Notes to Financial Statements - BDO

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Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)26.4 United Overseas Bank PhilippinesOn May 6, 2005, BDO Unibank, UOBP and United Overseas Bank Limited (UOBL) signed a MOA whereby BDO acquired the 66 branches ofUOBP for a total cash consideration of P600. As part of the MOA, BDO Unibank assumed the deposit liabilities of UOBP in consideration ofan equivalent amount of related assets of UOBP, including cash payment in case the assets would be lower than the assumed liabilities. Alsounder the MOA, the P600 payment of BDO Unibank will be used by UOBL to subscribe for the Bank’s shares of common stock valued at P26.75per share, or equivalent to 22,429,906 shares. On December 19, 2005, the transfer of the assets including cash payment made by UOBP tofully offset the assumed liabilities by BDO Unibank was carried out. The goodwill amounting to P600 is presented as part of Other Resourcesin the statements of condition (see Note 13). The UOBP acquisition was approved by the BSP on September 8, 2005 while the shares to besubscribed by UOBL were subsequently issued in February 2006.Also as part of the MOA, the Bank received financial assistance from PDIC amounting to P4,420 (see Note 16). The financial assistance, whichis recorded as part of Bills Payable in the statements of condition will mature on December 19, 2012 and bears annual interest rate of 3.90%.The related interest expense amounting to P175 in 2008, 2007 and 2006 is shown as part of Interest Expense in the income statements. Asof June 30, 2007, the proceeds of the financial assistance from PDIC are invested in government securities as provided for in the MOA. TheBank accounted for the financial assistance from PDIC under PAS 20, Accounting for Government Grants, wherein the loan received is initiallyrecorded at the amount borrowed with no re-measurement to fair value or imputation of market interest.27. TAXES27.1 Current and Deferred TaxesThe major components of tax expense for the years ended December 31 are as follows:Group2008 2007 2006Income statements:Current tax expense:Regular corporate income tax (RCIT) at 35% P 298 P 278 P 283Minimum corporate income tax (MCIT) at 2% 82 149 22Final taxes at 20%, 15%, 10% and 7.5% 1,078 1,703 8071,458 2,130 1,112Deferred tax expense (income) relating to originationand reversal of temporary differences ( 13 ) 717 158Tax expense reported in the income statements P 1,445 P 2,847 P 1,270Statements of changes in equity:Deferred tax relating to fair value gain on AFS financial assets P 2 P - P 4Deferred tax relating to changes in revaluation increment 22 - -Tax income reported in the statements of changes in equity P 24 P - P 4Parent Bank2008 2007 2006Income statements:Current tax expense – MCIT at 2% P 81 P 147 P 162Final taxes at 20%, 15%, 10% and 7.5% 983 1,389 7301,064 1,536 892Deferred tax expense (income) relating to originationand reversal of temporary differences ( 106 ) 1,098 142Tax expense reported in the income statements P 958 P 2,634 P 1,034Statement of changes in equity:Deferred tax relating to fair value gain on AFS financial assets P 4 P - P -Deferred tax relating to changes in revaluation increment 22 - -Tax income reported in the statements of changes in equity P 26 P - P -72Thinking Ahead To Get You Ahead • Annual Report 2008
Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)The reconciliation of the tax on pretax income computed at the statutory tax rates to tax expense is shown below:Group2008 2007 2006Tax on pretax income at 35%. P 1,289 P 3,296 P 1,841Adjustment for income subjected to lower income tax rates ( 402 ) 1,339 ( 608 )Tax effects of:NOLCO not recognized 1,496 76 886Deferred tax on allowance recognized during the year ( 1,430 ) - -Income exempt from tax ( 1,183 ) ( 2,767 ) ( 988 )Deductible temporary differences not recognized ( 1,063 ) 1,155 354Tax-exempt loss (income) of FCDU 914 ( 1,688 ) ( 1,472 )Effects of changes in tax rates 861 - -Non-deductible expenses 718 1,271 1,038Others 245 165 219Tax expense reported in the income statements P 1,445 P 2,847 P 1,270Parent Bank2008 2007 2006Tax on pretax income at 35% P 853 P 3,607 P 1,497Adjustment for income subjected to lower income tax rates ( 478 ) 1,373 ( 520 )Tax effects of:NOLCO not recognized 1,495 ( 13 ) 814Deductible temporary differences not recognized ( 1,414 ) 1,138 331Income exempted from tax ( 1,139 ) ( 2,523 ) ( 1,000 )Deferred tax on allowance recognized during the year ( 1,165 ) - -Tax-exempt loss (income) of FCDU 914 ( 1,663 ) ( 1,420 )Effects of changes in tax rates 861 - -Non-deductible expenses 693 814 1,087Others 338 ( 99 ) 245Tax expense reported in the income statements P 958 P 2,634 P 1,034The components of the deferred tax assets as of December 31, 2008 and 2007 are as follows:Statements of ConditionGroupParent Bank2008 2007 2008 2007Deferred tax assets:Allowance for impairment losses P 5,904 P 5,800 P 5,939 P 5,800Unamortized past service cost 380 387 375 387NOLCO 183 45 11 49Lease income/expense differential 98 74 75 74Accrual (reversal) of expenses ( 74 ) ( 110 ) 4 5Unrealized loss on asset conversion ( 2 ) 10 - -Unrealized loss on trading securities - 10 - -Others 56 222 26 286,546 6,438 6,430 6,343Deferred tax liabilities:Revaluation increment in property ( 564 ) ( 585 ) ( 557 ) ( 579 )Capitalized interest ( 62 ) ( 74 ) ( 62 ) ( 75 )Changes in fair values of AFS financial assets ( 30 ) ( 32 ) ( 26 ) ( 30 )Retirement expense ( 11 ) ( 6 ) ( 7 ) ( 9 )Others ( 99 ) - ( 31 ) ( 36 )Net Deferred Tax Assets P 5,780 P 5,741 P 5,747 P 5,614Thinking Ahead To Get You Ahead • Annual Report 2008 73
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ATTUNED TO THE TIMES, WE AREALWAYS
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Financial HighlightsIn Billion Peso
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Report of Independent AuditorsTo th
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Income StatementsFor the Years Ende
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Cash Flow StatementsFOR THE YEARS E
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Notes to Financial StatementsDECEMB
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Page 84: BDO Corporate Center7899 Makati Ave
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Notes to Financial Statements - BDO

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