2011 Annual Report Financial Supplements - BDO

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PEACe BondsOn October 18, 2001, the Bureau of Treasury (BTr), through an auction, offeredten-year zero coupon treasury bonds, called the Poverty Eradication and AlleviationCertificates Bonds (PEACe Bonds), to Government Securities Eligible Dealers.Rizal Commercial Banking Corporation (RCBC) won the bid in the same year and wasawarded approximately P35,000 worth of government bonds. The PEACe Bonds weresubsequently purchased by investors, including the BDO Unibank, who relied in good faithon representations that the same are not subject to 20% Final Withholding Tax (20% FWT).On July 16, 2004, the Commissioner of Internal Revenue ruled that the mere issuance ofgovernment debt instruments and securities is deemed as falling within the coverage ofdeposit substitute irrespective of the number of lenders at the time of origination.Accordingly, government debt instruments and securities are not exempt from taxes.On October 7, 2011, or nearly ten years after the auction, the Commissioner of InternalRevenue, upon the request of the Secretary of Finance, issued a ruling stating that the PEACeBonds are not exempt from the 20% FWT.October 16, 2011, Eight Banks that purchased the PEACe Bonds filed a case in the SupremeCourt to enjoin the BTr and BIR from withholding or collecting the 20% final withholdingtax, upon payment at maturity, as well as from enforcing the 2011 ruling.On October 17, 2011, the BIR issued a second ruling stating that the 20% FWT should beimposed upon all subsequent holders of the PEACe Bonds.On October 18, 2011, the Supreme Court unanimously resolved, and issued a TemporaryRestraining Order (TRO) which enjoined the government from implementing 2011 rulingsthat the Peace Bonds were subject to 20% final withholding tax. The Supreme Courtinstructed that the disputed amount should be placed in escrow by the petitioning banks.On October 27, 2011, RCBC and RCBC Capital, as the original purchasers of the PEACeBonds filed a Motion for Leave of Court to Intervene, which was granted by the SupremeCourt on November 15, 2011On November 15, 2011, the Supreme Court required the Government to show cause whythey failed to comply with the October 18, 2011 TRO and, required them to comply with saidTRO within 10 days from notice, which would cause the return of the funds to the petitioningbanks, for the latter to place in escrow.The Government has requested additional time within which to file their Comment on thePetitions-in-intervention.Management believes that the petitioning banks have a strong case, and that the probability ofrecovery is high.www.bdo.com.ph 145
NOTES TOFINANCIAL STATEMENTSDECEMBER 31, 2011, 2010 AND 2009(Amounts in Millions of Philippine Pesos, Except Per Share Data or As Indicated)OthersThe BDO Unibank Group is also a defendant in various cases pending in courts for allegedclaims against the BDO Unibank Group, the outcomes of which are not fully determinable atpresent. As of December 31, 2011, management believes that, liabilities or losses, if any,arising from these claims would not have a material effect on the financial position and resultsof operations of BDO Unibank Group and will be recognized if and when a final resolutionby the courts is made on each claim.31.02 LeasesBDO Unibank Group leases the premises of its head office and most of its branch offices forperiods ranging from one to 15 years from the date of the contracts; terms are renewableupon the mutual agreement of the parties. Rent expense, reported as part of Occupancyunder Other Operating Expenses account in the statements of income, amounted to P1,889in 2011, P1,759 in 2010, and P1,651 in 2009 in the BDO Unibank Group financial statementsand P1,812 in 2011, P1,659 in 2010, and P1,531 in 2009 in the Parent Bank financialstatements (see Note 22).The estimated minimum future annual rentals for the next five years follow:31.03 OthersBDOYear Unibank Group Parent Bank2012 P 1,475 P 1,4122013 1,675 1,6062014 1,900 1,8282015 2,158 2,0842016 2,456 2,379P 9,664 P 9,309In the normal course of BDO Unibank Group’s operations, there are various outstandingcommitments and contingent liabilities such as guarantees, commitments to extend credit,etc., which are not reflected in the BDO Unibank Group financial statements. BDO UnibankGroup recognizes in its books any losses and liabilities incurred in the course of its operationsas soon as these become determinable and quantifiable. Management believes that, as ofDecember 31, 2011 and 2010, no additional material losses or liabilities are required to berecognized in the accompanying financial statements of BDO Unibank Group as a result ofthe above commitments and contingencies.
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REPORT OFINDEPENDENT AUDITORSReport
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STATEMENTS OFINCOMEFOR THE YEARS EN
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BALANCE AT JANUARY 1, 2009 P 23,020
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FOR THE YEARS ENDED DECEMBER 31, 20
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1.02 Approval of Financial Statemen
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(ii) Philippine Interpretation IFRI
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PFRS 7 (Amendment), Financial Instr
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(v)PFRS 9, Financial Instruments: C
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BDO Unibank Group accounts for its
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Regular purchases and sales of fina
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Subsequent to initial recognition,
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Certain derivatives may be designat
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NOTES TOFINANCIAL STATEMENTSDECEMBE
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Page 149: COMPANY HEADQUARTERSBDO Unibank, In
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2011 Annual Report Financial Supplements - BDO

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