Notes to Financial Statements - BDO

Cash Flow StatementsFOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions of Philippine Pesos Except as Stated)GroupParent BankNotes 2008 2007 2006 (Note 26) 2008 2007 (Note 26) 2006 (Note 26)CASH FLOWS FROM OPERATING ACTIVITIESIncome before tax P 3,683 P 9,417 P 5,260 P 2,437 P 10,305 P 4,279Adjustments for:Interest income 20 ( 42,359 ) ( 37,603 ) ( 24,209) ( 39,733 ) ( 35,235 ) ( 22,342 )Interest expense 21 19,323 16,167 13,134 18,043 14,978 12,129Interest received 35,301 38,292 21,818 37,877 35,823 20,143Interest paid ( 19,465) ( 16,824 ) ( 11,995) ( 18,088 ) ( 14,867 ) ( 10,782 )Impairment losses 14 5,232 4,118 2,013 5,171 3,802 1,991Depreciation and amortization 11, 12 2,004 2,749 2,142 1,787 1,597 2,162Fair value loss (gain) 2,335 792 ( 157 ) 2,227 749 ( 323 )Amortization of deferred charges 13 115 94 37 115 93 37Operating income before changes in operatingresources and liabilities 6,169 17,202 8,043 9,836 17,245 7,294Decrease (increase) in financial assetsat fair value through profit or loss 12,329 10,326 ( 21,785) 10,890 11,873 ( 21,523)Increase in loans and other receivables ( 194,237 ) ( 36,959 ) ( 195,162 ) ( 182,443 ) ( 45,368 ) ( 173,018 )Decrease (increase) in investment properties 2,533 ( 463 ) ( 17,167 ) 2,526 ( 502 ) ( 16,207 )Decrease (increase) in other resources 3,395 15,517 3,274 3,399 13,587 ( 9,569 )Increase (decrease) in deposit liabilities 195,825 ( 20,230 ) 311,972 182,459 ( 26,525 ) 308,319Increase (decrease) in other liabilities ( 4,071 ) 5,836 44,025 ( 4,653 ) 5,862 35,659Cash generated from (Used in) operations 21,943 ( 8,771 ) 133,200 22,014 ( 23,828 ) 130,955Cash paid for income tax ( 1,834 ) ( 4,618 ) ( 1,350 ) ( 1,147 ) ( 2,757 ) ( 959 )Net Cash From (Used In) Operating Activities 20,109 ( 13,389 ) 131,850 20,867 ( 26,585 ) 129,996CASH FLOWS FROM INVESTING ACTIVITIESNet decrease (increase) in held-to-maturityinvestments ( 40,935 ) 21,595 ( 47,717 ) ( 37,886) 22,355 ( 47,626 )Net decrease (increase) in available-for-saleinvestments 36,809 ( 7,205) ( 7,932 ) 33,464 ( 7,553 ) ( 6,979 )Net acquisitions of premises, furniture,fixtures and equipment ( 5,079 ) ( 1,948 ) ( 11,560 ) ( 3,569 ) ( 1,614 ) ( 9,690 )Additions to equity investments 13 - - - - ( 747 ) ( 98 )Disposals of equity investments 13 - - 3 - 1,670 -Net Cash From (Used in) Investing Activities ( 9,205 ) 12,442 ( 67,206 ) ( 7,991 ) 14,111 ( 64,393 )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of preferred shares 19 5,000 - - 5,000 - -Net proceeds from (payments of) bills payable ( 3,859 ) ( 1,370 ) 20,122 ( 178 ) 6,445 14,180Dividends paid 19 ( 3,683 ) ( 770 ) - ( 3,683 ) ( 770 ) -Sale (acquisition) of treasury stock - 1,428 ( 1,396 ) - 1,400 ( 1,400 )Proceeds from issuance of common shares 19 - 314 - - 314 -Net Cash From (Used in) Financing Activities ( 2,544 ) ( 398 ) 18,726 1,139 7,389 12,780NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS 8,362 ( 1,345 ) 83,370 14,015 ( 5,084 ) 78,383CASH AND CASH EQUIVALENTSAT BEGINNING OF YEARCash and other cash items 7 18,388 17,905 6,621 18,437 18,055 6,620Due from Bangko Sentral ng Pilipinas 7 49,461 42,236 4,277 48,320 40,275 3,665Due from other banks 8 20,690 12,835 5,136 16,102 7,777 3,866Interbank loans receivable 9,520 26,428 - 4,591 26,427 -98,059 99,404 16,034 87,450 92,534 14,151CASH AND CASH EQUIVALENTS AT END OF YEARCash and other cash items 7 21,770 18,388 17,905 21,763 18,437 18,055Due from Bangko Sentral ng Pilipinas 7 62,669 49,461 42,236 59,940 48,320 40,275Due from other banks 8 17,102 20,690 12,835 14,881 16,102 7,777Interbank loans receivable 4,880 9,520 26,428 4,880 4,591 26,427Supplemental Information on Noncash Financing and Investing ActivitiesThe following are the significant noncash transactions in 2008, 2007 and 2006:P 106,421 P 98,059 P 99,404 P 101,464 P 87,450 P 92,534a. The carrying values of the resources and liabilities of ESB, BDO Elite and PCI Capital that were absorbed by BDO on October 30, 2008 were P14,790 and P9,249, respectively(see Note 26).b. In 2008, the Group made the following reclassifications of investment securities (see Note 9):- FVTPL with a total carrying value of P6,297 was reclassified to HTM both in the Group financial statements and Parent Bank financial statements.- CLNs with a total carrying value of P18,590 and P14,166 were reclassified from AFS to Loans in the Group financial statements and Parent Bank financial statements, respectively.- Embedded derivatives of CLNs with a total carrying value of (P183) and (P70) were reclassified from FVTPL to Loans and Other Receivables in the Group financial statements andParent Bank financial statements, respectively.- AFS with a total carrying value of P25,540 and P22,474 were reclassified from AFS to HTM in the Group financial statements and Parent Bank financial statements, respectively.- FVTPL with carrying value of P102 was reclassified to AFS in the Group financial statements.c. In 2008, land reclassified from investment properties to bank premises amounted to P181 and P127 in the Group financial statements and Parent Bank financial statements, respectively(see Note 12).d. In 2008, building reclassified from investment properties to bank premises amounted to P359 both in the Group financial statements and Parent Bank financial statements(see Note 12).e. The carrying values of the resources and liabilities of EPCIB that were absorbed by BDO on May 31, 2007 were P305,779 and P274,557, respectively, in exchange for the1,308,606,021 BDO common shares (see Notes 1 and 26).f. On April 18, 2007, the Bank received notice of exercise from International Finance Corporation (IFC) to convert the remaining U.S.$10 million of its convertible loan to BDO commonshares, which conversion the Bangko Sentral ng Pilipinas (BSP) approved in a letter to the Bank dated July 17, 2007. Thereafter, on August 23, 2007, the Bank issued to IFC 31,403, 592common shares (see Note 17).g. On May 6, 2006, the Bank’s Board of Directors (BOD) approved the declaration of cash dividends amounting to P0.80 per share or a total of P770, which was approved by the BSP onDecember 28, 2006. The cash dividends were paid on February 8, 2007 (see Note 19).See Notes to Financial Statements.Thinking Ahead To Get You Ahead • Annual Report 2008 7