delegates, both in heart
and in mind, leaving them with a formidable
challenge that as upcoming leaders of the
country, they hold its future in their hands.
The event was such a resounding success that
a 2nd AFLBS has been scheduled on August
10-11, 2007 in Cebu City, this time with
delegates coming from Cebu and Mindanao.
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 53

ABOITIZ EQUITY VENTURES
LOCATION OF OPERATIONS
CORPORATE STRUCTURE
POWER (in %)
Manila
LUZON
Hedcor, Inc.
Luzon Hydro Corporation
SN Aboitiz Power, Inc.
Fil-Am Foods, Inc.
San Fernando Electric Light & Power Company
Subic EnerZone Corporation
Aboitiz Transport System Corporation
UnionBank of the Philippines
Generation companies:
Aboitiz Power Corporation 100.0
Hedcor, Inc. 100.0
Luzon Hydro Corporation 50.0
SN Aboitiz Power, Inc. 50.0
Southern Philippines Power Corporation 20.0
Western Mindanao Power Corporation 20.0
Distribution companies:
Davao Light & Power Company 99.9
Cotabato Light & Power Company 99.9
Subic EnerZone Corporation 64.3
Visayan Electric Company 54.7
San Fernando Electric Light
& Power Company 43.8
VISAYAS
Aboitiz Power Corporation
Philippine HydroPower Corporation
SuperCat Fast Ferry Corporation
Visayan Electric Company
City Savings Bank
Services:
Aboitiz Energy Solutions, Inc. 100.0
BANKING
UnionBank of the Philippines (publicly listed) 42.1
City Savings Bank 34.4
Davao Light
& Power Company
Hedcor Sibulan
Hedcor Tamugan
Western Mindanao
Power Corporation
MINDANAO
Pilmico Foods
Corporation
Cotabato Light
& Power Company
Southern Philippines
Power Corporation
TRANSPORT
Aboitiz Transport System Corporation (publicly listed) 77.2
Aboitiz One, Inc. 100.0
Aboitiz Jebsen Bulk Transport 62.5
Aboitiz Jebsen Manpower Solutions, Inc. 62.5
Jebsen Maritime, Inc. 62.5
JEMA BVI Ltd. 50.0
SuperCat Fast Ferry Corproration 100.0
FOOD
Pilmico Foods Corporation 100.0
Fil-Am Foods, Inc. 100.0
PORTFOLIO INVESTMENTS
Cebu Praedia Dev. Corporation 100.0
Cebu International Container Terminal* 20.0
*No commercial operations
54 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006

BOARD OF DIRECTORS
Roberto E. Aboitiz
CHAIRMAN OF THE BOARD
Jon Ramon M. Aboitiz
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Erramon I. Aboitiz
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
Enrique M. Aboitiz, Jr.
DIRECTOR
Justo A. Ortiz
DIRECTOR
Roberto R. Romulo
INDEPENDENT DIRECTOR
AUDIT COMMITTEE CHAIRMAN
NOMINATION COMMITTEE MEMBER
Jose C. Vitug
INDEPENDENT DIRECTOR
COMPENSATION COMMITTEE MEMBER
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2006 55

CORPORATE OFFICERS
Stephen G. Paradies
SENIOR VICE PRESIDENT/ CHIEF FINANCIAL OFFICER
Juan Antonio E. Bernad
SENIOR VICE PRESIDENT-
ELECTRICITY REGULATORY AFFAIRS
Mikel A. Aboitiz
SENIOR VICE PRESIDENT / CHIEF INFORMATION OFFICER
Xavier J. Aboitiz
SENIOR VICE PRESIDENT - HUMAN RESOURCES
Gabriel T. Mañalac
FIRST VICE PRESIDENT - TREASURY SERVICES
Luis Miguel O. Aboitiz
FIRST VICE PRESIDENT
M. Jasmine S. Oporto
FIRST VICE PRESIDENT - LEGAL / CORPORATE SECRETARY /
CHIEF COMPLIANCE OFFICER
56 ABOITIZ EQUITY VENTURES ANNUAL REPORT 2005

CORPORATE OFFICERS
Benjamin A. Cariaso, Jr.
VICE PRESIDENT - BUSINESS DEVELOPMENT
Melinda Rivera-Bathan
VICE PRESIDENT/ COMPTROLLER
Leah Geraldez
ASSISTANT CORPORATE SECRETARY
Nancy S. Lim
ASSISTANT VICE PRESIDENT - HUMAN
RESOURCES
Delia Y. Maderazo
ASSISTANT VICE PRESIDENT -iCSD
Stella Olive Sucalit
ASSISTANT VICE PRESIDENT - CORPORATE FINANCE
Caroline Ballesteros
ASSISTANT VICE PRESIDENT - BRANDING
ABOITIZ EQUITY VENTURES ANNUAL REPORT 2005 57

Independent Auditors’ Report
The Stockholders and the Board of Directors
Aboitiz Equity Ventures, Inc.
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue, Cebu City
We have audited the accompanying consolidated financial statements of Aboitiz Equity
Ventures, Inc. and Subsidiaries, which comprise the consolidated balance sheets as at
December 31, 2006 and 2005, and the consolidated statements of income, consolidated
statements of changes in stockholders’ equity and consolidated statements of cash flows
for each of the three years in the period ended December 31, 2006, and a summary of
significant accounting policies and other explanatory notes. We did not audit the financial
statements of Philippine Hydropower Corporation and Subsidiaries, Aboitiz Energy Solutions,
Inc. (formerly Aboitiz Powersolutions, Inc.), Cebu Praedia Development Corporation, AEV
Aviation Inc., and Jebsen Management (BVI) Limited and Subsidiaries, which statements
reflect total assets and total revenues of 11.2% and 9.1% in 2006; 12.3% and 9.9% in 2005;
and 9.9% and 2.6% in 2004, respectively, of the related consolidated totals. Also, we
did not audit the financial statements of Visayan Electric Company, Inc. and City Savings
Bank, the investments in which represent 4.8% and 4.7% of the total consolidated assets
as of December 31, 2006 and 2005, respectively, and the Group’s equity in net earnings
represents 7.4%, 5.6% and 1.1% of the consolidated net income for 2006, 2005 and 2004,
respectively. Those statements were audited by other auditors whose reports thereon have
been furnished to us, and our opinion, insofar as it relates to the amounts included for those
entities, is based solely on the reports of the other auditors.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits 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 audit 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 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 and the reports of the other auditors are
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, based on our audits and the reports of other auditors, the consolidated
financial statements present fairly, in all material respects, the financial position of
Aboitiz Equity Ventures, Inc. and Subsidiaries as of December 31, 2006 and 2005, and
their financial performance and their cash flows for each of the three years in the period
ended December 31, 2006 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Ladislao Z. Avila, Jr.
Partner
CPA Certificate No. 69099
SEC Accreditation No. 0111-AR-1
Tax Identification No. 109-247-891
PTR No. 0266523, January 2, 2007, Makati City
April 12, 2007
58 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

Statement of Management’s Responsibility
for Financial Statements
SECURITIES & EXCHANGE COMMISSION
SEC Building, EDSA Greenhills
Mandaluyong, Metro Manila
The management of Aboitiz Equity Ventures, Inc. is responsible for all information and
representations contained in the consolidated financial statements of Aboitiz Equity
Ventures, Inc. and subsidiaries for the years ended December 31, 2006 and 2005. The
consolidated financial statements have been prepared in accordance with Philippine
Financial Standards (PFRS) and reflect amounts that are based on the best estimates
and informed judgment of management with an appropriate consideration
to materiality.
SyCip, Gorres, Velayo & Co., the independent auditors appointed by the stockholders
and the Board of Directors, have examined the consolidated financial statements of
the Company in accordance with Philippine Standards of Auditing and have expressed
its opinion on the fairness of presentation upon completion of such examination, in its
report to the Board of Directors and stockholders.
In this regard, management maintains a system of accounting and reporting which
provides for the necessary internal controls to ensure that transactions are properly
authorized and recorded, assets are safeguarded against unauthorized use or
disposition, and liabilities are recognized.
The Board of Directors reviews the financial statements before such statements are
approved and submitted to the stockholders of the Company.
ROBERTO E. ABOITIZ
Chairman of the Board
CTC No. 04054004
Date/Place Issued:
01/25/07; Cebu City
JON RAMON M. ABOITIZ
President & Chief Executive Officer
CTC No. 04053992
Date/Place Issued:
01/25/07; Cebu City
STEPHEN G. PARADIES
SVP - Chief Finance Officer
CTC No. 04051915
Date/Place Issued:
01/27/07; Cebu City
Republic of the Philippines)
City of Cebu ……….......………) S.S.
SUBSCRIBED AND SWORN TO before me this April 16, 2007 in the City of Cebu, Philippines. Affiants exhibited to me their respective Community Tax Certificates with details shown above.
Doc. No. 18;
Page No. 5;
Book No. 4;
Series of 2007.
CATHERINE R. ATAY
Notary Public
Until December 31, 2008
PTR No. 6333734/Cebu City/01.05.07
IBP Lifetime Membership No. 694333
Roll No. 50002
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 59

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in Thousands)
December 31
2006 2005
ASSETS
Current Assets
Cash and cash equivalents (Note 3) π8,009,957 π4,622,676
Trade and other receivables (Note 4) 3,661,364 3,367,854
Inventories (Note 5) 1,693,333 1,376,383
Other current assets (Notes 6 and 7) 1,080,627 904,667
14,445,281 10,271,580
Noncurrent asset classified as held for sale (Note 13) 659,510 –
Total Current Assets 15,104,791 10,271,580
Noncurrent Assets
Property, plant and equipment (Notes 8 and 17) 9,675,326 11,425,132
Investment properties 194,175 203,162
Investments and advances (Note 10) 13,873,533 14,504,622
Available-for-sale (AFS) investments 96,831 149,835
Goodwill (Note 11) 775,754 784,883
Pension asset (Note 12) 16,731 45,414
Deferred income tax assets (Note 26) 516,304 317,185
Other noncurrent assets (Note 14) 590,978 573,923
Total Noncurrent Assets 25,739,632 28,004,156
TOTAL ASSETS π40,844,423 π38,275,736
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Bank loans (Note 15) π823,720 π1,299,353
Trade and other payables (Note 16) 4,625,153 4,595,415
Dividends payable 11,416 16,147
Income tax payable 92,270 142,103
Current portion of long-term debt (Note 17) 1,169,082 1,756,246
Current portion of obligations under finance lease
(Notes 8 and 19) 113,823 140,393
6,835,464 7,949,657
Liabilities directly associated with noncurrent asset
classified as held for sale (Note 13) 455,037 –
Total Current Liabilities 7,290,501 7,949,657
December 31
2006 2005
Noncurrent Liabilities
Long-term debt - net of current portion (Note 17) 5,855,787 5,810,786
Obligations under finance lease - net of current
portion (Notes 8 and 19) 81,080 210,490
Customers’ deposits (Note 18) 1,128,794 1,016,253
Redeemable preferred shares (Note 20) 2,139,832 1,886,940
Pension liability (Note 12) 48,193 40,863
Deferred income tax liabilities (Note 26) 16,999 21,253
Total Noncurrent Liabilities 9,270,685 8,986,585
Equity Attributable to Equity Holders of the Parent
Capital stock (Note 20) 5,694,600 5,694,600
Additional paid-in capital 1,341,245 1,201,051
Net unrealized gain on AFS investments 16,058 1,656
Cumulative translation adjustments (4,189) (2,097)
Share in cumulative translation adjustments of
associates (Note 10)
107,427 373,330
Share in net unrealized gains on AFS investments and
underwriting accounts of an associate (Note 10)
39,519 122,290
Retained earnings (Note 21) 17,368,629 14,346,797
Treasury stock at cost (1,485,025) (1,576,463)
23,078,264 20,161,164
Minority interests 1,204,973 1,178,330
Total Stockholders’ Equity 24,283,237 21,339,494
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY π40,844,423 π38,275,736
See accompanying Notes to Consolidated Financial Statements.
60 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Amounts)
Years Ended December 31
2006 2005 2004
REVENUES
Sale of:
Power and electricity (Note 22) π8,797,809 π8,106,300 π6,583,131
Goods 6,797,799 6,391,072 5,688,811
Freight 6,379,737 6,036,995 4,307,115
Passage 3,020,013 3,613,667 3,733,132
Fair value of swine 641,222 646,112 480,017
Service fees 456,722 1,402,563 1,459,255
Others 618,000 726,115 159,463
26,711,302 26,922,824 22,410,924
costs and expenses
Operating expenses (Note 23) 9,380,104 9,946,932 7,708,747
Cost of goods sold (Note 23) 6,087,438 6,020,658 5,393,761
Cost of purchased power 5,616,903 5,217,348 4,093,411
Overhead expenses (Note 23) 1,454,400 1,546,014 1,436,009
Terminal expenses (Note 23) 1,078,672 1,225,752 1,108,354
Depreciation of ships 765,679 824,070 860,053
24,383,196 24,780,774 20,600,335
Years Ended December 31
2006 2005 2004
GROSS PROFIT 2,328,106 2,142,050 1,810,589
Share in net earnings of associates (Note 10) 2,114,710 2,155,343 1,532,131
Interest income (Note 3 ) 260,707 244,744 217,041
Interest expense (Note 30)
Dividends on redeemable preferred shares
(871,067) (1,042,490) (1,144,898)
(Note 20) (267,118) (214,248) –
Other income - net (Note 25) 742,729 400,663 821,467
INCOME BEFORE INCOME TAX 4,308,067 3,686,062 3,236,330
PROVISION FOR INCOME TAX (Note 26) 494,014 468,569 531,113
NET INCOME π3,814,053 π3,217,493 π2,705,217
ATTRIBUTABLE TO:
Equity holders of the parent π3,753,926 π3,159,132 π2,542,887
Minority interests 60,127 58,361 162,330
π3,814,053 π3,217,493 π2,705,217
EARNINGS PER SHARE (Note 33)
Basic, for income for the year attributable
to ordinary equity holders of the parent π0.762 π0.651 π0.527
Diluted, for income for the year attributable
to ordinary equity holders of the parent
π0.762 π0.651 π0.527
See accompanying Notes to Consolidated Financial Statements.
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 61

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes In Stockholders’ Equity
(Amounts in Thousands, Except Per Share Amounts)
Additional
Paid-in
Capital
Net
Unrealized
Gain on AFS
invesments
Attributable to equity holders of the parent
Unrealized
Losses on
Noncurrent
Marketable
Equity
Securities
Cumulative
Translation
Adjustments
Share in
Cumulative
Translation
Adjustments
of Associates
Share in
Net
Unrealized
Gains (Losses)
on AFS
Investments
and
Underwriting
Accounts
of an
Associate
Capital Stock
Retained Treasury Minority
Common Preferred
Earnings
Stock Interests
Total
Balances at January 1, 2004 π5,694,600 π100,000 π2,100,640 π– π– π– π559,955 (π320,707) π10,491,121 (π1,707,985) π313,814 π 17,231,438
Effect of reorganization of transport group (Note 9) – – (414,148) – (1,024) – – – (130,516) – 682,284 136,596
Balances at January 1, 2004, as restated 5,694,600 100,000 1,686,492 – (1,024) – 559,955 (320,707) 10,360,605 (1,707,985) 996,098 17,368,034
Net income for the year – – – – – – – – 2,542,887 – 162,330 2,705,217
Share in unrealized loss on AFS of an associate – – – – – – – (62,766) – – – (62,766)
Total recognized income (loss) for the year – – – – – – – (62,766) 2,542,887 – 162,330 2,642,451
Issuance of capital stock – 86,700 780,300 – – – – – – – – 867,000
Cash dividends (Note 21)
Common - π0.10 per share – – – – – – – – (497,280) – – (497,280)
Preferred - π0.73 per share – – – – – – – – (90,514) – – (90,514)
Purchase of treasury shares – – – – – – – – – (2,099) – (2,099)
Balances at December 31, 2004 π5,694,600 π186,700 π2,466,792 π– (π1,024) π– π559,955 (π383,473) π12,315,698 (π1,710,084) π1,158,428 π20,287,592
Effect of adoption of PAS 39 (Note 2) – (186,700) (1,680,300) (1,024) 1,024 – – – (461,232) – (28,748) (2,356,980)
Balances at January 1, 2005 5,694,600 – 786,492 (1,024) – – 559,955 (383,473) 11,854,466 (1,710,084) 1,129,680 17,930,612
Net income for the year – – – – – – – – 3,159,132 – 58,361 3,217,493
Movement of unrealized valuation gains of
AFS investments
– – – 2,680 – – – – – – 985 3,665
Movement of cumulative translation
adjustments
– – – – – (2,097) – – – – (659) (2,756)
Share in unrealized valuation gains
on AFS investments of an associate
– – – – – – – 505,763 – – – 505,763
Share in movement of cumulative
translation adjustment of associates – – – – – – (186,625) – – – – (186,625)
Total recognized income (loss) for the year – – – 2,680 – (2,097) (186,625) 505,763 3,159,132 – 58,687 3,537,540
Effects of reorganization of transport
group (Note 9)
– – 94,515 – – – – – (70,199) – (10,037) 14,279
Sale of treasury shares – – 320,044 – – – – – – 133,621 – 453,665
Cash dividends - π0.12 per share (Note 21) – – – – – – – – (596,602) – – (596,602)
Balances at December 31, 2005 π5,694,600 π– π1,201,051 π1,656 π– (π2,097) π373,330 π122,290 π14,346,797 (π1,576,463) π1,178,330 π21,339,494
Balances at January 1, 2006 π5,694,600 π– π1,201,051 π1,656 π– (π2,097) π373,330 π122,290 π14,346,797 (π1,576,463) π1,178,330 π21,339,494
Net income for the year – – – – – – – – 3,753,926 – 60,127 3,814,053
Movement of unrealized valuation gains of
AFS investments
– – – 14,402 – – – – – – – 14,402
Movement of cumulative translation
adjustments
– – – – – (2,092) – – – – (33,484) (35,576)
Share in unrealized valuation gains
on AFS investments of an associate
– – – – – – – (82,771) – – – (82,771)
Share in movement of cumulative
translation adjustment of associates
– – – – – – (265,903) – – – – (265,903)
Total recognized income (loss) for the year – – – 14,402 – (2,092) (265,903) (82,771) 3,753,926 – 26,643 3,444,205
Acquisition of minority interests – – – – – – – – 3,861 – – 3,861
Sale of treasury shares – – 140,194 – – – – – – 91,438 – 231,632
Cash dividends - π0.15 per share (Note 21) – – – – – – – – (735,955) – – (735,955)
Balances at December 31, 2006 π5,694,600 π– π1,341,245 π16,058 π– (π4,189) π107,427 π39,519 π17,368,629 (π1,485,025) π1,204,973 π24,283,237
See accompanying Notes to Consolidated Financial Statements.
62 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in Thousands)
years Ended December 31
2006 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax π4,308,067 π3,686,062 π3,236,330
Adjustments for:
Depreciation and amortization 1,809,250 1,970,301 1,788,167
Interest expense 1,138,185 1,256,738 1,144,898
Unrealized foreign exchange loss (gain) 180,398 100,865 (19,368)
Provision for losses on various assets 28,236 – –
Share in net earnings of associates (Note 10) (2,114,710) (2,155,343) (1,532,131)
Gain on sale of (Note 25):
Investments (286,642) – –
Property and equipment (226,284) (99,661) (211,994)
Stock investments at equity (39,037) – –
Marketable equity securities – – (15,696)
Interest income (260,707) (244,744) (217,041)
Dividend income (Note 25) (35,977) (5,144) (11,811)
Gain from insurance claims (Note 25) – – (208,659)
Unrealized gain on recovery of marketable
equity securities (Note 25)
– – (11,661)
Operating income before working capital changes 4,500,779 4,509,074 3,941,034
Increase in:
Trade and other receivables (189,760) (1,105) (1,346,948)
Inventories (316,950) (50,577) (477,118)
Other current assets (175,960) (183,501) (403,378)
Increase (decrease) in:
Trade and other payables (62,436) 340,076 1,346,611
Customers’ deposits 112,541 104,360 82,783
Net cash generated from operations 3,868,214 4,718,327 3,142,984
Income and final taxes paid (752,568) (693,982) (417,620)
Net cash flows from operating activities 3,115,646 4,024,345 2,725,364
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received 2,345,870 739,248 698,943
Interest received 227,465 485,436 163,943
Decrease (increase) in:
Other noncurrent assets 14,734 (456,632) (315,026)
Marketable equity securities – – 58
Reductions in (additions to):
Investments 353,779 (97,193) –
2006 2005 2004
Investments and noncurrent advances
to associates
18,073 934 (41,773)
Property, plant and equipment (Note 8) (1,420,623) (2,019,572) (2,959,458)
Proceeds from sale of:
Property, plant and equipment 931,071 166,692 1,559,274
Stock investments at equity 108,196 – –
Marketable equity securities – – 26,763
Cash of newly acquired subsidiary (Note 9) – 308,750 –
Investment property – 26,584 –
Net cash flows from (used in) investing activities 2,578,565 (845,753) (867,276)
CASH FLOWS FROM FINANCING ACTIVITIES
Reissuance (acquisition) of treasury shares 231,632 453,665 (2,099)
Interest paid (1,105,486) (927,325) (1,102,422)
Cash dividends paid (Note 21) (735,955) (594,683) (578,356)
Net proceeds from (payments of):
Long-term debt 165,766 (1,108,687) (370,822)
Bank loans (475,633) (683,357) 518,507
Increase (decrease) in minority interest (33,514) 20,975 (722)
Payments of obligations under capital lease (155,980) (155,956) (112,580)
Proceeds from issuance of capital stock (Note 20) – – 867,000
Net cash flows used in financing activities (2,109,170) (2,995,368) (781,494)
NET INCREASE IN CASH AND
CASH EQUIVALENTS
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 3)
See accompanying Notes to Consolidated Financial Statements.
years Ended December 31
3,585,041 183,224 1,076,594
(197,760) (128,339) 21,736
4,622,676 4,567,791 3,469,461
π8,009,957 π4,622,676 π4,567,791
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 63

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
1. Corporate Information
Aboitiz Equity Ventures, Inc. (the Company) was incorporated and is domiciled in the Republic of the
Philippines. The Company and its subsidiaries (collectively referred to as the “Group”) are engaged in
various business activities mainly in the Philippines, including power generation and distribution, food
manufacturing, banking and financial services and transportation (see Notes 9 and 34). The Company
is the publicly-listed holding and management company of the Group. The registered office address
of the Company is Aboitiz Corporate Center, Gov. Manuel A. Cuenco Avenue, Cebu City. The parent
and the ultimate parent of the Company is Aboitiz & Company, Inc. (ACO).
The consolidated financial statements of the Group as of December 31, 2006 and 2005 and for
each of the three years ended December 31, 2006, were authorized for issue by the Board of
Directors (BOD) of the Company on April 12, 2007.
2. Summary of Significant Accounting Policies
Basis of Preparation
The consolidated financial statements of the Group have been prepared on a historical cost basis,
except for AFS investments and derivatives which are measured at fair value, and agricultural
produce and biological assets which are measured at fair value less estimated point-of-sale
costs. The consolidated financial statements are presented in Philippine peso and all values are
rounded to the nearest thousand except as otherwise indicated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Company and its
subsidiaries as at 31 December of each year. The financial statements of the subsidiaries are prepared
for the same reporting year as the Company using consistent accounting policies.
All intra-group balances, transactions, income and expenses and profits and losses resulting from
intra-group transactions that are recognized in assets, are eliminated in full.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the
Group obtains control, and continue to be consolidated until the date that such control ceases.
Minority interests represent the portion of profit or loss and net assets in the subsidiaries not held
by the Group and are presented separately in the consolidated statement of income and within
stockholders’ equity in the consolidated balance sheet, separately from the equity attributable to
equity holders of the parent. Acquisitions of minority interests are accounted for using the entity
concept method, whereby the difference between the consideration and the book value of the
share of the net assets acquired is recognized as an equity transaction.
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous year except as follows:
The Group has adopted the following new and amended PFRS and Philippine Interpretations during
the period. Adoption of these revised standards and interpretations did not have any effect on the
Group except for the additional disclosures on the financial statements.
• Philippine Accounting Standards (PAS) 19, Amendment - Employee Benefits;
• PAS 21, Amendment - The Effects of Changes in Foreign Exchange Rates;
• PAS 39, Amendments - Financial Instruments: Recognition and Measurement; and
• Philippine Interpretation International Financial Reporting Interpretations Committee
(IFRIC) 4, Determining whether an Arrangement Contains a Lease.
The Group has also early adopted the following Philippine Interpretations. Adoption of these
standards and interpretations did not have any effect on the financial position of the Group.
These, however, require additional disclosures on the financial statements.
• Philippine Interpretation IFRIC 8, Scope of PFRS 2;
• Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives; and
• Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment.
The principal effects of these changes, if any, are as follows:
PAS 19, Employee Benefits
Additional disclosures on the consolidated financial statements are made to provide information
about trends in the assets and liabilities in the defined benefit plans and the assumptions
underlying the components of the defined benefit cost. This change has no recognition nor
measurement impact, as the Group chose not to apply the new option offered to recognize
actuarial gains and losses outside of the consolidated statement of income.
PAS 21, The Effects of Changes in Foreign Exchange Rates
All exchange differences arising from a monetary item that forms part of the Group’s net
investment in a foreign operation are recognized in a separate component of stockholders’ equity
in the consolidated financial statements regardless of the currency in which the monetary item is
denominated. This change has no significant impact on the consolidated financial statements.
PAS 39, Financial Instruments: Recognition and Measurement
Amendment for financial guarantee contracts (issued August 2005) - amended the scope of
PAS 39 to require financial guarantee contracts that are not considered to be insurance contracts to
be recognized initially at fair value and to be remeasured at the higher of the amount determined in
accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, and the amount
initially recognized less, when appropriate, cumulative amortization recognized in accordance with
PAS 18, Revenue. This amendment did not have an effect on the consolidated financial statements.
64 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Amendment for hedges of forecast intra-group transactions (issued April 2005) - amended
PAS 39 to permit the foreign currency risk of a highly probable intra-group forecast transaction to
qualify as the hedged item in a cash flow hedge, provided that the transaction is denominated in a
currency other than the functional currency of the entity entering into that transaction and that the
foreign currency risk will affect the consolidated statement of income. As the Group currently has no
such transactions, the amendment did not have an effect on the consolidated financial statements.
Amendment for the fair value option (issued June 2005) - amendments to PAS 39 prescribe the
conditions under which the fair value option on classification of financial instruments at fair value
through profit or loss (FVPL) may be used. As the Group currently has no financial instruments
classified as FVPL, the amendment did not have an effect on the consolidated financial statements.
Philippine Interpretation IFRIC 4, Determining whether an Arrangement Contains a Lease
Philippine Interpretation IFRIC 4 provides guidance in determining whether arrangements contain
a lease to which lease accounting must be applied. This change in accounting policy has no
significant impact on the consolidated financial statements.
Philippine Interpretation IFRIC 8, Scope of PFRS 2
Philippine Interpretation IFRIC 8 requires PFRS 2 to be applied to any arrangements where
equity instruments are issued for consideration which appears to be less than fair value. The
interpretation had no impact on the financial position of the Group.
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
Philippine Interpretation IFRIC 9 was issued in March 2006 and becomes effective for financial
years beginning on or after June 1, 2006. This interpretation establishes that the date to assess
the existence of an embedded derivative is the date an entity first becomes a party to the
contract, with reassessment only if there is a change to the contract that significantly modifies
the cash flows. The Group assessed that adoption of this interpretation has no impact on the
consolidated financial statements.
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment
The Group early adopted Philippine Interpretation IFRIC 10 as of January 1, 2006 which provides that
the frequency of financial reporting does affect the amount of impairment charge to be recognized
in the annual financial reporting with respect to goodwill and AFS equity investments. It prohibits
the reversal of impairment losses on goodwill and AFS equity investments recognized in the interim
financial reports even if impairment is no longer present at the annual balance sheet date. This
interpretation has no significant impact to the consolidated financial statements of the Group.
Future Changes in Accounting Policies
The Group has not yet adopted the following standards, amendments or interpretations that have
been approved but are not yet effective:
PFRS 7, Financial Instruments: Disclosures
PFRS 7 introduces new disclosures to improve the information about financial instruments. It
requires the disclosure of qualitative and quantitative information about exposure to risks arising
from financial instruments, including specified minimum disclosures about credit risk, liquidity risk
and market risk, as well as sensitivity analysis to market risk. It replaces PAS 30, Disclosures in the
Financial Statements of Banks and Similar Financial Institutions, and the disclosure requirements
in PAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that
report under PFRS. PFRS 7 is effective on January 1, 2007.
Complementary amendment to PAS 1, Presentation of Financial Statements
The amendment to PAS 1 introduces disclosures about the level of an entity’s capital and how it
manages capital. The Group is currently assessing the impact of PFRS 7 and the amendment to
PAS 1 and expects that the main additional disclosures will be the sensitivity analysis to market
risk and the capital disclosures required by PFRS 7 and the amendment to PAS 1. This is effective
on January 1, 2007.
Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions
Philippine Interpretation IFRIC 11 requires arrangements whereby an employee is granted rights
to an entity’s equity instruments to be accounted for as an equity-settled scheme by an entity
if the entity chooses or is required to buy those equity instruments (e.g., treasury shares) from
another party, or the shareholders of the entity provide the equity instruments needed. Philippine
Interpretation IFRIC 11 also extends the way in which subsidiaries, in their separate financial
statements, account for schemes when their employees receive rights to equity instrument of the
parent. Philippine Interpretation IFRIC 11 is effective on March 1, 2007.
Philippine Interpretation IFRIC 12, Service Concession Arrangements
Philippine Interpretation IFRIC 12 outlines an approach to account for contractual arrangements
arising from entities providing public services. It provides that the operator should not account
for the infrastructure as property, plant and equipment, but recognize a financial asset and/or an
intangible asset. A financial asset is recognized to the extent that the operator has a contractual
right to receive cash from the grantor or has a guarantee from the grantor. An intangible asset
is recognized to the extent that the entity has a right to charge the public for use of the asset.
Philippine Interpretation IFRIC 12 is effective on January 1, 2008.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
PFRS 8. Operating Segments
This new standard replaces PAS 14, Segment Reporting, and adopts the management approach to
segment reporting. The information reported would be that which management uses internally
for evaluating the performance of operating segments and allocating resources to those
segments. This information may be different from that reported in the consolidated balance
sheet and consolidated statement of income and entities will need to provide explanations
and reconciliations of the differences. PFRS 8 is effective on January 1, 2009. The Group will
apply PFRS 7, the amendments to PAS 1 and Philippine Interpretation IFRIC 11 in 2007; Philippine
Interpretation IFRIC 12 in 2008; and PFRS 8 in 2009. Except for PFRS 7, the amendments to PAS
1 and Philippine Interpretation IFRIC 12, the Group does not expect any significant changes in its
accounting policies when it adopts the above standards, amendments and interpretations.
Significant Accounting Judgments and Estimates and Assumptions
Judgments
In the process of applying the Group’s accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effect on
the amounts recognized in the consolidated financial statements:
Determining functional currency
Based on the economic substance of the underlying circumstances relevant to the Group,
the functional currency of the companies in the Group has been determined to be generally
the Philippine peso, except for certain subsidiaries and associates whose functional currency
is the United States (US) dollar. The Philippine peso is the currency of the primary economic
environment in which the Group generally operates. It is the currency that mainly influences the
sale of goods and services and the costs of manufacturing and selling the goods and the rendering
of services.
Operating lease commitments - Group as lessor
The Group has entered into commercial property leases on its investment property portfolio. The
Group has determined that it retains all the significant risks and rewards of ownership of these
properties which are leased out on operating leases.
Biological assets
In applying PAS 41, Agriculture, the Group has made a judgment that market-determined prices or
values of bearers and growing stocks are not available and for which alternative estimates of their
fair values are clearly unreliable and, accordingly, measured such biological assets at accumulated
cost less any accumulated depreciation and accumulated impairment losses. These biological
assets amounted to π77,409 as of December 31, 2006 and π69,182 as of December 31, 2005
(see Note 7).
Customers’ deposits
In applying PAS 39, Financial Instruments: Recognition and Measurement, on transformer and
lines and poles deposits, the Group has made a judgment that the timing and related amounts
of future cash flows relating to such deposits cannot be reasonably and reliably estimated for
purposes of an alternative valuation technique in establishing their fair values since the expected
timing of customers’ refund or claim for these deposits cannot be reasonably estimated.
These customers’ deposits amounted to π979,630 as of December 31, 2006 and π878,498 as of
December 31, 2005 (see Notes 18 and 31).
Estimates and Assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty
at the balance sheet date, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are discussed below.
Estimating allowances for doubtful accounts
The Group maintains allowances for doubtful accounts on receivables at a level considered
adequate to provide for potential uncollectible receivables. The level of this allowance is
evaluated by the Group on the basis of factors that affect the collectibility of the accounts.
These factors include, but are not limited to, the length of the Group’s relationship with debtors,
their payment behavior and known market factors. The Group reviews the age and status of
the receivables, and identifies accounts that are to be provided with allowance on a continuous
basis. The amount and timing of recorded expenses for any period would differ if the Group
made different judgment or utilized different estimates. An increase in the Group’s allowance for
doubtful accounts would increase the Group’s recorded expenses and decrease current assets.
Allowance for doubtful accounts as of December 31, 2006 and 2005 amounted to π362,308 and
π324,071, respectively. Trade and other receivables, net of valuation allowance, amounted to
π3,661,364 and π3,367,854 as of December 31, 2006 and 2005, respectively (see Note 4).
Estimating allowance for inventory obsolescence
The Group estimates the allowance for inventory obsolescence based on the age of inventories.
The amounts and timing of recorded expenses for any period would differ if different judgments
or different estimates are made. An increase in allowance for inventory obsolescence would
increase recorded expenses and decrease current assets. As of December 31, 2006 and 2005,
allowance for inventory obsolescence amounted to π39,549 and π117,570, respectively. The
carrying amount of the inventories, net of valuation allowance, amounted to π1,693,333 and
π1,376,383 as of December 31, 2006 and 2005, respectively (see Note 5).
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Assessing Realizability of Deferred income tax assets
The Group reviews the carrying amounts of deferred income tax assets at each balance sheet date
and reduces deferred income tax assets to the extent that it is no longer probable that sufficient
income will be available to allow all or part of the deferred income tax assets to be utilized.
The Group has deferred income tax assets amounting to π516,304 as of December 31, 2006 and
π317,185 as of December 31, 2005 (see Note 26).
Pension benefits
The determination of the Group’s obligation and cost of pension is dependent on the selection
of certain assumptions used by actuaries in calculating such amounts. Those assumptions are
described in Note 12 - Pension Benefit Plans and include, among others, discount rates, expected
rates of return on plan assets and rates of future salary increase. In accordance with
PAS 19, Employee Benefits, actual results that differ from the Group’s assumptions are
accumulated and amortized over future periods and therefore, generally affect the Group’s
recognized expenses and recorded obligation in such future periods. While management
believes that its assumptions are reasonable and appropriate, significant differences in the
actual experience or significant changes in the assumptions may materially affect the Group’s
pension and other post-employment obligations. Retirement benefit expense amounted to
π39,659, π47,178 and π27,332 in 2006, 2005, and 2004, respectively. The Group’s pension liability
amounted to π48,193 and π40,863 as of December 31, 2006 and 2005, respectively. Pension
assets amounted to π16,731 and π45,414 as of December 31, 2006 and 2005, respectively.
Estimating useful lives of property, plant and equipment
The Group estimates the useful lives of property, plant and equipment based on the period over
which assets are expected to be available for use. The estimated useful lives of property, plant
and equipment are reviewed periodically and are updated if expectations differ from previous
estimates due to physical wear and tear, technical or commercial obsolescence and legal or other
limits on the use of the assets. In addition, the estimation of the useful lives of property, plant
and equipment is based on collective assessment of internal technical evaluation and experience
with similar assets. It is possible, however, that future results of operations could be materially
affected by changes in estimates brought about by changes in the factors and circumstances
mentioned above. As of December 31, 2006 and 2005, the aggregate net book values of property,
plant and equipment amounted to π9,675,326 and π11,425,132, respectively (see Note 8).
In 2006, in pursuant of the study mandated by the Energy Regulatory Commission (ERC) on the
estimated useful lives of assets applicable to all distribution utilities in the country, as part of
the performance-based rate regulation, the Group changed the estimated useful lives based on
management’s best assessment of the present factors and technology in building or fabricating
the assets (see Note 8). The Group increased the estimated useful lives of power transformers,
concrete poles, and cables and wires used in its power distribution operations from 12 years to
30 years from the date of acquisition and decreased the estimated useful lives of transportation
equipment and computer equipment from 5 - 6 years to 2 - 5 years from the date of acquisition.
The changes in estimated useful lives have resulted in a net reduction in depreciation expense of
π74,375 in 2006. The Group’s distribution utilities have enrolled with ERC to shift to performancebased
ratemaking (PBR) in 2009.
In 2005, the Group increased the estimated useful lives of ships in operation and improvements
from 10 - 20 years to 15 - 30 years from the date of acquisition. The changes in the estimated
useful lives reduced depreciation expense by π37,297 in 2005.
Estimating residual value
The residual value of the Group’s property, plant and equipment is estimated based on the
amount that the entity would obtain from disposal of the asset, after deducting estimated
costs of disposal, if the asset is already of the age and in the condition expected at the end of
its useful life. The estimated residual value of each asset is reviewed periodically and updated if
expectations differ from previous estimates.
In 2005, the Group estimated the residual value of ships in operation and improvements to be
π962,128 and considered such estimate in the computation of depreciable cost as of
January 1, 2005. Such estimation was based on the prevailing price of scrapped steel at that
time. The change in estimated residual value reduced depreciation expense by π77,974 in 2005
(see Note 8).
Impairment of AFS financial assets
The computation for the impairment of AFS financial assets requires an estimation of the present
value of the expected future cash flows and the selection of an appropriate discount rate. An
impairment issue arises when there is an objective evidence of impairment, which involves
significant judgment. In applying this judgment, the Group evaluates the financial health of the
issuer, among others. In the case of AFS equity instruments, the Group expands its analysis to
consider changes in the issuer’s industry and sector performance, legal and regulatory framework,
changes in technology and other factors that affect the recoverability of the Group’s investments.
Fair value of AFS financial assets amounted to π96,831 and π149,835 as of December 31, 2006 and
2005, respectively. No impairment losses were recognized in 2006 and 2005.
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an
estimation of the value in use of the cash-generating units to which the goodwill is allocated.
Estimating the value in use requires the Group to make an estimate of the expected future cash
flows from the cash-generating unit and also to choose a suitable discount rate in order to
calculate the present value of those cash flows. The carrying amount of goodwill as of December
31, 2006 and 2005 amounted to π2,855,372 andπ2,855,258, respectively (see Note 11).
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 67

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Fair value of consumable biological assets
The Group determines the most reliable estimate of fair value of its consumable biological assets.
Fair value reflects the most recent market transaction price provided that there has been no
significant change in economic circumstances between the date of transaction and balance sheet
date. Point-of-sale cost is estimated based on recent transactions and is deducted from the fair
value in order to measure the biological assets at balance sheet date. Fair value of consumable
biological assets amounted to π166,315 and π159,097 as of December 31, 2006 and 2005,
respectively (see Note 7).
Impairment of property, plant and equipment
PFRS requires that an impairment review be performed when certain impairment indicators are
present. Determining the recoverable amount of property, plant and equipment, which require
the determination of future cash flows expected to be generated from the continued use and
ultimate disposition of such assets, requires the Group to make estimates and assumptions that
can materially affect its consolidated financial statements. Future events could cause the Group
to conclude that the property, plant and equipment are impaired. Any resulting impairment
loss could have a material adverse impact on the consolidated financial condition and results of
operations. As of December 31, 2006 and 2005, the aggregate net book values of property, plant
and equipment amounted to π9,675,326 and π11,425,132, respectively. No impairment losses
were recognized in 2006 and 2005 (see Note 8).
Financial assets and liabilities
PFRS requires that certain financial assets and liabilities be carried at fair value, which requires
the use of accounting judgment and estimates. While significant components of fair value
measurement are determined using verifiable objective evidence (e.g. foreign exchange rates,
interest rates, volatility rates), the timing and amount of changes in fair value would differ with
the valuation methodology used. Any change in the fair value of these financial assets and
liabilities would directly affect net income or loss and equity. Fair value of financial assets and
liabilities as of December 31, 2006 and 2005 amount to (in millions) π11,767 and π16,106, and
π8,141 and π17,047, respectively (see Note 31).
Summary of Significant Accounting Policies
Foreign Currency Translation
The consolidated financial statements are presented in Philippine peso, which is the Company’s
functional and presentation currency. Each entity in the Group determines its own functional
currency and items included in the consolidated financial statements of each entity are measured
using that functional currency. Transactions in foreign currencies are initially recorded in the
functional currency at the rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the functional currency rate of exchange
ruling at the balance sheet date. All differences are taken to profit or loss. Non-monetary items
that are measured in terms of historical cost in a foreign currency are translated using the exchange
rates as at the dates of the initial transactions. Non-monetary items measured at fair value in
a foreign currency are translated using the exchange rates at the date when the fair value was
determined.
The functional currency of Jebsen Management (BVI) Limited (JMBVI), subsidiary, and Luzon Hydro
Corporation (LHC), Western Mindanao Power Corporation (WMPC) and Southern Philippines Power
Corporation (SPPC), associates, is the United States Dollar. As at the reporting date, the assets and
liabilities of these entities are translated into the presentation currency of the Group (the Philippine
peso) at the rate of exchange ruling at the balance sheet date and their statements of income are
translated at the weighted average exchange rates for the year. The exchange differences arising
on the translation are taken directly to a separate component of stockholders’ equity. On disposal
of the subsidiary and associate, the deferred cumulative amount recognized in stockholders’ equity
relating to that particular entity is recognized in the consolidated statement of income.
Cash and Cash Equivalents
Cash and cash equivalents in the consolidated balance sheet consist of cash with banks and on
hand and short-term deposits with an original maturity of three months or less from dates of
placements and that are subject to insignificant risk of changes in value.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of
cash and cash equivalents as defined above, net of outstanding bank overdrafts.
Financial Assets and Liabilities
Effective January 1, 2005, the Group adopted the following policies for accounting for financial
assets and liabilities.
Financial assets and financial liabilities are recognized initially at fair value. Transaction costs, if
any, are included in the initial measurement of all financial assets and liabilities, except for financial
instruments measured at FVPL.
The Group recognizes a financial asset or a financial liability in the consolidated balance sheet when
it becomes a party to the contractual provisions of the instrument.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Financial instruments are classified as liabilities or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument
or a component that is a financial liability, are reported as expense or income. Distributions to
holders of financial instruments classified as equity are charged directly to equity, net of any
related income tax benefits. Financial instruments are offset when there is a legally enforceable
right to offset and intention to settle either on a net basis or to realize the asset and settle the
liability simultaneously.
Financial assets and financial liabilities are further classified into the following categories: Financial
asset or financial liability at FVPL, loans and receivables, held-to-maturity (HTM), AFS investments
and other financial liabilities.
The Group determines the classification at initial recognition and re-evaluates this designation at
every reporting date, where appropriate.
All regular way purchases and sales of financial assets are recognized on the trade date, which
is the date that the Group commits to purchase the asset. Regular way purchases or sales of
financial assets that require delivery of assets within the period generally established by regulation
or convention in the marketplace.
(a) Financial asset or financial liability at FVPL
Financial assets at FVPL include financial assets classified as held for trading and financial
assets designated upon initial recognition as FVPL. Financial assets are classified as held
for trading if they are acquired for the purpose of selling in the near term or upon initial
recognition if it is designated by management as FVPL. Derivatives, including separated
embedded derivatives, are also classified as held for trading unless they are designated and
considered as effective hedging instruments. Gains or losses on financial assets held for
trading are recognized in the consolidated statement of income.
Where a contract contains one or more embedded derivatives, the entire hybrid contract
may be designated as financial assets at FVPL, except where the embedded derivative
does not significantly modify the cash flows or it is clear that separation of the embedded
derivative is prohibited.
Financial assets may be designated at initial recognition at FVPL if the following criteria are
met: (i) the designation eliminates or significantly reduces the inconsistent treatment that
would otherwise arise from measuring the assets or recognizing gains or losses on them on
a different basis; (ii) the assets are part of a group of financial assets which are managed
and their performance evaluated on a fair value basis, in accordance with a documented risk
managing strategy; or (iii) the financial asset contains an embedded derivative that would
need to be separately recorded.
Included under this category are the Group’s derivative transactions. The Group does not
adopt hedge accounting treatment for derivative transactions. As of December 31, 2006 and
2005, the Group has no outstanding derivative transactions.
(b)
(c)
(d)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise when the Group provides
money, goods or services directly to a debtor with no intention of trading the receivables.
Included under this category are the Group’s trade and other receivables.
HTM
HTM investments are quoted non-derivative financial assets with fixed or determinable
payments and fixed maturities wherein the Group has the positive intention and ability to
hold to maturity. HTM assets are carried at cost or amortized cost in the balance sheets.
Amortization is determined by using the effective interest rate method. Assets under this
category are classified as current assets if maturity is within twelve months of the balance
sheet date and noncurrent assets if maturity is more than a year.
The Group does not have any HTM investments at December 31, 2006 and 2005.
AFS
AFS financial assets are non-derivative financial assets that are either designated in this
category or not classified in any of the other categories. AFS financial assets are measured
at fair value with gains or losses being recognized as a separate component of equity, until
the investments are derecognized or until the investments are determined to be impaired
at which time, the accumulated gains or losses previously reported in equity is included in
the statements of income. These financial assets are classified as noncurrent assets unless
there is an intention to dispose such assets within twelve months from the balance sheet date.
Included under this category are the Group’s investments in listed and non-listed shares of
stock of other companies.
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 69

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Interest-bearing Loans and Borrowings
All loans and borrowings are initially recognized at the fair value of the consideration received
less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortized cost using the effective interest method.
Gains and losses are recognized in the consolidated statement of income when the liabilities
are derecognized as well as through the amortization process.
Redeemable Preferred Shares
Redeemable preferred shares that exhibit characteristics of a liability are recognized as a
financial liability in the consolidated balance sheet, net of transaction costs. The corresponding
dividends on those shares are charged as interest expense in the consolidated statement of income.
Adoption of PAS 39
As allowed by the Securities and Exchange Commission (SEC), the adoption of PAS 39 did not
result in the restatement of the 2004 consolidated financial statements. The cumulative effect of
adopting this accounting standard was charged to the January 1, 2005 retained earnings, including
share in effect of adoption of PAS 39 by associates amounting to π483,198 (see Note 10). The
Group’s share in the effect of adoption of PAS 39 of associates pertains, for the most part, to the
recognition of impairment losses on the associates’ financial assets. The Group’s share in the
additional impairment recognized amounted to approximately π396 million. Other adjustments
pertain to the mark-to-market valuation of currency forwards of the associate, implementation of
the effective interest method for the associate’s loans and receivables, HTM and AFS investments
and the bifurcation of embedded derivatives.
The change in accounting policy resulted in the reclassification of the preferred shares and related
additional paid in capital amounting to π1,867,000 from components of stockholders’ equity to
liability and the related dividends to interest expense.
Derecognition of Financial Assets and Liabilities
Financial Assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial
assets) is derecognized where:
• the rights to receive cash flows from the asset have expired;
• the Group retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a ‘pass-through’
arrangement; or
• the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred
nor retained substantially all the risks and rewards of the asset, but has transferred control
of the asset.
Where the Group has transferred its rights to receive cash flows from an asset and has neither
transferred nor retained substantially all the risks and rewards of the asset nor transferred control
of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.
Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the recognition of a new
liability, and the difference in the respective carrying amounts is recognized in profit or loss.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Impairment of Financial Assets
The Group assesses at each balance sheet date whether a financial asset or group of financial
assets is impaired.
Assets Carried at Amortized Cost
If there is objective evidence that an impairment loss on loans and receivables carried at amortized
cost has been incurred, the amount of the loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows (excluding future credit
losses that have not been incurred) discounted at the financial asset’s original effective interest
rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the
asset shall be reduced either directly or through use of an allowance account. The amount of the
loss shall be recognized in the consolidated statement of income.
The Group first assesses whether objective evidence of impairment exists individually for financial
assets that are individually significant, and individually or collectively for financial assets that are
not individually significant. If it is determined that no objective evidence of impairment exists
for an individually assessed financial asset, whether significant or not, the asset is included in a
group of financial assets with similar credit risk characteristics and that group of financial assets
is collectively assessed for impairment. Assets that are individually assessed for impairment and
for which an impairment loss is or continues to be recognized are not included in a collective
assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can
be related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized
in the consolidated statement of income, to the extent that the carrying value of the asset does not
exceed its amortized cost at the reversal date.
Assets Carried at Cost
I f there is objective evidence that an impairment loss on an unquoted equity instrument that
is not carried at fair value because its fair value cannot be reliably measured, or on a derivative
asset that is linked to and must be settled by delivery of such an unquoted equity instrument
has been incurred, the amount of the loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows discounted at the
current market rate of return for a similar financial asset.
AFS investments
If an AFS financial asset is impaired, an amount comprising the difference between its cost (net
of any principal payment and amortization) and its current fair value, less any impairment loss
previously recognized in consolidated statement of income, is transferred from stockholders’
equity to the consolidated statement of income. Reversals in respect of equity instruments
classified as AFS are not recognized in the consolidated statement of income. Reversals of
impairment losses on debt instruments are reversed in the consolidated statement of income,
if the increase in fair value of the instrument can be objectively related to an event occurring
after the impairment loss was recognized in the consolidated statement of income.
Inventories
Inventories are valued at the lower of cost and net realizable value (NRV). Costs incurred in
bringing each product to its present location and condition are accounted for as follows:
Wheat grains and other
raw materials
Finished goods and work
in process
- purchase cost on a first-in, first-out basis;
- cost of direct materials, labor and a portion
of manufacturing overhead based on normal
operating capacity but excluding borrowing costs;
Fuel and lubricants - first-in, first-out method;
Parts and supplies - weighted average method
NRV of wheat grains and other raw materials, work in process and finished goods is the estimated
selling price in the ordinary course of business, less estimated costs of completion and the
estimated costs necessary to make the sale. NRV of fuel and lubricants and parts and supplies is
the current replacement costs.
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 71

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Agricultural Activity
Agricultural produce
Agricultural produce (swine) are measured at fair value less estimated point-of-sale costs at point
of harvest.
Biological assets
Biological assets are measured on initial recognition and at each balance sheet date at fair value
less estimated point-of-sale costs except when, on initial recognition, market-determined prices
or values are not available and for which alternative estimates of fair value are determined to be
clearly unreliable. In such cases, those biological assets are measured at accumulated costs less
any accumulated depreciation and any accumulated impairment losses. Once the fair value of
such biological assets becomes reliably measurable, those biological assets are measured at fair
value less estimated point-of-sale costs.
Gains or losses arising on initial recognition of a biological asset (for market hogs and piglets) at
fair value less estimated point-of-sale costs and from changes in their fair values less estimated
point-of-sale costs are included in profit or loss for the period in which they arise.
Biological assets measured at fair value less estimated point-of-sale costs continue to be
measured as such until disposed. Expenditures on biological assets subsequent to initial
recognition, excluding the costs of day-to-day servicing, are capitalized.
Bearer (i.e., breeders) and growing stocks biological assets are stated at cost less any accumulated
depreciation and any impairment losses. Bearer biological assets are depreciated over 3 years.
Property, Plant and Equipment
Except for land, property, plant and equipment is stated at cost, excluding the costs of day-to-day
servicing, less accumulated depreciation and accumulated impairment in value. Cost includes
the cost of replacing part of such property, plant and equipment when that cost is incurred and
the recognition criteria are met. Land is stated at cost less any accumulated impairment in value.
Drydocking costs, consisting mainly of steel plate replacement of the ships’ hull and related
expenditures, are capitalized as part of “Ships in operation and improvements” and amortized over
30 months or 2 1/2 years. When significant drydocking expenditures occur prior to the expiry of
this period, the remaining unamortized balance of the original drydocking cost is expensed in the
month of subsequent drydocking.
Except for flight equipment (included under transportation equipment) of certain subsidiaries,
depreciation of the Group’s property, plant and equipment and assets under finance leases is
calculated on a straight-line basis over the useful life of the assets or the terms of the lease in
case of leasehold improvements, whichever is shorter as follows:
Number of Years
Category 2006 2005
Buildings, warehouses and improvements 10 - 30 10 - 30
Power plants 1 - 12 1 - 12
Transmission and distribution equipment
Poles and wires 30 12
Other components 12 12
Machinery and equipment 10 - 20 10 - 20
Transportation equipment
(excluding flight equipment) 3 - 6 3 - 10
Ships in operation and improvements, excluding
drydocking costs 15 - 30 15 - 30
Drydocking costs 2 ½ 2 ½
Containers (including units acquired under
finance lease arrangements) 5 - 7 5 - 7
Handling equipment 5 - 7 5 - 7
Office furniture, fixtures and equipment 3 - 10 3 - 10
Leasehold improvements 3 - 10 3 - 10
Others 3 - 10 3 - 10
Flight equipment is depreciated based on estimated number of flying hours.
Effective January 1, 2005, the depreciable cost of ships in operation excludes residual value
based on the estimated scrap value of the ship’s hull.
The carrying values of property, plant and equipment are reviewed for impairment when events
or changes in circumstances indicate that the carrying values may not be recoverable.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in the consolidated statement of income
in the year the asset is derecognized.
The asset’s residual values, useful lives and depreciation methods are reviewed and adjusted,
if appropriate, at each financial year end.
When each major inspection is performed, its cost is recognized in the carrying amount of
the property, plant and equipment as a replacement if the recognition criteria are satisfied.
Ships under refurbishment include the acquisition cost of the ships, the costs of on-going
refurbishments and other direct costs. Construction in progress represents structures under
construction and is stated at cost. Borrowing costs that are directly attributable to the
refurbishment of ships and construction of other property, plant and equipment are capitalized
during the refurbishment and construction period. Ships under refurbishment and construction
in progress are not depreciated until such time that the relevant assets are completed and put
into operational use.
Investment Properties
Investment properties are measured initially at cost, including transaction costs. The carrying
amount includes the cost of replacing part of an existing investment property at the time
that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day
servicing of an investment property. Subsequent to initial recognition, investment properties
are carried at cost less accumulated depreciation and accumulated impairment in value.
Investment properties are derecognized when either they have been disposed of or when the
investment property is permanently withdrawn from use and no future economic benefit is
expected from its disposal. Any gains or losses on the retirement or disposal of an investment
property are recognized in the consolidated statement of income in the year of retirement
or disposal.
Transfers are made to investment property when, and only when, there is a change in use,
evidenced by ending of owner-occupation, commencement of an operating lease to another
party or ending of construction or development. Transfers are made from investment property
when, and only when, there is a change in use, evidenced by commencement of owneroccupation
or commencement of development with a view to sale.
For a transfer from investment property to owner-occupied property or inventories, the deemed
cost of property for subsequent accounting is its fair value at the date of change in use. If
the property occupied by the Group as an owner-occupied property becomes an investment
property, the Group accounts for such property in accordance with the policy stated under
property, plant and equipment up to the date of change in use. For a transfer from inventories
to investment property, any difference between the fair value of the property at that date and
its previous carrying amount is recognized in the consolidated statement of income. When the
Group completes the construction or development of a self-constructed investment property,
any difference between the fair value of the property at that date and its previous carrying
amount is recognized in the consolidated statement of income.
Investments in Associates
The Group’s investments in associates are accounted for under the equity method of accounting.
An associate is an entity in which the Group has significant influence and which is neither a
subsidiary nor a joint venture.
Under the equity method, the investment in the associate is carried in the balance sheet
at cost plus post-acquisition changes in the Group’s share of net assets of the associate.
Goodwill relating to an associate is included in the carrying amount of the investment and
is not amortized. After application of the equity method, the Group determines whether it
is necessary to recognize any additional impairment loss with respect to the Group’s net
investment in the associates. The consolidated statement of income reflects the share of the
results of operations of the associates. Where there has been a change recognized directly in
the equity of the associate, the Group recognizes its share of any changes and discloses this,
when applicable, in the consolidated statement of changes in stockholders’ equity.
The reporting dates of the associates and the Group are identical and the associates’ accounting
policies conform to those used by the Group for like transactions and events in similar
circumstances.
Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the
cost of the business combination over the Group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities of the acquired entities. Following initial recognition,
goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for
impairment, annually or more frequently, if events or changes in circumstances indicate that the
carrying value may be impaired.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
For the purpose of impairment testing, goodwill acquired in a business combination is, from
the acquisition date, allocated to each of the Group’s cash-generating units, or groups of
cash-generating units, that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the Group are assigned to those units or
groups of units. Each unit or group of units to which the goodwill is so allocated:
• represents the lowest level within the Group at which the goodwill is monitored for internal
management purposes; and
• is not larger than a segment based on either the Group’s primary or the Group’s secondary
reporting format determined in accordance with PAS 14, Segment Reporting.
Impairment is determined by assessing the recoverable amount of the cash-generating unit
(group of cash-generating units), to which the goodwill relates. Where the recoverable amount
of the cash-generating unit (group of cash-generating units) is less than the carrying amount,
an impairment loss is recognized. Where goodwill forms part of a cash-generating unit (group
of cash-generating units) and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation
when determining the gain or loss on disposal of the operation. Goodwill disposed of in this
circumstance is measured based on the relative values of the operation disposed of and the portion
of the cash-generating unit retained.
Noncurrent Assets Classified as Held for Sale
Noncurrent assets are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction expected to be completed within one (1) year from the date
of classification, rather than through continuing use. Noncurrent assets held for sale are stated
at the lower of carrying amount and fair value less costs to sell and depreciation of such assets
ceases. Liabilities associated with these assets are presented separately in the consolidated
balance sheet.
Software Development Costs
Software development costs are initially recognized at cost. Following initial recognition,
the software development costs are carried at cost less accumulated amortization and any
accumulated impairment in value. The software development costs is amortized on a straightline
basis over its estimated useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The amortization commences when the
software development costs is available for use. The amortization period and the amortization
method for the software development costs are reviewed at each financial year end. Changes
in the estimated useful life is accounted for by changing the amortization period or method, as
appropriate, and treating them as changes in accounting estimates. The amortization expense is
recognized in the consolidated statement of income in the expense category consistent with the
function of the software development costs.
Impairment of Non-Financial Assets
The Group assesses at each reporting date whether there is an indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required,
the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount
is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use
and is determined for an individual asset, unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets. Where the carrying amount of
an asset exceeds its recoverable amount, the asset is considered impaired and is written down to
its recoverable amount. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. Impairment losses of continuing
operations are recognized in the consolidated statement of income in those expense categories
consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously
recognized impairment losses may no longer exist or may have decreased. If such indication
exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed
only if there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognized. If that is the case, the carrying amount
of the asset is increased to its recoverable amount. That increased amount cannot exceed the
carrying amount that would have been determined, net of accumulated depreciation, had no
impairment loss been recognized for the asset in prior years. Such reversal is recognized in the
consolidated statement of income unless the asset is carried at revalued amount, in which case
the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is
adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value,
on a systematic basis over its remaining useful life.
Treasury Shares
Own equity instruments which are reacquired (treasury shares) are deducted from equity. No
gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or
cancellation of the Group’s own equity instruments.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. The following specific recognition criteria must
also be met before revenue is recognized:
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Sales
Revenue from sale of power and electricity is recognized in the period in which actual capacity is
generated and earned and upon distribution of power to customers. Revenue from sale of goods
is recognized when the significant risks and rewards of ownership of the goods have passed to
the buyer.
Rendering of services
Freight, passage and service revenues are recognized when the related services are rendered.
Customer payments for which service have not yet been rendered are classified as unearned
revenue under “Trade and other payables” in the consolidated balance sheet.
Rental income
Rental income is accounted for on a straight-line basis over the related lease terms.
Dividend income
Dividend income is recognized when the Group’s right to receive payment is established.
Interest income
Interest is recognized as it accrues taking into account the effective yield on the asset.
Borrowing Costs
Borrowing costs generally are expensed as incurred. Borrowing costs, including foreign
exchange differences arising from foreign currency borrowings that are regarded as an
adjustment of interest 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 recorded.
Pension Benefits
The Group has defined benefit pension plans, which require contributions to be made to
separately administered funds. The cost of providing benefits under the defined benefit
plans is determined separately for each plan using the projected unit credit actuarial valuation
method. Actuarial gains and losses are recognized as income or expense when the net
cumulative unrecognized actuarial gains and losses for each individual plan at the end of the
previous reporting year exceeded 10% of the higher of the defined benefit obligation and the
fair value of plan assets at that date. These gains or losses are recognized over the expected
average remaining working lives of the employees participating in the plans.
The past service cost is recognized as an expense on a straight-line basis over the average
period until the benefits become vested. I f the benefits are already vested immediately
following the introduction of, or changes to, a pension plan, past service cost is recognized
immediately.
The defined benefit liability is the aggregate of the present value of the defined benefit
obligation and actuarial gains and losses not recognized reduced by past service cost not yet
recognized and the fair value of plan assets out of which the obligations are to be settled
directly. I f such aggregate is negative, the asset is measured at the lower of such aggregate
or the aggregate of cumulative unrecognized net actuarial losses and past service cost and
the present value of any economic benefits available in the form of refunds from the plan or
reductions in the future contributions to the plan.
If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses
and past service cost and the present value of any economic benefits available in the form
of refunds from the plan or reductions in the future contributions to the plan, net actuarial
losses of the current period and past service cost of the current period are recognized
immediately to the extent that they exceed any reduction in the present value of those economic
benefits. I f there is no change or an increase in the present value of the economic benefits,
the entire net actuarial losses of the current period and past service cost of the current period are
recognized immediately. Similarly, net actuarial gains of the current period after the deduction
of past service cost of the current period exceeding any increase in the present value of the
economic benefits stated above are recognized immediately if the asset is measured at the
aggregate of cumulative unrecognized net actuarial losses and past service cost and the present
value of any economic benefits available in the form of refunds from the plan or reductions in the
future contributions to the plan. If there is no change or a decrease in the present value of the
economic benefits, the entire net actuarial gains of the current period after the deduction of past
service cost of the current period are recognized immediately.
Leases
The determination of whether an arrangement is, or contains a lease, is based on the
substance of the arrangement and requires an assessment of whether the fulfillment of
the arrangement is dependent on the use of a specific asset or assets and the arrangement
conveys a right to use the asset.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Group as a lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental
to ownership of the leased item, are capitalized at the inception of the lease at the fair value of
the leased property or, if lower, at the present value of the minimum lease payments. Lease
payments are apportioned between the finance charges and reduction of the lease liability
so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are charged directly against income.
Capitalized leased assets are depreciated over the shorter of the estimated useful life of
the asset and the lease term, if there is no reasonable certainty that the Group will obtain
ownership by the end of the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset
are classified as operating lease. Operating lease payments are recognized as an expense in the
consolidated statement of income on a straight-line basis over the lease term.
Group as a lessor
Leases where the Group retains substantially all the risks and benefits of ownership of the asset
are classified as operating leases. Initial direct costs incurred in negotiating an operating
lease are added to the carrying amount of the leased asset and recognized over the lease term
on the same basis as rental income.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as
a result of a past event, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation. Where the Group expects some or all of a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. The expense relating to
any provision is presented in the consolidated statement of income net of any reimbursement.
I f the effect of the time value of money is material, provisions are discounted using a
current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognized as a
borrowing cost.
Income Taxes
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively enacted by the
balance sheet date.
Deferred income tax
Deferred income tax is provided using the balance sheet liability method on temporary
differences at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
• where the deferred tax liability arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, where the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences,
carryforward of unused tax credits and unused tax losses, to the extent that it is probable that
taxable profit will be available against which the deductible temporary differences, and the
carryforward of unused tax credits and unused tax losses can be utilized except:
• where the deferred income tax asset relating to the deductible temporary difference
arises from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss; and
• in respect of deductible temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, deferred income tax assets are recognized
only to the extent that it is probable that the temporary differences will reverse in the
foreseeable future and taxable profit will be available against which the temporary
differences can be utilized.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
The carrying amount of deferred income tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the deferred income tax asset to be utilized.
Unrecognized deferred income tax assets are reassessed at each balance sheet date and
are recognized to the extent that it has become probable that future taxable profit will
allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to
apply to the year when the asset is realized or the liability is settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted at the balance sheet date.
Deferred income tax relating to items recognized directly in the consolidated statement
of changes in stockholders’ equity is recognized in equity and not in the consolidated
statement of income.
Deferred income tax assets and deferred tax liabilities are offset, if a legally enforceable
right exists to set off current income tax assets against current income tax liabilities
and the deferred income taxes relate to the same taxable entity and the same taxation
authority.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized in the consolidated financial statements but
disclosed when an inflow of economic benefits is probable.
Events After the Balance Sheet Date
Post year-end events that provide additional information about the Group’s position at
balance sheet date (adjusting events) are reflected in the consolidated financial statements.
Post year-end events that are not adjusting events are disclosed when material.
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income for the year attributable
to the common shareholders of the parent by the weighted average number of common
shares issued and outstanding during the year, after retroactive adjustments for any stock
dividends declared.
Diluted earnings per share amounts are calculated by dividing the net income for the year
attributable to the common shareholders of the parent by the weighted average number of
common shares outstanding during the year plus the weighted average number of common shares
that would be issued for outstanding common stock equivalents.
Business Segments
For management purposes, the Group is organized into four major operating segments (power,
food manufacturing, transportation and parent company/others) according to the nature of the
products and the services provided, with each segment representing a strategic business unit
that offers different products and serves different markets. The entities are the basis upon which
the Group reports its primary segment information. Substantially all of the entities operate and
generate revenue only in the Philippines. Geographical segment information is not presented.
Financial information on business segments is presented in Note 34.
3. Cash and Cash Equivalents
2006 2005
Cash on hand and in banks π1,293,259 π1,171,612
Short-term deposits 6,716,698 3,451,064
π8,009,957
π4,622,676
Cash in banks earn interest at floating rates based on daily bank deposit rates. Short-term deposits
are made for varying periods of between one day and three months depending on the immediate
cash requirements of the Group, and earn interest at the respective short-term deposit rates. The
fair value of cash and cash equivalents is π8,009,957 and π4,622,676 as of December 31, 2006 and
2005, respectively.
For the purpose of the consolidated statements of cash flows, cash and cash equivalents equal the
amounts reported as cash and cash equivalents in the consolidated balance sheets.
The sources of interest income recognized for the period are as follows:
2006 2005
Cash and cash equivalents π1,293,259 π1,171,612
Advances to related parties (see Note 27) 6,716,698 3,451,064
π8,009,957
π4,622,676
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
4. Trade and Other Receivables
2006 2005
Trade receivables - net of allowance for doubtful
accounts of π362,308 in 2006 and π324,071
in 2005 (see Note 27) π2,450,382 π2,567,658
Due from related parties (see Note 27) 218,733 219,413
Receivables from insurance and other claims 23,712 35,021
Other receivables 968,537 545,762
π3,661,364
π3,367,854
Trade receivables are non-interest bearing and are generally on 10 - 30 days’ terms.
For terms and conditions relating to related party receivables, refer to Note 27.
Receivables from insurance and other claims pertain to Aboitiz Transport System Corp.’s (ATSC)
claims for reimbursement of losses against insurance coverage for hull, machinery and cargo
damages and personal accidents.
5. Inventories
2006 2005
At cost:
Finished goods π63,564 π61,903
Wheat grains and other raw materials 918,697 645,509
Fuel and lubricants 85,631 174,519
Purchases in transit 112,488 109,351
Materials, parts and supplies 293,860 192,799
At NRV:
Materials, parts and supplies 219,093 192,302
π1,693,333
π1,376,383
The cost of inventories recognized as part of costs of goods sold in the consolidated statements
of income amounted to π6,087,438, π6,020,658 and π5,393,761 in 2006, 2005 and 2004,
respectively. Allowance for inventory obsolescence on materials, parts and supplies amounted to
π39,549 and π117,570 as of December 31, 2006 and 2005, respectively.
6. Other Current Assets
2006 2005
Prepaid expenses π573,635 π543,467
Biological assets (see Note 7) 166,315 159,097
Input value added taxes 106,036 72,579
Others 234,641 129,524
π1,080,627 π904,667
7. Biological Assets
2006 2005
Consumables
Market hogs at fair value less
estimated point of sale costs
π67,179 π60,312
Piglets at fair value less estimated
point of sale costs
44,760 48,009
Growing stocks at cost 54,376 50,776
166,315 159,097
Bearers at cost less accumulated
depreciation (see Note 14) 23,033 18,406
π189,348 π177,503
The Groups’ biological assets include bearers, growing stocks and consumables.
Bearers and growing stocks are measured at accumulated cost less any accumulated depreciation
and any accumulated impairment losses. The Group uses this method of measurement because
market-determined prices and values are not available and alternative estimates of fair values are
determined to be unreliable.
Fair values of consumable biological assets measured at fair value less estimated point-of-sale
costs are determined based on average market selling prices at year end.
Consumable biological assets are included in “Other current assets” account while bearers are
included in “Other noncurrent assets” account in the consolidated balance sheets.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
8. Property, Plant and Equipment
As of December 31, 2006
COST
Building, warehouses and
improvements
2005 Additions Disposals Reclassifications 2006
π1,212,126 π154,266 (π183) π18,830 π1,385,039
Power plant and equipment 1,862,739 33,298 (647) – 1,895,390
Transmission and distribution
equipment 2,227,676 171,886 – (16,236) 2,383,326
Distribution transformers
and substation equipment 1,105,424 153,728 (467) – 1,258,685
Machinery and equipment 1,429,515 33,419 (14,309) 167,356 1,615,981
Flight equipment 165,527 6,145 – – 171,672
Transportation equipment 740,786 139,885 (29,750) – 850,921
Ships in operation and
improvements
9,086,746 226,440 (1,132,526) (2,932,907) 5,247,753
Containers 1,976,605 16,363 (74,251) (151,231) 1,767,486
Handling equipment 1,237,855 12,801 (70,488) (2,698) 1,177,470
Office furniture, fixtures and
equipment 756,852 153,401 (26,716) 741 884,278
Leasehold improvements 305,961 49,140 (26,172) 709 329,638
Others 44,888 3,523 (16,558) – 31,853
Land 152,161 10,010 – (700) 161,471
Ships under refurbishment and
construction in progress 228,997 256,318 – (17,519) 467,796
22,533,858 1,420,623 (1,392,067) (2,933,655) 19,628,759
ACCUMULATED DEPRECIATION
AND AMORTIZATION
Building, warehouse and
improvements π522,533 64,806 (π75) π262 π587,526
Power plant and equipment 820,559 105,038 (647) – 924,950
Transmission and distribution
equipment 1,085,656 30,120 – (868) 1,114,908
Distribution transformers and
substation equipment 581,838 107,198 (467) 3,266 691,835
Machinery and equipment 775,231 76,587 (13,964) (105) 837,749
Flight equipment 100,693 11,243 (1,706) – 110,230
Transportation equipment 320,543 109,474 (24,539) 919 406,397
Ships in operation and
improvements 3,646,166 765,679 (422,504) (2,122,153) 1,867,188
Containers 1,600,826 139,979 (74,045) (151,251) 1,515,509
2005 Addition Disposals Reclassifications 2006
Handling equipment 953,484 106,541 (68,047) (2,642) 989,336
Office furniture, fixtures
and equipment 570,170 183,410 (18,523) (2,800) 732,257
Leasehold improvements 105,193 41,423 (4,547) 1,228 143,297
Others 25,834 6,625 (205) (3) 32,251
As of December 31, 2005
COST
11,108,726 1,748,123 (629,269) (2,274,147) 9,953,433
π11,425,132 (π327,500) (π762,798) (π659,508) π9,675,326
2004 Additions Disposals Reclassifications 2005
Building, warehouses and
improvements π1,213,189 π203,782 (π13,432) (π191,413) π1,212,126
Power plant and equipment 1,844,215 18,524 – – 1,862,739
Transmission and distribution
equipment 1,756,822 282,820 – 188,034 2,227,676
Distribution transformers and
substation equipment
943,533 161,891 – – 1,105,424
Machinery and equipment 1,198,730 14,249 (1,271) 217,807 1,429,515
Flight equipment 138,546 26,981 – – 165,527
Transportation equipment 711,653 204,554 (60,071) (115,350) 740,786
Ships in operation and
improvements
8,905,904 425,430 (244,588) – 9,086,746
Containers 1,991,901 843 (16,139) – 1,976,605
Handling equipment 1,086,471 177,732 (26,348) – 1,237,855
Office furniture, fixtures and
equipment 603,682 171,556 (23,224) 4,838 756,852
Leasehold improvements 200,831 67,383 (4) 37,751 305,961
Others 41,990 7,557 (46) (4,613) 44,888
Land 157,783 2,725 – (8,347) 152,161
Ships under refurbishment and
construction in progress 79,156 253,545 – (103,704) 228,997
20,874,406 2,019,572 (385,123) 25,003 22,533,858
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 79

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
ACCUMULATED DEPRECIATION
AND AMORTIZATION
2004 Additions Disposals Reclassifications 2005
Building, warehouse and
improvements
409,049 126,894 (13,329) (81) 522,533
Power plant an d equipment 813,957 6,602 – – 820,559
Transmission and distribution
equipment
888,669 196,987 – – 1,085,656
Distribution transformers and
substation equipment
520,478 61,360 – – 581,838
Machinery and equipment 737,609 40,173 (1,163) (1,388) 775,231
Flight equipment 92,187 8,552 (46) – 100,693
Transportation equipment 259,139 77,107 (15,703) – 320,543
Ships in operation and
improvements
2,970,922 900,059 (224,815) – 3,646,166
Containers 1,474,777 140,823 (14,774) – 1,600,826
Handling equipme nt 864,327 114,233 (25,076) – 953,484
Office furniture, fixtures and
467,855 122,686 (21,214) 843 570,170
equipment
Leasehold improvements 79,436 27,729 (1,972) – 105,193
Others 20,036 5,798 – – 25,834
9,598,441 1,829,003 (318,092) (626) 11,108,726
π11,275,965 π190,569 (π67,031) π25,629 π11,425,132
Containers include units acquired under finance lease arrangements (see Note 19).
The depreciation of the leased containers, amounting to π136,300 in 2006, π113,690 in 2005
and π140,584 in 2004 was computed on the basis of the Group’s depreciation policy for
owned assets.
In 2006, the Group increased the estimated useful lives of power transformers, concrete poles,
and cables and wires used in its power distribution operations from 12 years to 30 years from the
date of acquisition and decreased the estimated useful lives of transportation equipment and
computer equipment from 5 - 6 years to 2 - 5 years from the date of acquisition. The changes in
the estimated useful lives were made on the basis of management’s best assessment of the present
factors and technology in building or fabricating the assets which is in accordance with the study
mandated by the ERC on the estimated useful lives of assets applicable to all distribution utilities
in the country, as part of the performance-based rate regulation. The changes in estimated useful
lives have resulted in a net reduction in depreciation expense by π74,375 in 2006. In 2005, the
Group increased the estimated useful lives of ships in operation and improvements from 10-20
years to 15-30 years from the date of acquisition. The changes in the estimated useful lives reduced
depreciation expense by π37,297 in 2005. Also, the Group estimated the residual value of ships
in operation and improvements amounting to π962,128 and considered such estimate in the
computation of depreciable cost as of January 1, 2005. The estimated residual value reduced
depreciation expense by π77,974 in 2005 (see Note 2).
Property, plant and equipment with a carrying amount of π5,807,781 and π5,577,342 as of
December 31, 2006 and 2005, respectively, are used to secure the Group’s long-term debt.
Fully depreciated transmission and distribution equipment and distribution transformers and
substation equipment with gross carrying amount of π631,069 as of December 31, 2006 are
still in use.
9. Investments in Subsidiaries
The consolidated financial statements include the financial statements of the Company and the
subsidiaries listed in the following table.
Aboitiz Power Corporation
(APC)
Aboitiz Energy Solutions,
Inc. (formerly
Aboitiz Powersolutions,
Inc. (AESI)
Davao Light and Power
Company, Inc. (DLP)
Cotabato Light and Power
Company, Inc. (CLP)
Subic Enerzone
Corporation (SEZC)
Northern Mini Hydro
Corporation (NMHC)
Hedcor Tamugan
(formerly Hydro
Specialists, Inc.)
Philippine Hydropower
Corporation
Hedcor, Inc. (formerly
Benguet Hydropower
Corporation, HEDCOR)
Nature of
Business
2006 2005 2004
Direct Indirect Direct Indirect Direct Indirect
Power 100.00 – 100.00 – 100.00 –
Power 100.00 – 100.00 – 100.00 –
Power 99.91 – 99.91 – 99.91 –
Power 99.91 – 99.91 – 99.91 –
Power 20.00 44.34 20.00 44.34 20.00 44.34
Power – 100.00 – 100.00 – 100.00
Power – 100.00 – 100.00 – 100.00
Power – 100.00 – 100.00 – 100.00
Power – 100.00 – 100.00 – 100.00
Hedcor Sibulan, Inc. Power – 100.00 – – – –
80 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Nature of
2006 2005 2004
Business Direct Indirect Direct Indirect Direct Indirect
Hydro Electric Development
Corporation (HEDC) Power – 99.9 – 99.9 – 99.9
One Cebu Energy Solutions, Inc. Power – 60.0 – – – –
Pilmico Foods Corporation (PILMICO)
Food
manufacturing 100.0 – 100.00 – 100.0 –
Fil-Am Foods, Inc. (FILAM)
Food
manufacturing – 100.0 – 100.0 – 100.0
Aboitiz Transport System Corp. (ATSC) Transportation 77.2 – 76.11 – 76.11 –
Cebu Ferries Corporation (CFC) Transportation – 100.0 – 100.0 – 100.0
WG & A Supercommerce, Inc. (WSI) Transportation – 100.0 – 100.0 – 100.0
Aboitiz One, Inc. (AOI) and Subsidiaries
Courier, logistics
and forwarding
services – 100.0 – 100.0 – 100.0
Aboitiz Jebsen Bulk Transport
Corporation (AJBTC) & Subsidiaries Ship management – 62.5 – 62.5 – 62.5
Jebsen Maritime, Inc. (JMI) Manpower services – 62.5 – 62.5 – 62.5
Aboitiz Jebsen Manpower Solutions,
Inc. (AJMSI) Manpower services – 62.5 – 62.5 – 62.5
JMBVI and Subsidiaries** Shipping – 50.0 – 50.0 – 50.0
AEV Aviation, Inc. (AEV Aviation) Service 100.0 – 100.00 – 100.00 –
AEV Properties, Inc.* Real estate 100.0 – 100.00 – 100.00 –
Cebu Praedia Development
Corporation (CPDC) Real estate 88.27 11.72 88.27 11.72 88.27 11.72
Cotabato Ice Plant, Inc. Manufacturing – 100.0 – 100.0 – 100.0
Fil-Agri Holdings, Inc. Holding company – 100.0 – 100.0 – 100.0
* No commercial operations
** Incorporated in the British Virgin Islands. Functional currency is US dollars.
Except for JMBVI, all the subsidiaries were incorporated in the Philippines.
On June 17, 2005, a Subscription Agreement and Deed of Assignment (Agreement) was
executed by and between ATSC (Assignee) and ACO, the Company, and certain individual
assignees (Assignors) as part of the reorganization to integrate under ATSC all businesses
related to shipping, transportation and logistics and allow the Group to enhance efficiencies and
competitiveness. To effect the reorganization, ATSC issued 414.1 million shares to the Assignors
thereby allowing ATSC to acquire control over AOI and Subsidiaries, AJBTC and Subsidiaries, JMI,
AJMSI and JMBVI and subsidiaries. JMBVI is an offshore company acquired by ACO in 2005. The
assignment of the Company’s investments in AOI for shares of stock of ATSC is a tax-free transfer
on reorganization of companies under common control.
The above transaction was treated as a reorganization of companies under common control and
accounted for at historical cost in a manner similar to pooling-of-interests method. Accordingly,
all financial data for the period prior to the above transaction as presented have been restated
in ATSC to include the results of the new subsidiaries, except JMBVI and Subsidiaries which were
acquired by ACO in 2005. Cash of a newly acquired subsidiary amounted to π308,750.
Presented below is the combined statement of income of new subsidiaries accounted for in
ATSC at historical cost for the year ended December 31, 2004:
AOI and
Subsidiaries
AJBTC and
Subsidiaries JMI AJMSI Combined
Revenues π1,271,002 π243,897 π114,573 π662 π1,630,134
Costs and expenses (1,115,443) (215,906) (51,649) (2,314) (1,385,312)
Other income (charges) 20,167 5,256 (2,304) (16) 23,103
Income tax (36,399) (12,757) (19,427) 540 (68,043)
Net income π139,327 π20,490 π41,193 (π1,128) π199,882
The reorganization of the transport group resulted in a charge to the Company’s additional
paid-in capital in the amount of π414,148, representing the decrease in the Company’s equity in
the restated consolidated net assets of ATSC following the reorganization. In addition, the said
reorganization resulted in a charge to the Company’s retained earnings in the amount of π51,567
as of January 1, 2005, representing the decrease in the Company’s equity in the restated earnings
of ATSC following the reorganization.
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 81

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
10. Investments and Advances
2006 2005
Acquisition cost:
Balance at beginning of year π8,510,129 π8,485,340
Additions during the year 2,191 24,789
Disposals during the year (26,240) –
Balance at end of year 8,486,080 8,510,129
Accumulated share in net earnings:
Balance at beginning of year 5,288,814 4,350,789
Share in effect of adoption of PAS 39 of associates – (483,198)
Share in net earnings for the year 2,114,710 2,155,343
Cash dividends received (2,309,893) (733,749)
Investment sold (42,919) (371)
Balance at end of year 5,050,712 5,288,814
Share in cumulative translation adjustments
of associates
107,427 373,330
Share in unrealized valuation gains on AFS
investments of an associate
39,519 122,290
Effect of reorganization of transport group – 8
13,683,738 14,294,571
Advances 218,790 239,046
Less allowance for impairment losses (28,995) (28,995)
π13,873,533 π14,504,622
The Group’s associates and the corresponding equity ownership are as follows:
Nature of Business 2006 2005 2004
Visayan Electric Company, Inc. (VECO)
Power
54.70 54.67 54.58
Luzon Hydro Corporation (LHC) Power 50.00 50.00 50.00
San Fernando Electric Light & Power Company
(SFELAPCO) Power 43.78 43.78 43.78
Cordillera Hydro Corporation * Power 35.00 35.00 35.00
Southern Philippines Power Corporation (SPPC) Power 20.00 20.00 20.00
Western Mindanao Power Corporation (WMPC) Power 20.00 20.00 20.00
Aboitiz Project TS Corporation (APTSC) Consulting services 50.00 50.00 50.00
New Zealand Lumber Shippers Ltd.** Shipping 50.00 50.00 –
Reefer Van Specialist, Inc. (RVSI) Transportation 50.00 50.00 50.00
Refrigerated Transport Services, Inc. (RTSI) Transportation 50.00 50.00 50.00
Cebu International Container Terminal, Inc. (CICTI)* Transportation 20.00 20.00 20.00
Jade Ocean Shipmanagement, Inc. (JOSI) Ship management 50.00 50.00 33.33
WG & A Jebsen Ship Management, Inc. (WGA&J) Ship management 40.00 40.00 40.00
Hapag-Lloyd Philippines, Inc. (HLP) Ship management 15.00 15.00 15.00
Accuria, Inc. Holding company 49.54 49.54 49.54
Hijos de F. Escaño (Hijos) Holding company 46.66 46.66 46.66
Pampanga Energy Ventures, Inc. (PEVI) Holding company 42.84 42.84 42.84
JAIB, Inc.* Brokerage 49.00 49.00 49.00
Union Bank of the Philippines (UBP) Banking 42.14 42.14 42.02
City Savings Bank (CSB) Banking 34.42 34.38 34.38
South Western Cement Corporation Cement 20.00 20.00 20.00
PILMICO - Mauri Foods Corporation
(Pilmico Mauri)
Food
manufacturing
– 50.00 50.00
* No commercial operations.
** Incorporated in New Zealand.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
RTSI, RVSI, APTSC, WGA&J, HLP and JOSI became associates of the Group as a result of the
reorganization of the transportation group in 2005 (see Note 9).
VECO has been excluded in consolidation as other shareholders’ group, directly and indirectly
through a subsidiary, exercise the power to govern the financial and operating policies of VECO.
The detailed carrying values of investments in associates (including goodwill) which are accounted
for under the equity method follow:
2006 2005
UBP π9,196,782 π8,641,720
LHC 1,241,588 2,426,532
VECO/Hijos 1,828,033 1,720,535
WMPC 472,881 532,170
SPPC 318,852 326,233
CICTI 240,125 240,125
PEVI/SFELAPCO 379,482 362,832
Others 5,995 44,424
π13,683,738 π14,294,571
The investments in associates include goodwill amounting to π2,079,618 and π2,070,375 in 2006
and 2005, respectively.
Following is the summarized financial information of significant associates:
UBP
2006 2005 2004
Total current assets π79,500,664 π68,272,792
Total noncurrent assets 103,918,486 32,861,518
Total current liabilities 156,108,297 80,771,425
Total noncurrent liabilities 7,415,850 7,683,049
Gross revenue 8,577,455 5,629,881 π4,974,937
Gross profit 4,247,868 2,729,070 3,054,765
Net income 2,512,403 2,755,107 2,281,035
2006 2005 2004
LHC
Total current assets π525,101 π583,568
Total noncurrent assets 6,562,003 7,442,281
Total current liabilities 1,496,892 2,807,294
Total noncurrent liabilities 3,107,037 861,516
Gross revenue 2,003,825 2,455,613 π2,298,904
Gross profit 1,541,269 2,021,971 1,774,609
Net income 1,310,299 1,611,846 1,259,501
VECO*
Total current assets π1,875,405 π1,683,984
Total noncurrent assets 3,393,781 3,260,245
Total current liabilities 1,265,995 1,047,526
Total noncurrent liabilities 1,406,545 1,448,406
Gross revenue 8,330,662 8,678,728 π7,473,773
Gross profit (loss) 337,671 159,528 (260,957)
Net income (loss) 377,839 211,838 (27,032)
*Amounts are based on appraised values which are adjusted to historical amounts upon equity
take-up of the Group.
11. Impairment Testing of Goodwill
Goodwill aqcuired through business combinations have been attributed to each investee as a
single cash-generating unit.
The recoverable amounts of the investments have been determined based on a value in
use caculation using cash flow projections based on financial budgets approved by senior
management covering a five-year period. The discount rate applied to cash flow projections
range from 9.52% to 13.56% and 13.56% to 18.00% in 2006 and in 2005, respectively, and
cash flows beyond the 5-year period are extrapolated using a zero per cent growth rate.
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 83

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
The carrying amount of goodwill follows:
2006 2005
Subsidiaries
ATSC π555,526 π564,655
NMHC 220,228 220,228
π775,754 π784,883
Associates
UBP π1,100,081 π1,100,081
VECO 734,806 725,563
SFELAPCO 244,731 244,731
π2,079,618
π2,070,375
Key assumptions used in value in use calculation for December 31, 2006 and 2005
The following describes each key assumption on which management has based its cash flow
projections to undertake impairment testing of goodwill.
Foreign Exchange Rates
The assumption used to determine foreign exchange rate is a slowing Philippine peso depreciation
rate of π2.0 every year.
Materials Price Inflation
The assumption used to determine the value assigned to the materials price inflation is a slowdown
in inflation equal to a decrease of 50 - 60 basis points every year. The starting point of 2006 is
consistent with external information sources.
12. Pension Benefit Plans
The Group has defined benefit pension plans covering substantially all of its employees, which
require contributions to be made to separately administered funds.
The following tables summarize the components of net benefit expense recognized in the
consolidated statements of income and the funded status and amounts recognized in the
consolidated balance sheets for the respective plans.
Net benefit expense
2006 2005 2004
Current service cost π30,981 π30,395 π13,720
Interest cost on benefit obligation 67,289 59,073 33,425
Expected return on plan assets (47,143) (41,443) (19,813)
Net actuarial gains (losses) recognized
in the year (11,468) (847) –
Net benefit expense π39,659 π47,178 π27,332
Pension asset (liability) - net
2006 2005
Fair value of plan assets π654,364 π523,816
Defined benefit obligation (649,232) (480,633)
Unrecognized actuarial losses /asset ceiling (36,594) (38,632)
(π31,462) π4,551
Net pension assets (liability) above include gross pension asset amounting to π16,731 and
π45,414 as of December 31, 2006 and 2005, respectively, and gross pension liability amounting
to π48,193 and π40,863 as of December 31, 2006 and 2005, respectively.
Changes in the present value of the defined benefit obligation are as follows:
2006 2005
Opening defined benefit obligation π480,633 π421,785
Interest cost 67,289 59,073
Current service cost 30,981 30,395
Benefits paid (54,538) (10,082)
Actuarial losses (gains) 124,867 (20,538)
Closing defined benefit obligation π649,232 π480,633
84 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Changes in the fair value of plan assets are as follows:
2006 2005
Opening fair value of assets π523,816 π460,733
Expected return 47,143 41,443
Contributions by employer 38,778 43,389
Benefits paid (52,699) (10,082)
Actuarial gains (losses) 97,326 (11,667)
Closing fair value of plan assets π654,364 π523,816
The overall expected rate of return on assets is determined based on the market prices prevailing
on that date, applicable to the period over which the obligation is to be settled.
Actual return of the Group’s plan assets amounted to π34,553 and π24,285 in 2006 and 2005,
respectively.
The principal assumptions used on January 1, 2006 and 2005 in determining pension benefit
obligations for the Group’s plans are shown below:
2006 2005
Discount rates 14% 14%
Expected rates of return on plan assets 9% 9%
Future salary increase rates 8% 8%
As of December 31, 2006, the discount rate has decreased to 8%.
13. Noncurrent Asset Classified as Held for Sale
Noncurrent asset classified as held for sale represents the carrying amount of a ship in operation,
which is expected to be recovered principally through a sale transaction. The ship in operation
classified as held for sale is covered by a Memorandum of Agreement (MOA) dated November
13, 2006 between ATSC and a third party, wherein ATSC is committed to sell and the third party
committed to buy the asset. The MOA provides that the expected time of delivery to the buyer is
between February 1 and April 30, 2007.
The liabilities directly associated with the noncurrent asset classified as held for sale consist of
long-term loans from various local banks.
14. Other Noncurrent Assets
2006 2005
Software development costs - net of accumulated
amortization of π202,425 in 2006 and π141,298 π311,864 π406,779
in 2005
Biological assets (see Note 7) 23,033 18,406
Others – net 256,081 148,738
π590,978 π573,923
Software development costs comprise all expenditures that can be directly attributed to the
development and acquisition of several application software related to integrated financial and
revenue management system. The additions to software development costs amounted to
π45,057 and π119,041 in 2006 and 2005, respectively. The related amortization amounted to
π61,127, π47,867 and π27,533 in 2006, 2005 and 2004, respectively.
15. Bank Loans
2006 2005
Peso loans π573,400 π1,161,250
US dollar loans 144,639 76,981
US dollar overdraft facility 105,681 61,122
π823,720 π1,299,353
The peso loans are unsecured short-term notes payable obtained from local banks with interest
rates ranging from 7.08% to 10.25% in 2006 and 8.41% to 11.2% in 2005.
The US dollar loans pertain to unsecured short-term notes payable obtained by AJBTC and JMI
from foreign and local banks and have outstanding balances amounting to US$2.95 million and
US$2.55 million as of December 31, 2006 and 2005, respectively. These loans bear interest of
6.00% in 2006 and 5.00% to 6.07% in 2005.
The US dollar overdraft facility pertains to loan obtained from a foreign bank by Jebsens Orient
Shipping AS, a wholly owned subsidiary of JMBVI based in Norway, with interest at the aggregate
of LIBOR plus a margin of 1.50% per annum. This loan is secured by an assignment of earnings
and a guarantee by a JMBVI shareholder.
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 85

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
16. Trade and Other Payables
2006 2005
Trade payables (see Note 27) π1,891,130 π2,441,754
Accrued expenses 1,877,834 1,324,283
Nontrade payables and others 856,189 829,378
π4,625,153 π4,595,415
17. Long-term Debt
Effective
Interest Rate 2006 2005
Company:
Financial institutions - unsecured
peso denominated loans various π4,170,000 π3,255,000
Non-financial institutions
11.00% -
12.00% 22,500 25,500
4,192,500 3,280,500
Subsidiaries:
ATSC and subsidiaries
Financial institutions -secured:
Peso loans due until 2010 8.41% to 10.70% π1,711,859 π2,529,231
Australian (AU) dollar loan due
until 2009 LIBOR + 1.75% 18,215 37,627
1,730,074 2,566,858
HEDCOR
Financial institution - secured
Effective
Interest Rate 2006 2005
2.25% over the
applicable threemonth
Treasury
Securities rate 649,000 650,000
DLP
Financial institution - secured 10.89% - 11.2% 320,000 412,308
PILMICO
Financial institution -secured various 293,590 381,846
SEZC
Financial institution - secured 9.9% 182,486 87,212
FILAM
Financial institution - secured 9.41% - 10.04% 95,833 162,500
CLP
Financial institution - secured 8.78% 16,423 25,808
3,287,406 4,286,532
Total 7,479,906 7,567,032
Less current portion 1,169,082 1,756,246
6,310,824 5,810,786
Less liabilities directly associated with
noncurrent asset classified as held
for sale 455,037 –
π5,855,787 π5,810,786
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Company
The loans availed by the Company from financial institutions include:
a. Unsecured loans totaling π1,800,000 payable in five years up to 2007, with two years grace
period, on a quarterly basis to commence at the end of the eighth quarter with 4% of the
principal due on the eighth to twelfth quarter, 7.5% due on the thirteenth to sixteenth
quarter and 12.5% due on the seventeenth to twentieth quarter, with effective interest rates
ranging from 8.14% to 11.09% and 8.37% to 10.37% in 2006 and 2005, respectively.
b. An unsecured loan amounting to π1,000,000 payable in twelve equal consecutive quarterly
installments up to 2008 to commence at the end of the eighth quarter with interest rates
ranging from 8.14% to 11.09% and 8.37% to 10.37% in 2006 and 2005, respectively.
c. An unsecured loan amounting to π1,000,000 obtained in 2004, payable on the last day of the
sixtieth month from the date of the first drawdown with interest rate of 8.89% in 2006 and
9.77% in 2005, to be repriced on a quarterly basis.
d. An unsecured loan amounting to π200,000 obtained in 2003 and payable in five years up
to 2008 to commence at the end of the third year with 25% of the principal due on the third
and fourth year and a bullet payment of the remaining principal balance upon maturity,
with interest rates ranging from 7.89% to 8.11% and 8.12% to 10.12% in 2006 and 2005,
respectively. In June 2006, this loan was fully paid.
e. Unsecured loans totaling π1,200,000 availed in 2006 with bullet principal payments due
at the end of five years and with interest payments due quarterly at a fixed rate of 9%.
f. An unsecured loan amounting to π1,000,000 obtained in 2006 and payable in five years with
10% of the principal due on the second year, 25% due on the third and fourth year and the
remaining 40% on the fifth year, with interest rates ranging from 7.16% to 8.39% in 2006,
to be repriced on a quarterly basis.
g. An unsecured loan amounting to π500,000 obtained in 2006 and payable in five years with
10% of the principal due on the second year, 25% due on the third and fourth year and the
remaining 40% on the fifth year, with interest rates ranging from 7.35% to 8.66% in 2006,
to quarterly repricing.
The loans availed by the Company from non-financial institutions are subject to fixed interest
rates and have outstanding balances of π22,500 and π25,500 as of December 31, 2006 and
2005, respectively.
ATSC
Bank loans availed by ATSC from financial institutions and denominated in Philippine pesos are
collateralized by certain parcels of land and vessels of ATSC with carrying value of π3,609,606
as of December 31, 2006 and π4,937,342 as of December 31, 2005. The pledged assets have an
aggregate appraised value of π5,870,480 and π7,566,513 as of December 31, 2006 and 2005,
respectively.
Some agreements covering bank loans provide for certain restrictions and requirements that
include, among others, maintenance of favorable financial ratios such as current ratio, debt to
tangible net worth ratio and debt service coverage ratio. As of December 31, 2006 and 2005,
ATSC was not able to meet the required current ratio of 1:1 and debt service coverage ratio of
1.5:1. However, ATSC has obtained waivers from the creditor banks which are valid for one year
from December 31, 2005 and 2006.
The AU dollar-denominated loan pertains to a five-year term loan obtained by International
Marketing and Logistics PTY Ltd (IML), a subsidiary of JMBVI based in Australia. This loan requires
IML to ensure that during the term of the loan dividend payments will be restricted to ensure
that cash and cash equivalents reduced by the dividend payments exceed the debt service of the
following half year.
DLP
Loans availed by DLP from financial institutions include:
Creditor
China Banking
Corporation
(CBC)
UBP
Effective
Interest Rate
11.20% per
annum
1% over the
Land Bank of the
Philippines passon
rate to UBP,
repriced on a
quarterly basis
Principal
Payment
Schedule Collateral 2006 2005
12 quarterly Mortage trust π320,000 π320,000
payments of indenture
26.7 million (MTI) on
starting DLP’s
January 2007 power plant
equipment
13 quarterly None – 92,308
payments of
π23.08 million
320,000 412,308
Less current portion 106,667 242,307
π213,333 π170,001
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 87

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
The carrying amount of power plant equipment used as collateral for the loans from CBC amounted to
π640,000 as of December 31, 2006 and 2005.
The loan agreements with UBP and CBC prohibit DLP, among others, to make or permit any material
change in the character of its business and in the ownership or control of its capital stock; permit the
ratio of its total liabilities to total stockholder’s equity to exceed 2:1; permit the current ratio to be
less than 1 :1; participate into any merger or consolidation without written consent of the lender. The
agreements also prohibit DLP, without prior consent, to sell, lease, mortgage or dispose substantially
all of its assets; voluntarily suspend its business operations or dissolve its affairs; amend its Articles of
Incorporation and By-laws which would cause a material adverse change in its financial ability and, to
declare and pay dividends to its stockholders or retain, retire, purchase or otherwise acquire any class
of capital stock, or make any other capital or other asset distribution.
PILMICO
The loans availed by PILMICO include:
Principal
Creditor Interest Rate Payment Schedule Collateral 2006 2005
Metropolitan Bank and
Trust Company (MBTC)
Secured by a MTI π88,000 π88,000
UBP (see Note 9)
UBP (see Note 9)
MBTC
MBTC
1.5% over the
prevailing DBP
passed-on rate
1% over the
prevailing
fixed LBP
passed-on rate
1% over the
prevailing
fixed LBP
passed-on rate
1.5% over
the prevailing
MART 1 rate
1.5% over the the
prevailing DBP
passed-on rate
20 equal quarterly
payments of
π4.4 million
starting
January 2008
13 equal quarterly
payments of
π19.2 million
starting
October 2003
12 quarterly
installments of
π8.3 million
20 equal quarterly
payments of
π2.0 million
starting
October 2007
20 equal quarterly
payments of π4.4
million starting
January 2008
Secured by a MTI 76,923 153,846
Secured by a MTI 66,667 100,000
Secured by a MTI 40,000 40,000
Secured by a MTI 22,000 –
293,590 381,846
Less current portion 110,256 110,256
π183,334 π271,590
The MTI with UBP requires PILMICO, among others, to maintain and preserve
the collateral values as well as seek prior approval for any merger, consolidation,
change in ownership, suspension of business operations, disposal of assets,
maintenance of financial ratios and others.
The MTIs with MBTC require PILMICO, among others, to seek prior approval for any
merger, consolidation, change in ownership, suspension of business operations,
disposal of assets, and maintenance of financial ratios. They also prohibit PILMICO
to purchase, redeem, retire or otherwise acquire for value any of its capital stock
now or hereafter outstanding (other than as a result of the conversion of any
share of capital stock into any other class of capital stock), return any capital to
the stockholders (other than distributions payable in shares of its capital stock),
declare or pay dividends to its stockholders if payment of any sum due to MBTC is
in arrears, and declare or pay management bonus or profit sharing over and above
existing employee benefits.
HEDCOR
The loan availed by HEDCOR is a five-year loan payable on December 9, 2009 and
bears interest at two and one-fourth percent over the applicable three-month
treasury securities as displayed on MART 1 page of Bloomberg of the rate setting
day plus gross receipts tax, reviewable and payable quarterly. The loan is secured
by a chattel mortgage over the machineries and improvements of the Benguet and
Davao hydropower plants of HEDCOR and a suretyship of APC.
Loan covenant includes, among others, maintenance of current ratio of at least 1:1
and debt-equity ratio of 15:1 and restrictions such as not to incur any debt with a
maturity of more than one year without bank notification, no substantial change
in present majority ownership or management, not to enter into any merger or
consolidation, sell, lease, mortgage, hypothecate, pledge or otherwise transfer
51% or more of its assets.
88 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
FILAM
Long-term debt consists of the following peso-denominated loans obtained from Equitable PCI
Bank to finance the construction of a second feedmill plant and working capital requirements:
Principal
Interest Rate Payment Schedule Collateral 2006 2005
Annual interest at
9.41%
π62,500 π112,500
Annual interest at
agreed rate of 7.84%
plus a spread of 2.2%
12 quarterly installments
of π12.5 million starting
May 2, 2005
12 quarterly installments
of π4.2 million starting
March 10, 2006
MTI covering
Fil-Am’s
property, plant
and equipment
MTI covering
Fil-Am’s
property, plant
and equipment
π33,333 50,000
95,833 162,500
Less current portion 66,667 66,800
π29,166 π95,700
CLP
The loan availed by CLP pertains to a term loan to partially finance capital and regular expenditures
for the rehabilitation and modernization of its distribution system. The loan is payable in five
years (inclusive of a two-year grace period) in thirteen quarterly installments of π2,300 starting
September 26, 2005 and bears interest at a fixed rate of 8.78%. The loan is secured by a MTI in
favor of the designated trustee, for the pari-passu and pro rata benefit of the creditor banks,
covering CLP’s land and building improvements and transmission and distribution equipment with
a carrying value of π176,735 as of December 31, 2006 and 2005.
SEZC
The loan availed of by SEZC pertains to a term loan for assistance in the financing of the Phase 1
rehabilitation of the Subic Bay Metropolitan Authority (SBMA) Power Distribution System (PDS) up
to a total amount of π185,000. The loan is payable in ten years (inclusive of a three and one-halfyear
grace period) in twenty six equal quarterly installments commencing at the fifteenth quarter
from initial drawdown. As of December 31, 2006, SEZC has drawn π185,000 from the facility.
The loan is secured by surety of the stockholders and assignment of rights and benefits of SEZC
related to the revenue receivable and new equipment and assets to be purchased and used in the
PDS. The term loan agreement prohibits SEZC to make or permit a material change in the character,
ownership or control of its business, to secure any indebtedness, to sell, lease, transfer or dispose
of all or substantially all of its properties, assets and investments. The agreement also does not
permit SEZC to exceed the allowed debt to equity ratio or go below the allowed current ratio.
18. Customers’ Deposits
2006 2005
Transformer deposit π501,386 π457,247
Lines and poles deposit 478,244 421,251
Bill deposit 149,164 137,755
π1,128,794
π1,016,253
Bill deposits are obtained from customers and maintained at approximately equivalent
to one month consumption principally as guarantee for any uncollected bills upon
termination of the service contract. Under the Magna Carta for Residential Electricity
Consumers (Magna Carta) and Distribution Service and Open Access Rules (DSOAR) which
took effect on July 19, 2004 and January 18, 2006, respectively, bill deposits for contracts
of service after effectivity of Magna Carta and DSOAR shall earn interest equivalent to the
prevailing interest rate for savings deposit as approved by the Bangko Sentral ng Pilipinas
and the same shall be credited yearly to the bills of the registered customer. For contract
of service prior to the Magna Carta, these deposits continue to earned interest of 6% for
contracts of service entered into prior to the effectivity of the Energy Regulatory Board
Resolution No. 95 - 21 and 10% thereafter.
The Magna Carta and DSOAR also provide that bill deposits, together with accrued interests,
shall be refunded within one month from the termination of the services if all bills have
been paid. In addition to this, the customer who has paid his electric bills on or before its
due date for three consecutive years, may demand for the full refund of the deposit even
prior to the termination of the service.
In cases where the customers has previously received the refund of his bill deposit
pursuant to Article 7 of the Magna Carta, and later defaults in the payment of his monthly
bills, the customer shall be required to pose another bill deposit with the distribution
utility and lose his right to avail of the right to refund his bill deposit in the future until
termination of service. Failure to pay the required bill deposit shall be a ground for
disconnection of electric service.
Transformer and lines and poles deposits are obtained from certain customers principally
as cash bond for their proper maintenance and care of the said facilities while under
their exclusive use and responsibility. These deposits are non-interest bearing and are
refundable only after their related contract is terminated and the assets are returned to
the Group in their proper condition and all obligations and every account of the customer
due to the Group shall have been paid.
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 89

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
19. Finance Leases
ATSC acquired certain containers under finance lease arrangements denominated in US
dollars. Containers as of December 31, 2006 and 2005, shown under “Property, plant and
equipment” account in the consolidated balance sheets, include the following amounts:
2006 2005
Cost π1,032,033 π1,113,424
Less accumulated depreciation 799,276 743,709
π232,757 π369,715
Future minimum lease payments under finance lease, together with the present value of
minimum lease payments, are as follows:
2006 2005
2006 π– π165,636
2007 129,623 –
2008 to 2009 90,135 237,336
Total minimum lease obligation 219,758 402,972
Less amount representing interest 24,855 52,089
Present value of minimum lease payments 194,903 350,883
Less current portion 113,823 140,393
π81,080 π210,490
The outstanding balance of the US dollar denominated finance lease obligation of US$3,967
as of December 31, 2006 and US$6,613 as of December 31, 2005 have been restated at the
rates prevailing as of those dates of π49.132to US$1 and π53.062 to US$1, respectively.
20. Capital Stock/Redeemable Preferred Shares
Information on the Company’s authorized capital stock follows:
Number of Shares
2006 2005
Authorized capital stock:
Common shares, π1 par value 9,600,000,000 9,600,000,000
Preferred shares, π1 par value 400,000,000 400,000,000
Movements in the outstanding capital stock are as follows:
Number of Shares
2006 2005
Common shares issued:
Balance at beginning of year 5,694,599,621 5,694,599,621
Less treasury shares 742,511,938 788,230,923
Balance at end of year 4,952,087,683 4,906,368,698
Preferred shares issued:
Balance at beginning of year 186,700,000 186,700,000
Issued during the year 25,900,000 –
Balance at end of year 212,600,000 186,700,000
The redeemable preferred shares are presented in the consolidated balance sheets as part of
noncurrent liabilities in accordance with PAS 39 as follows:
2006 2005
Redeemable preferred shares of the Company π2,126,000 π1,867,000
Redeemable preferred shares of a subsidiary 13,832 19,940
π2,139,832
π1,886,940
The preferred shares are non-voting, non-participating, non-convertible, cumulative reissuable
and redeemable and may be issued from time to time by the BOD in one or more series and fixed
before issuance thereof, the number of shares in each series, and all designations, relative rights,
preferences and limitations of the shares in each series. Preferred shares that are redeemed by
the Company may be re-issued.
The Company’s outstanding preferred shares as of December 31, 2006 consist of (1) Series “A”
and “D” with floating dividend rate determined quarterly equivalent to the Applicable Base Rate
for Series “A” and “B” or the Alternative Base Rate for Series “A” and “B” plus a spread of 1.25%
per annum; (2) Series “E” with fixed dividend rate of 8.5% per annum; and (3) Series “F” with
fixed dividend rate of 8.25% per annum.
The Company shall redeem the preferred shares at the end of the corresponding agreed periods
from Issue Dates (Final Redemption Dates) regardless of the existence of unrestricted retained
earnings or other amounts legally available for the payment of dividends in such period, provided
that the Issuer has, after redemption, sufficient assets in the books to cover debts and liabilities
inclusive of capital stock, and subject to the Issuer’s compliance with the applicable laws, rules
and regulations, including the requirements of the Securities and Exchange Commission (SEC).
The final redemption dates are as follows: (1) December 2009 for series “A” and “D”; (2) December
2011 for series “E”; and (3) December 2013 for series “F”. The preferred shares shall be redeemed by
payment in cash of 100% of the Issue Price plus all accrued and unpaid cash dividends on the Final
Redemption Date.
90 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
In December 2006, the Company exercised its early redemption option over its series “B” and “C”
preferred shares at 105% of the face value plus accrued interest and simultaneously issued new
Series “E” and “F” preferred shares, part of the proceeds of which was used to finance the preferred
shares redeemed. Cost of redemption of the old preferred shares considered as extinguishment of
the old debt amounts to π62,050 in 2006.
Interest recognized on the preferred shares amounted to π267,118 in 2006 and π214,248 in 2005.
21. Retained Earnings
On February 9, 2006, the BOD approved the declaration of a π0.15 per share (π735,955)
cash dividends out of the Company’s retained earnings which was paid on March 31, 2006 to
stockholders of record as of February 24, 2006.
On February 15, 2005, the BOD approved the declaration of a π0.12 per share (π596,602)
cash dividends out of the Company’s retained earnings which was paid on March 21, 2005 to
stockholders of record as of March 2, 2005.
On February 10, 2004, the BOD approved the declaration of a π0.10 per share (π497,280) and a
π0.73 per share (π90,514) cash dividends to common and preferred share holders, respectively, out
of the Company’s retained earnings which was paid on March 10, 2004 to stockholders of record as
of February 23, 2004.
22. Revenue
The Uniform Rate Filing Requirements (UFR) on the rate unbundling released by the ERC on
October 30, 2001, specified that the billing for sale and distribution of power and electricity will
have the following components: Generation Charge, Transmission Charge, System Loss Charge,
Distribution Charge, Supply Charge, Metering Charge, the CERA and Interclass and Lifeline
Subsidies. National and local franchise taxes, the Power Act Reduction (for residential customers)
and the Universal Charge are also separately indicated in the customer’s billing statements.
23. Costs and Expenses
Operating expenses consist of:
2006 2005 2004
Fuel and lubricants π3,396,891 π3,277,603 π2,682,172
Charter hire 1,331,950 1,890,139 –
Outside services 1,015,313 782,046 675,710
Personnel (see Notes
12 and 24)
1,002,494 950,970 946,420
Depreciation 597,355 817,865 736,874
Repairs and maintenance 513,027 472,236 693,379
Insurance 255,561 314,036 377,339
Freight and handling 178,102 79,978 56,613
Commissions 141,881 209,432 203,704
Taxes and licenses 79,076 184,317 157,806
Management fees
(see Note 27)
72,571 313,831 109,348
Transportation and travel 63,750 65,286 70,408
Advertising 48,278 31,358 25,696
Rent 46,911 49,086 17,228
Utilities 29,443 20,781 49,142
Training and development 12,726 17,530 10,271
Others 594,775 470,438 896,637
π9,380,104 π9,946,932 π7,708,747
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 91

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Cost of goods sold consists of:
2006 2005 2004
Raw materials used π3,449,870 π3,655,387 π3,691,747
Direct labor (see Note 12 and 24) 22,609 24,041 23,969
Manufacturing overhead
Purchases and changes in
biological assets and
2,207,120 1,969,669 1,355,744
inventories
Depreciation 85,187 77,873 74,635
Power 71,168 61,217 52,241
Utilities and supplies 60,416 49,064 32,960
Repairs and maintenance 38,584 36,847 38,934
Insurance 23,481 26,016 27,378
Indirect labor
(see Note 12 and 24)
17,613 16,322 13,025
Taxes and licenses 16,493 20,491 13,818
Fuel and lubricants 6,295 4,881 3,516
Freight and handling 4,647 4,093 3,821
Pest control 3,030 2,593 2,220
Employees’ benefits
(see Note 12 and 24)
2,732 2,337 2,679
Others 79,854 73,069 67,994
2,616,620 2,344,472 1,688,965
Cost of goods manufactured 6,089,099 6,023,900 5,404,681
Finished goods inventory
(see Note 5)
Beginning of year 61,903 58,661 47,741
End of year (63,564) (61,903) (58,661)
π6,087,438 π6,020,658 π5,393,761
Overhead expenses consist of:
2006 2005 2004
Personnel (see Notes 12 and 24) π442,567 π504,509 π516,060
Depreciation and amortization 142,493 167,528 128,208
Outside services 133,365 120,339 150,683
Advertising 91,952 111,396 119,117
Rent 77,667 83,874 65,780
Communication, light and water 76,074 100,874 120,029
Provision for doubtful accounts 56,042 71,796 112,928
Entertainment, amusement and
recreation 22,473 29,296 33,637
Others 411,767 356,402 189,567
π1,454,400 π1,546,014 π1,436,009
Terminal expenses consist of:
2006 2005 2004
Outside services π320,974 π460,654 π462,746
Depreciation 256,191 254,994 237,144
Transportation and delivery 170,527 173,067 109,801
Personnel (see Notes 12 and 24) 97,014 61,098 36,356
Repairs and maintenance 89,654 112,667 124,028
Rent 42,402 48,957 34,217
Fuel and lubricants 41,097 47,112 27,866
Others 60,813 67,203 76,196
π1,078,672 π1,225,752 π1,108,354
24. Personnel Expenses
2006 2005 2004
Salaries and wages π1,542,075 π1,522,920 π1,507,404
Employee benefits 42,954 36,357 31,105
π1,585,029 π1,559,277 π1,538,509
92 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
25. Other Income (Charges)
2006 2005 2004
Gain on sale of:
Investments π286,642 π– π–
Property, plant and equipment 226,284 99,661 211,994
Stock investments at equity 39,037 - -
Marketable equity securities – – 15,696
Unrealized gain on:
Change in fair value of biological
assets 118,184 128,072 90,814
Recovery in value of marketable
equity securities – – 11,661
Service and other fees 73,400 118,139 –
Dividend income 35,977 5,144 11,811
Rental income 34,182 32,071 28,323
Foreign exchange gains (losses) - net (158,684) (109,879) 12,305
Write-off of project costs and others (28,236) (6,600) –
Gain from insurance claims – – 208,659
Others - net 115,943 134,057 230,204
π742,729 π400,665 π821,467
Rental income earned from and direct operating expenses of investment property amounted
to π34,182 and π20,938, respectively in 2006; π32,071 and π20,465, respectively in 2005; and
π28,323 and π18,947, respectively in 2004.
Included in others are the gains and losses relating to currency forward transactions of a subsidiary.
26. Income Taxes
The provision for (benefit from) income tax consist of:
2006 2005 2004
Current
Corporate income tax π684,638 π609,266 π578,086
Final tax 12,749 11,219 9,287
697,378 620,485 587,373
Deferred (203,373) (151,916) (56,260)
π494,014 π468,569 π531,113
A reconciliation between the statutory income tax rate and the Group’s effective income tax
rates follows:
2006 2005 2004
Statutory income tax rate 35.00% 32.50% 32.00%
Tax effects of:
Nontaxable equity in net earnings of
associates
(19.10) (19.00) (16.86)
Gain on sale of investments already
subjected to final tax
(2.68) – –
Interest income subjected to final tax
at lower rates – net
(0.46) (2.16) (1.00)
Others (1.29) 1.37 2.27
11.47% 12.71% 16.41%
Deferred income tax at December 31 relates to the following:
2006 2005
Deferred income tax assets:
NOLCO π212,165 π92,626
Allowances for:
Doubtful accounts and probable losses 122,559 86,085
Inventory obsolescence 45,978 40,786
Unrealized foreign exchange losses 75,785 9,958
MCIT 49,039 50,964
Accrued retirement benefits 13,464 26,421
Unamortized preoperating expenses 2,439 9,662
Others (5,125) 683
Deferred income tax assets π516,304 π317,185
Deferred income tax liabilities:
Unamortized customs duties and taxes
capitalized
π14,226 π10,503
Pension cost 4,738 6,017
Unamortized streetlight donations capitalized 1,223 –
Rental income based on straight-line method 577 1,047
Unrealized foreign exchange gains (losses) (71) 6,893
Others (3,694) (3,207)
Net deferred income tax liabilities π16,999 π21,253
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 93

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
In computing for deferred income tax assets and liabilities, the rates used were 35% and 30%,
which are the rates expected to apply to taxable income in the years in which the deferred tax
assets and liabilities are expected to be recovered or settled. In addition, the effect of ATSC’s
availment of income tax holiday incentive for its registration with the Board of Investments
(BOI) (see Note 29) on certain temporary differences has likewise been considered in the above
computation.
As of December 31, 2006, the Group has carryover NOLCO and MCIT (incurred in 2004 to 2006 and
expires in 2007 to 2009) that can be claimed as deductions from future taxable income or used as
deductions against income tax liabilities as follows:
Year incurred Expiry date NOLCO MCIT
2004 2007 π558,902 π944
2005 2008 263,668 10,103
2006 2009 – 37,992
π822,570 π49,039
The total unrecognized deferred tax asset from NOLCO amounted to π75,735 in 2006.
At December 31, 2006 and 2005, deferred income tax liabilities have not been recognized on the
undistributed earnings of subsidiaries and associates since such amounts are not taxable. Such
undistributed earnings amounted to π7,633,039 and π5,665,504 in 2006 and 2005, respectively
(see Note 21).
There are no income tax consequences to the Group attaching to the payment of dividends to its
shareholders.
27. Related Party Disclosures
ACO, the holding company of the Group, owns 50.00% of the Company’s common shares.
In the normal course of business, the Group enters into transactions with related parties, principally
consisting of the following:
a. Management and other service contracts of certain subsidiaries and associates with ACO at
fees based on agreed rates. Management and other service fees paid by the Group to ACO
amounted to 72,571, 221,429 and 199,943 in 2006, 2005 and 2004, respectively.
b. Temporary cash advances from and to ACO for working capital requirements. The advances
are interest bearing at an average rate of 5.17% in 2006 and 6.60% in 2005. Interest
income on temporary cash advances to ACO amounted to π36,003 in 2006, π93,514 in
2005 and π92,953 in 2004. Interest expense recognized on the temporary cash advances
from ACO amounted to nil in 2006, π117,901 in 2005 and π104,856 in 2004.
c. Aviation services rendered by AEV Aviation to ACO and certain associates. Total aviation
services income from such associates amounted to 3,338, 4,433 and 2,586 in 2006, 2005
and 2004, respectively.
d. Administration services rendered by HEDCOR to LHC as part of an Operating and
Maintenance Agreement. Total administration services income amounted to nil in 2006,
2,145 in 2005 and 2,544 in 2004.
e. Lease of commercial office units by ACO and certain associates from CPDC for a period of
three years. Rental income amounted to 16,386 in 2006 and 7,609 in 2005 and 2004.
f. Freight revenues from ACO subsidiaries and certain associates amounted to π249,245,
π203,059 and π49,074 in 2006, 2005 and 2004, respectively. Expenses incurred relating
to such revenues amounted to π187,526, π450,369 and π265,066 in 2006, 2005 and
2004, respectively.
Significant outstanding account balances with related parties as of December 31, 2006 and
2005 are as follows:
Amounts Owed
Nature of By Related Amounts Owed
Relationship
Parties to Related Parties
ACO Parent 2006 π– π5,112
2005 – 5,998
Accuria Associate 2006 218,733 –
2005 219,413 –
RVSI Associate 2006 41,705 2,444
2005 33,771 2,302
APTSC Associate 2006 5,226 85
2005 2,902 217
Pilmico Mauri Associate 2006 567 567
2005 – 96
RTSI Associate 2006 207 3,309
2005 26,005 1,810
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
The compensation of key management personnel of the Company follows:
2006 2005 2004
Short-term employee benefits π43,740 π39,560 π43,999
Post-employment benefits 2,555 1,880 2,567
π46,295 π41,440 π46,566
28. Rate Regulation, Power Supply and Other Agreements
a. Certain subsidiaries are subject to the ratemaking regulations and regulatory policies by the ERC.
b. Certain subsidiaries have contracts for the purchase of electricity from National Power
Corporation (NPC). Under the contracts, the parties have agreed, among others, on the contract
demand (1,560 kilowatts, 216 kilowatts and 28 kilowatts for DLP, CLP and SEZC, respectively) and
contract energy (504,367 kilowatt hours, 104,400 kilowatt hours and 13,286 kilowatt hours for
DLP, CLP and SEZC, respectively, per year at varying monthly rates per kilowatt hour), allocated by
NPC to the subsidiaries for each year during the effectivity of the agreements.
c. HEDCOR has an Electric Power Supply Agreement with various corporations to supply or sell
power and energy produced by the mini hydro electric power plants. The maturity of these
agreements vary from one off-taker to another with the nearest to mature in calendar year
2007 and the farthest in 2018. All agreements provide for renewals or extensions subject
to mutually agreed terms and conditions by both parties. HEDCOR is committed to supply
130,000 kilowatt hours per year based on 88% of the Luzon grid rate per kilowatt hour.
d. HEDCOR signed an Operating and Maintenance Agreement with LHC to provide
administration services and operate the 70 MW hydro electric power plant of LHC located in
Alilem, Ilocos Sur starting on October 27, 2000 until December 31, 2006 unless extended by
mutual written agreement by the parties.
e. AJBTC, JMI and AJMSI (Agents) have outstanding agreements with foreign shipping
principals, wherein the Agents render manning and crew management services consisting
primarily of the employment of crew for the principals’ vessels. As such, the principals
have authorized the Agents to act on their behalf with respect to all matters relating to the
manning of the vessels. Total service fees recognized in the consolidated statements of
income amounted to π274,518 in 2006, π342,839 in 2005 and π321,858 in 2004.
h. JMBVI and Subsidiaries have outstanding Charter Party Agreements with the vessels’
owners for the use of the vessels or for sublease to third parties within the specified
periods of one to three years under the terms and conditions covered in the agreements.
In consideration thereof, JMBVI recognized charter hire expense amounted to π1,331,950
in 2006 and π1,890,139 in 2005.
29. Registration with the Department of Energy and BOI
a. HEDCOR and NMHC are registered as mini hydro electric power developers with the
Department of Energy under Republic Act (RA) 7156, entitled “Mini Hydro Electric Power
Incentive Act”. By virtue of such registration, these companies were entitled to certain
incentives, among which are the special privilege tax at the rate of 2% on power sales, tax
and duty free importation of machinery, equipment and materials; tax credit on domestic
capital equipment, and income tax holiday. Such incentives expired in 2000, except for
the four power plants located in Davao City, acquired from the Power Sector Assets and
Liabilities Management Corporation which started commercial operations on January 19,
2005. Income tax holiday of the four plants started on September 28, 2005.
b. ATSC is registered with the BOI under the Omnibus Investment Code of 1987 as a new
operator of inter-island shipping through its SuperFerry 15, 16, 17 and 18 vessels on a
pioneer status starting February 13, 2003 and SuperFerry 19 starting December 29, 2004,
and Superferry 12 starting May 4, 2005. Such registration entitles ATSC to income holiday
for a period of three to six years from the date of registration. Income tax holiday incentive
availed amounted to π67,249, π52,256 and π40,640 in 2006, 2005 and 2004, respectively.
30. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise of cash and cash equivalents, AFS
investments, trade and other receivables, trade and other payables, non-convertible,
cumulative, redeemable preferred shares, and interest-bearing loans. The main purpose
of these financial instruments is to raise finances for the Group’s operations and its
investments in existing subsidiaries and associates and in new projects.
The main risks arising from the Group’s financial instruments are interest rate risk resulting
from movements in interest rates that may have an impact on outstanding long-term loans;
credit risk involving possible exposure to counter-party default on its cash investments;
liquidity risk in terms of the proper matching of the type of financing required for specific
investments; and foreign exchange risk in terms of foreign exchange fluctuations that may
significantly affect its foreign currency denominated placements.
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to its
long-term debt obligations. To manage this risk, the company determines the mix of its
debt portfolio as a function of the level of current interest rates, the required tenor of
the loan, and the general use of the proceeds of its various fund raising activities. As of
December 31, 2006, 67% of the Group’s long-term debt had floating interest rates ranging
from 6.19% to 11.09%, and 33% are with fixed rates ranging from 8.25% to 9%. As of
December 31, 2005, 54% of the Group’s long-term debt had floating interest rates ranging
from 7.45% to 8.62%, and 46% are with fixed rates ranging from 11.00% to 12.88%.
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 95

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
The following tables set out the carrying amount, by maturity, of the Group’s financial instruments
that are exposed to interest rate risk:
As of December 31, 2006
< year 1-5years >5 years Total
Floating rate - long-term debt π1,092,159 π3,726,842 π– π4,819,001
Fixed rate - long-term debt 76,923 1,863,996 264,949 2,205,868
Redeemable preferred shares – 2,139,832 – 2,139,832
Obligations under finance lease 113,823 81,080 – 194,903
π1,282,905 π7,811,750 π264,949 π9,359,604
As of December 31, 2005
< year 1-5years >5 years Total
Floating rate - long-term debt π1,187,850 π3,060,268 π80,452 π4,328,570
Fixed rate - long-term debt 568,396 2,228,616 441,450 3,238,462
Redeemable preferred shares – 1,886,940 – 1,886,940
Obligations under finance lease 140,393 210,490 – 350,883
π1,896,639 π7,386,314 π521,902 π9,804,855
Interest on financial instruments classified as floating rate is repriced at intervals of less than one
year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the
instrument. The other financial instruments of the Group that are not included in the above tables
are non-interest bearing and are therefore not subject to interest rate risk.
The sources of interest expense are as follows:
2006 2005 2004
Bank loans and long-term debt
(see Notes 15 and 17)
π828,153 π866,986 π973,348
Customers’ deposits (see Note 18) 12,402 10,348 10,329
Obligations under finance lease (see Note 19) 30,512 47,255 56,365
Advances from related parties (see Note 27) - 117,901 104,856
π871,067 π1,042,490 π1,144,898
Credit risk
For its cash investments, AFS investments and receivables, the Group’s credit risk pertains
to possible default by the counterparty, with a maximum exposure equal to the carrying
amount of these assets. With respect to cash and AFS investments, the risk is mitigated
by the short-term and or liquid nature of its cash investments mainly in bank deposits
and placements, which are placed with financial institutions of high credit standing.
With respect to receivables, credit risk is controlled by the application of credit approval,
limit and monitoring procedures. It is the Group’s policy to enter into transactions with
a diversity of credit-worthy parties to mitigate any significant concentration of credit
risk. The Group ensures that sales are made to customers with appropriate credit history
and has internal mechanism to monitor the granting of credit and management of credit
exposures. The Group has no significant concentration risk to a counterparty or group of
counterparties.
Liquidity risk
The Group maintains sufficient cash and cash equivalents to finance its operations. Any
excess cash is invested in short-term money market placements. These placements are
maintained to meet maturing obligations and pay dividend declarations. The Group, in
general, matches the appropriate long-term funding instruments with the general nature
of its equity investments.
In managing its long-term financial requirements, the Group’s policy is that not more than
25% of long term borrowings should mature in any twelve-month period. 12.23% of its
debt will mature in less than one year at December 31, 2006 (2005: 14.92%). For its shortterm
funding, the company’s policy is to ensure that there are sufficient working capital
inflows to match repayments of short-term debt.
Foreign exchange risk
The foreign exchange risk of the Group is mainly with respect to its foreign currency
denominated cash investments. To mitigate the risk of incurring foreign exchange losses,
foreign currency holdings are matched against the potential need for foreign currency in
financing equity investments and new projects.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
31 . Financial Instruments
Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s
financial instruments that are carried in the financial statements at other than fair values (amounts
in millions).
Carrying
Amount
2006 2005
Fair Carrying
Value Amount
Fair
Value
Financial assets
Cash and cash equivalents π8,010 π8,010 π4,623 π4,623
Trade and other receivables 3,661 3,661 3,368 3,368
Available-for-sale financial assets 96 96 150 150
π11,767 π11,767 π8,141 π8,141
Financial liabilities
Bank loans π824 π824 π1,299 π1,299
Trade and other payables 4,625 4,625 4,595 4,595
Customers’ deposits
Bill deposits 149 149 138 138
Transformers, lines
and poles
980 980 878 878
Obligations under finance leases 195 202 351 404
Floating rate borrowings 4,819 4,819 3,238 3,238
Fixed rate borrowings 2,206 2,367 4,329 4,608
Redeemable preferred shares 2,140 2,140 1,887 1,887
π15,938 π16,106 π16,715 π17,047
Fair Value of Financial Instruments
Fair value is defined as the amount at which the financial instrument could be exchanged in a
current transaction between knowledgeable willing parties in an arm’s length transaction, other
than in a forced liquidation or sale. Fair values are obtained from quoted market prices, discounted
cash flow models and option pricing models, as appropriate.
The following methods and assumptions are used to estimate the fair value of each class of
financial instruments:
Cash and cash equivalents and trade and other receivables.
The carrying amounts of cash and cash equivalents and trade and other receivables approximate
fair value due to the relatively short-term maturity of these financial instruments.
Fixed-rate borrowings.
The fair value of fixed rate interest bearing loans is based on the discounted value of future cash
flows using the applicable rates for similar types of loans.
Variable-rate borrowings.
Where the repricing of the variable-rate interest bearing loan is frequent (i.e., three-month
repricing), the carrying value approximates the fair value. Otherwise, the fair value is determined
by discounting the principal plus the known interest payment using current market rates.
The fair value of bill deposits approximates the carrying values as these deposits earn interest
at the prevailing market interest rate in accordance with regulatory guidelines. The timing and
related amounts of future cash flows relating to transformer and lines and poles deposits cannot
be reasonably and reliably estimated for purposes of establishing their fair values using an
alternative valuation technique.
Redeemable preferred shares and AFS financial assets.
The fair values of the redeemable preferred shares are based on the discounted value of future
cash flows using the applicable rates for similar types of borrowings. The fair values of AFS assets
are based on quoted market prices.
Obligations under finance lease.
The fair values of obligation under finance lease are based on the discounted net present value
of cash flows using prevailing market rates.
32. Other Commitments
a. Operating Lease Commitments
Certain subsidiaries lease their office space for a period of one to three years. Total rent
expense charged to operations amounted to π166,980, π133,181 and π96,828, in 2006,
2005 and 2004, respectively.
Future minimum rentals payable under non-cancelable operating leases is as follows as of
December 31, 2006:
Within one year π33,911
After one year but not more than five years 146,663
More than five years 36,218
π216,792
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 97

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
b. Memorandum of Agreement
In 2002, ATSC entered into a Memorandum of Agreement (Agreement) with Asian
Terminals, Inc. (ATI) for the use of the latter’s facilities and services at the South Harbor for
the embarkation and disembarkation of ATSC’s domestic passengers, as well as loading,
unloading and storage of the cargoes. The Agreement shall be for a period of five years,
which term commenced effective May 1, 2003, the first scheduled service of ATSC at the
South Harbor. The Agreement is renewable for another five years under such terms as may be
mutually agreed by the parties in writing. If the total term of the Agreement is less than ten
years, then ATSC shall pay the penalty equivalent to unamortized reimbursement of capital
expenditures and other related costs incurred by ATI in the development of South Harbor.
Under the terms and conditions of the Agreement, ATSC shall avail of the terminal services of
ATI, which include among others, stevedoring, arrastre, storage, warehousing and passenger
terminal. Domestic tariff for such services shall be subject to an escalation of 5% every year.
Total service fees charged to operations amounted to π247,234 in 2006, π279,808 in 2005
and π222,230 in 2004.
c. Agreement with SBMA
On May 15, 2003, the SBMA, AEV and DLPC entered into a Distribution Management Service
agreements (DMSA) for the privatization of the SBMA PDS on a rehabilitate-operate-andtransfer
arrangement.
The unamortized portion of the remittance to the SBMA as of December 31, 2006 and
2005 amounting to π73,700 and π60,000 million, respectively, are presented as part of the
“prepayments and other current assets” account in the consolidated balance sheets. Under
the terms of the DMSA, SEZC was created to undertake the administration, rehabilitation,
operation and maintenance of the PDS including the provision of electric power service to
the customers within the Subic Bay Freeport Secured Areas of the Subic Bay Freeport Zone
as well as the collection of the relevant fees from them for its services and the payment by
SBMA of the service fees throughout the service period pursuant to the terms of the DMSA.
For and in consideration of the services and expenditures of SEZC for it to undertake the
rehabilitation, operation, management and maintenance of the PDS, it shall be paid by the
SBMA the service fees in such amount equivalent to all the earnings of the PDS, provided,
however, that SEZC shall remit the amount of π40,000 to the SBMA at the start of every
twelve-month period throughout the service period regardless of the total amount of
all earnings of the PDS. The said remittance may be reduced by the outstanding power
receivables from the SBMA, including streetlights power consumption and maintenance,
for the immediately preceding year.
33. Earnings Per Common Share
Earnings per common share amounts were computed as follows:
2006 2005 2004
a. Net income attributable to equity holders
of the parent π3,753,926 π3,159,132 π2,542,887
b. Weighted average number of common
shares issued and outstanding
4,929,228,183 4,849,546,525 4,821,494,988
c. Earnings per common share (a/b)
π0.762 π0.651 π0.527
There are no dilutive potential common shares as of December 31, 2006, 2005 and 2004.
The DMSA shall be effective for a twenty five-year period commencing on the turnover
date and consisting of two phases: (a) the five-year rehabilitation period and (b) the twentyyear
operation, management and maintenance period. Total estimated rehabilitation costs
committed by SEZC under the DMSA amounted to π368,600.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
34. Business Segment Information
The Group’s operating businesses are organized and managed separately according to
the nature of the products and services provided, with each segment representing a
strategic business unit that offers different products and serves different markets.
The power segment is engaged in power generation and sale of electricity.
The food manufacturing segment is engaged in the production of flour and feeds and
swine breeding.
The transportation segment provides domestic sea transportation services.
The Group operates and generates revenue principally only in the Philippines
(i.e., one geographical location). Thus, geographical segment information is
not presented.
Financial information on the operations of the various business segments are summarized as follows:
Power
Food
Manufacturing
2006
Transport
Services
Parent
Company
and Others Eliminations Consolidated
REVENUE π8,762,740 π7,439,021 π10,571,185 π816,945 (π878,589) π26,711,302
RESULTS
Segment results 1,231,826 605,562 (101,465) 570,143 22,040 2,328,106
Unallocated corporate
income (expenses) 127,444 176,427 527,675 (47,561) (41,256) 742,729
INCOME FROM OPERATIONS 3,070,835
Interest expense (200,158) (45,175) (353,049) (367,582) 94,897 (871,067)
Dividends in redeemable
preferred shares – – – (267,118) – (267,118)
Interest income 52,996 7,625 18,298 257,412 (75,624) 260,707
Share in net earnings of
associates 810,549 - 5,308 3,569,580 (2,270,727) 2,114,710
Provision for Income tax (405,076) (234,836) 95,109 50,789 (494,014)
NET INCOME 3,814,053
OTHER INFORMATION
Segment assets 2,656,399 2,123,510 4,568,249 6,421,033 (664,400) 15,104,791
Investments and advances 2,153,859 - 37,355 24,697,161 (13,014,842) 13,873,533
Unallocated corporate assets 3,527,019 1,480,099 5,696,362 607,093 555,526 11,866,099
Consolidated total assets 40,844,423
Segment liabilities 1,596,445 1,714,021 5,473,623 8,343,781 (724,145) 16,403,725
Unallocated corporate
liabilities 94,866 33,643 12,691 16,262 – 157,462
Consolidated total liabilities 16,561,187
Capital Expenditure 733,083 116,886 538,475 32,179 – 1,420,623
Depreciation and amortization 451,102 91,891 1,224,399 41,858 – 1,809,250
Non-cash expenses other
than depreciation – – 28,236 – – 28,236
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 99

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Power
Food
Manufacturing
Transport
Services
2005
Parent
Company
and Others Eliminations Consolidated
REVENUE π8,106,300 π7,037,184 π11,656,756 π397,568 (π274,984) π26,922,824
RESULTS
Segment results 1,380,475 422,287 184,225 139,088 15,975 2,142,050
Unallocated corporate
income (expenses) 496,647 135,516 180,096 (75,576) (336,020) 400,663
INCOME FROM
OPERATIONS 2,542,713
Interest expense (232,381) (50,724) (383,406) (375,979) – (1,042,490)
Dividends in redeemable
preferred shares – – – (214,248) – (214,248)
Interest income 25,638 6,652 26,166 186,288 – 244,744
Share in net earnings
of associates 1,031,436 2,965 22,527 3,480,142 (2,381,727) 2,155,343
Provision for Income tax (402,726) (135,134) 36,082 33,209 – (468,569)
NET INCOME 3,217,493
OTHER INFORMATION
Segment assets 2,100,909 1,839,103 3,622,033 2,986,735 (277,200) 10,271,580
Investments and
advances 3,402,986 54,292 46,915 22,799,691 (11,799,262) 14,504,622
Unallocated
corporate assets 3,202,690 1,464,018 7,684,663 763,885 384,278 13,499,534
Consolidated total
assets 38,275,736
Segment liabilities 2,727,502 1,579,083 6,906,181 6,134,406 (615,148) 16,732,024
Unallocated corporate
liabilities 143,749 31,638 15,827 13,004 – 204,218
Consolidated total
liabilities 16,936,242
Capital Expenditure 809,694 173,034 1,002,947 33,897 – 2,019,572
Depreciation and
amortization 403,471 96,133 1,429,567 41,130 – 1,970,301
Non-cash expenses
other than depreciation 8,439 591 493,420 125,385 – 627,835
Power
Food
Manufacturing
2004
Transport
Services
Parent
Company
and Others Eliminations Consolidated
REVENUE π6,583,131 π6,168,828 π9,681,849 π67,580 (π90,464) (π22,410,924)
RESULTS – –
Segment results 1,096,626 389,227 522,898 (198,162) – 1,810,589
Unallocated corporate
income (expenses) 205,584 66,671 471,370 77,842 – 821,467
INCOME FROM OPERATIONS 2,632,056
Interest expense (231,628) (64,126) (369,177) (479,967) – (1,144,898)
Interest income 31,361 4,806 20,999 159,875 – 217,041
Share in net earnings
of associates 821,372 3,668 (454) 3,005,065 (2,297,520) 1,532,131
Provision for Income tax (323,037) (63,236) (133,123) (11,717) – (531,113)
NET INCOME 2,705,217
OTHER INFORMATION
Segment assets 1,752,301 1,823,477 3,348,995 3,895,318 (598,073) 10,222,018
Investments and
advances 3,860,305 51,306 22,238 20,201,264 (10,886,820) 13,248,293
Unallocated corporate assets 3,027,893 1,385,355 7,867,417 1,010,385 (168,785) 13,122,265
Consolidated total assets 36,592,576
Segment liabilities 3,041,231 1,675,289 6,683,301 5,741,856 (1,124,361) 16,017,316
Unallocated corporate
liabilities 212,690 19,293 25,224 63,492 – 320,699
Consolidated total liabilities 16,338,015
Capital Expenditure 489,449 23,681 2,424,812 21,516 – 2,959,458
Depreciation
and amortization 356,355 90,027 1,284,713 57,072 – 1,788,167
Non-cash expenses other
than depreciation 11,296 180 508,050 14,832 – 534,358
100 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
35. Contingencies
36. Other Matters
There are legal cases filed against certain subsidiaries in the normal course of business.
Management and its legal counsel believe that the subsidiaries have substantial legal and
factual bases for their position and are of the opinion that losses arising from these cases, if
any, will not have a material adverse impact on the consolidated financial statements.
a. Impact of the Generation Rate Adjustment Mechanism (GRAM)
Case of the Manila Electric Company, Inc. (Meralco)
The ERC promulgated an Order dated February 24, 2003 in ERC Case No. 2003-44 adopting
the Implementing Rules for the Recovery of Fuel and Independent Power Producer Costs or
the GRAM. The GRAM Implementing Rules provide, among others, that before any generation
cost is passed on to consumers by the distribution utilities, a petition must be filed at the ERC
for approval. Meralco filed its application docketed as ERC Case No. 2004-112 for approval
of actual generation costs for the period November 2003 to January 2004. In the Order
dated June 2, 2004, the ERC approved the adjustment of Meralco’s Generation Charge in
accordance with the GRAM Implementing Rules.
b. Electric Power Industry Reform Act (EPIRA) of 2001
RA No. 9136 was signed into law on June 8, 2001 and took effect on June 26, 2001.
RA No. 9136 provides for the privatization of NPC and the restructuring of the electric
power industry. The Implementing Rules and Regulations (IRR) were approved by the Joint
Congressional Power Commission on February 27, 2002. RA No. 9136 and the IRR impact the
power industry as a whole. Other provisions of RA No. 9136 and the IRR are: (a) distribution
utilities will provide open and nondiscriminatory access to its distribution systems within
three years from the effectivity of the EPIRA, subject to certain conditions precedent; (b)
distributors shall be allowed to recover stranded contract costs, subject to review and
verification by the ERC for fairness and reasonableness; (c) NPC and distributors shall have
filed their proposed unbundled charges within six months from the EPIRA’s effectivity; (d)
distributors shall file a Business
Separation Unbundling Plan (BSUP) with the ERC by December 26, 2002; (e) residential users
shall get a π0.30 per kwh reduction in power rates to be provided by NPC and passed on by
distributors starting August 2001; (f) the power to grant electric distribution franchises shall
be vested solely in Congress, thereby repealing or amending Section 43 of Presidential Decree
269 (The National Electrification Decree); (g )NPC shall segregate its subtransmission assets
for disposal to qualified distributors within two years from the effectivity of the EPIRA;
engage in related business, provided up to 50% of the income from the related business
shall be used to lower wheeling charges. The law also empowers the ERC to enforce rules to
encourage competition and penalize anti-competitive behavior.
Following the enactment of EPIRA in June 2001, the implementation of its various
provisions continued in 2005.
Distribution Wheeling Rate Guidelines
In accordance with the authority given to the ERC by Sec. 43 of EPIRA to “adopt alternative
forms of internationally-accepted rate-setting methodology”, the ERC approved the
Distribution Wheeling Rate Guidelines (DWRG) on December 20, 2004. The DWRG took
effect on January 29, 2005.
DWRG embodies a new rate-fixing scheme more commonly known as PBR. Under the
current RORB methodology, utility tariffs are based on historical costs plus a reasonable
rate of return. On the other hand, the PBR scheme sets tariffs according to forecasts of
performance and capital and operating expenditures. The DWRG also employs a penalty/
reward mechanism depending on a utility’s actual performance.
The DWRG stipulates that the ERC must publish a Regulatory Reset Issues Paper for the
regulatory reset process, which the ERC released for public comments last September 30,
2005. Also, participating utilities shall submit to the ERC information on historical network
and customer service performance by March 31, 2006 and file a rate application by August
31, 2006. After hearings and regulatory evaluation, the new PBR-based tariffs should be
implemented by July 2007.
Wholesale Electricity Spot Market
The year 2005 also saw the Philippine Electricity Market Corporation, or PEMCO, finalizing
its preparations for the commercial operations of the wholesale electricity spot market
(WESM), as envisioned by Sec. 30 of EPIRA.
To test the WESM’s hardware and software systems, the PEMCO began a Trial Operations
Program last April 2005, in which the power distribution utilities participated. The WESM
system was also certified by PA Consulting as being “substantially compliant” with the
WESM rules and the associated market manuals and system operations procedures. For its
governance structure, the PEMCO Board is selecting members to the committees that will
assist it in overseeing the operation of the WESM. These committees include the Market
Surveillance Committee, Dispute Resolution Administrator, Rules Change Committee,
Technical Committee and the PEM Auditor.
(h) NPC shall file with the ERC within six months from the effectivity of the EPIRA the
Transition Supply Contracts negotiated with distributors; and (i) distribution companies may
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
Presently, the PEMCO and the DOE are seeking regulatory approval of key market rules,
particularly the market’s price determination methodology (PDM), the setting of market fees
and the administered price.
Preparations for retail competition
The ERC has been laying down the framework for the eventual introduction of retail
competition and open access, in accordance with Sec. 31 of EPIRA. The framework, known
as the “seven pillars” is a set of regulations that are intended to encourage and govern
competition in the retail supply market.
Of the seven, three have been promulgated, the Business Separation Guidelines (September
2003), the Retail Electricity Supplier Licensing Guidelines (July 2005), and the Distribution
Service and Open Access Rules (February 2006). Currently, the ERC is soliciting comments
on a draft Code of Conduct for Retail Market Participants and the proposed Supplier of Last
Resort, or SoLR, Guidelines, the draft Manual of Uniform Business Practices and a revised
Competition Rules and Complaints Procedures.
The ERC has yet to release a draft of its Manual of Uniform Business Practices.
The ERC also announced that it would be conducting public consultations on a possible
revision of its timeline for implementing retail competition. In an earlier Resolution
(dated September 2004), the ERC set the commencement of retail competition in the Luzon
Grid on July1, 2006.
Removal of cross-subsidies
The ERC ordered the schedule of the inter-class subsidy. The gradual removal of
cross-subsidies is mandated by Sec. 74 of the EPIRA.
c. DLP’s Case
On December 7, 1990, certain customers of DLP filed a letter-petition for recovery before
the Energy Regulatory Board (ERB), ERC’s predecessor agency, claiming that with the SC’s
decision reducing the sound appraisal value of DLP’s properties, that DLP exceeded the 12%
return on rate base. ERB’s order dated June 4, 1998, limited the computation coverage of
the refund from January 19, 1984 to December 14, 1984. No amount was indicated in the ERB
order as this has yet to be recomputed.
The SC in its decision dated November 30, 2006 per GR150253 reversed the CA decision
No. 50771 by limiting the period covered for the refund from January 19, 1984 to December
11, 1984, approximately 11months.
Management is confident that any refund, if there is any, is immaterial.
d. LHC Arbitration
LHC is a party to a dispute with a contractor regarding the delay in the completion of LHC’s
Power Station. Under the Turnkey Contract, the contractor shall pay liquidated damages
for each day of delay on the following day without the need of demand from LHC. LHC
may, without prejudice to any other method of recovery, deduct the amount of such
damages from any monies due or to become due to the contractor and/or by drawing on
the irrevocable and confirmed standby letters of credit amounting to US$18 million (the
Security).
In 2001, due to the delay in the completion of the Power Station, LHC withdrew the
irrevocable and confirmed standby letters of credit amounting to US$18 million which the
contractor has constituted as security to LHC as contained in the Turnkey Contract.
In November 2000, the contractor and LHC elevated their claims and counterclaims to
an Arbitration Tribunal operating under the Rules of International Chamber of Commerce
sitting in Australia (ICC International Australian Case No. 11264/TE/MW).
The Arbitration Tribunal delivered the final award on August 9, 2005.
LHC was successful in certain claims concerning the design and construction of the lined
and unlined tunnel. However, the Arbitration Tribunal also found that the contractor is
entitled to certain money claims and refund of the liquidating damages that LHC has drawn
from the contractor’s letters of credit.
LHC has recognized provisions for arbitration for the full financial effects of the final
award delivered by the Arbitration Tribunal for the claims and counterclaims filed by the
contractor and LHC for the construction of the Power Station.
The Court of Appeals (CA), in Court of Appeals General Register (CAGR) Special Proceeding
(SP) No. 50771, promulgated a decision dated February 23, 2001 which reversed the order of the
ERB, expanding the computation coverage period from January 19, 1984 to September 18, 1989.
102 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Par Value, Per Share Amounts, Kilowatt Hour Rates
Number of Shares, Percentages, Useful Lives and Exchange Rates)
In November 2006, the Court of Appeals (CA) granted LHC’s petition for permanent
injunction against the enforcement of the Final Award on the ground of, among others,
forum shopping by the contractor. Furthermore, the CA declared the Final Award null and
void due to being contrary to Philippine public policy. The contractor has filed a motion
with the Supreme Court (SC) asking for until January 19, 2007 to appeal the CA’s decision. On
January 19, 2007, the contractor filed its Petition for Review with the SC appealing the decision
of the appellate court. As of April 12, 2007, the SC has not acted on the contractor’s petition.
LHC believes that the accounting entries made for the full financial effects of US$24.5 million
in 2005 of the final award do not reflect its admission of any obligation under the award and
that the ultimate amounts of liabilities to be paid or settled, if any, depend upon the final
outcome of other court cases that would affect enforcement of said final award.
e. Use of Tax Credit Certificates (TCC)
PILMICO, Pilmico-Mauri and VECO were ordered by the Bureau of Internal Revenue (BIR) to
pay the total amount of π57,618, including fines and penalties for value added taxes (VAT)
for the first quarter of 2003 and April 2003. The order arises from the use of alleged invalid
TCCs purchased by the companies and subsequently applied to taxes due. Management has
been advised by its legal counsel that the order of payment was not preceded by a letter of
authority to investigate, an actual investigation, nor by a deficiency assessment for VAT.
The companies’ legal counsel believes that the assessment is void for lack of due process
and has contested the same at the Court of Tax Appeals. The case is now undergoing trial on
the merits of the BIR order of payment. Management and legal counsel believe that the order of
payment has no legal basis because aside from the above stated reasons, the VAT sought to be
paid has in fact already been paid in the form of Tax Debit Memo validly issued by the BIR.
37. Events After the Balance Sheet Date
a. Magat Power Plant
In January 2007, the Power Sector Assets and Liabilities Management Corporation (PSALM)
issued the Notice of Award to the consortium between Aboitiz Power Corporation and
Norway’s SN Power, SN Aboitiz Power, Inc. (SNAP), officially declaring the group as the winning
bidder for the 360-megawatt (MW) Magat Hydroelectric Power Plant in Ramon, Isabela.
During the deferred payment period, PSALM will turn over to the consortium the Magat
facility on the condition that it will operate, maintain and rehabilitate the complex in the
ordinary and usual course of business. Magat was the largest generating capacity among
the operating hydroelectric power plants on the sale block.
b. Initial Public Offering (IPO)
In January 2007, the Board of Directors of both APC and the Company approved the IPO
of APC, subject to the approval of the Philippine Stock Exchange (PSE), SEC and all other
required regulatory authorities. The BOD of the Company also approved the consolidation
of all the Company’s power assets and their transfer of the Company’s interests in various
power distribution companies to APC in exchange for APC shares, subject to the approval
of the PSE, SEC, the BIR and all other required regulatory authorities.
The public offering of APC is consistent with the spirit of the EPIRA for broader public
ownership of electricity distribution and generation assets. The offering will also
enhance APC’s position as a participant in the privatization of NPC assets as well as in the
development and acquisition of additional power projects.
c. Treasury Sales
In January 26, 2007, the Company successfully placed its entire treasury shares holdings
representing 742,511,938 shares at a price of π8.20 per share or a 5.7% discount to the
share price close of π8.70.
The treasury sale transaction represents approximately π6.1 billion, equivalent to
US$124 million. International investors took up 92% of the offering, while domestic
investors took up 8%. The offering saw high quality demand from approximately
60 institutional investors in US, Europe and Asia which will significantly increase the
Company’s free float and further strengthen the Company’s shareholder base.
The proceeds of the sale will be used by the Company for its various power projects and
participation in the privatization in the NPC’s power plants.
The Asset Purchase Agreement (APA) for the Magat facility requires SNAP to deliver at least
40% of the purchase price of US$530 million as upfront payment payable on or before the
closing date. The balance of 60% may be paid in 14 equal semi-annual payments with an
interest of 12% per annum compounded semi-annually.
A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6 • 103

Investor Information
Head Office: Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue
Kasambagan, Cebu City 6000, Philippines
Tel. No. (63-32) 231-2580 • Fax (63-32) 231-4031
Metro Manila: 6th Floor, Legazpi Street
Legaspi Village, Makati City 1229, Philippines
Tel. No. (63-2) 793-2800 • Fax (63-2) 817-3560
Common Stock
The Company’s common stock is listed and traded on
the Philippine Stock Exchange.
Citibank N.A. serves as depository bank.
Stockholders’ Meeting
The Company’s regular stockholders’ meeting is held
every year on the third Monday of May.
Stockholder Services and Assistance
The Securities Transfer Services Inc. (STSI) serves as the
Company’s stock transfer agent registrar. For inquiries
regarding dividend payments, change of address and
account status, lost or damaged stock certificates,
please write or call:
SECURITIES TRANSFER SERVICES, INC.
4th Floor, Benpres Building
Meralco Avenue cor. Exchange Road
Ortigas Center, Pasig City, Philippines
Tel. No. (63-2) 449-6149 to 69
Fax: (63-2) 638-0234
email: tonyg@stsi.ph
Institutional Investor Inquiries
AEV welcomes inquiries from institutional investors, analysts,
and the financial community. Please write or call:
Investor Relations
Aboitiz Equity Ventures, Inc.
Tel: (63-32) 233-9700
Fax:(63-32) 231-4031
email: aev@aboitiz.com
www.aboitiz.com
Prepared by AEV Corporate Communications Group
Design by Designation
104 • A B O I T I Z E Q U I T Y V E N T U R E S A N N U A L R E P O R T 2 0 0 6

Cebu: Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue
Cebu City, Philippines
Tel. No. (63-32) 231-2580
Fax (63-32) 231-4031
Manila: 6th Floor, 110 Legazpi Street
Legaspi Village, Makati City, Philippines
Tel. No. (63-2) 793-2800
Fax (63-2) 817-3560
www.aboitiz.com
email: aev@aboitiz.com