C O V E R S H E E T AUDITED FINANCIAL STATEMENTS SEC Registration Number P W – 9 4 C O M P A N Y N A M E P A L H O L D I N G S , I N C . ( A S u b s i d i a r y o f T r u s t m a r k H o l d i n g s C o r p o r a t i o n ) PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province ) 8 t h F l o o r , P N B F i n a n c i a l C e n t e r , P r e s i d e n t D i o s d a d o M a c a p a g a l A v e . , C C P C o m p l e x P a s a y C i t y Form Type Department requiring the report Secondary License Type, If Applicable 1 7 - A C R M D N / A C O M P A N Y I N F O R M A T I O N Company’s Email Address Company’s Telephone Number Mobile Number [email protected] (02) 8816-3451 N/A No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day) 6,456 Last Thursday of May 12/31 CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation Name of Contact Person Email Address Telephone Number/s Mobile Number Susan T. Lee [email protected] (02) 8816-3451 N/A CONTACT PERSON’s ADDRESS c/o 2/F Allied Bank Center, 6754 Ayala Avenue, Makati City NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated. 2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies. 1 Scanned with CamScanner 11. Are any or all of these securities listed on the Philippine Stock Exchange? Yes [ ✓ ] No [ ] Philippine Stock Exchange Common Stock – 10,502,320,021 shares 12. Check whether the registrant: (a) has filed all reports to be filed by Section 17 of the SRC and SRC Rule 17.1 thereunder or Section 11 of the Revised Securities Act (RSA) and RSA Rule 11 (a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); Yes [ ✓ ] No [ ] (b) has been subject to such filing requirements for the past 90 days. Yes [ ✓ ] No [ ] 13. Aggregate market value of the voting stock held by non-affiliates: P=18.07 Billion as of December 31, 2019 14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of the Code subsequent to the distribution of securities under a plan confirmed by a court or the commission. Not Applicable Yes [ ] No [ ] DOCUMENTS INCORPORATED BY REFERENCE 15. Briefly describe documents incorporated by reference and identify the part of the SEC Form 17-A into which the document is incorporated: (a) Any annual report to security holders 2019 Audited Consolidated Financial Statements of PAL Holdings, Inc. and Subsidiaries (Incorporated as reference for items 1 and 7 of SEC Form 17-A) (b) Any information statement filed pursuant to SRC Rule 20 Not Applicable (c) Any prospectus filed pursuant to SRC Rule 8.1 Not Applicable 3 TABLE OF CONTENTS Page No. PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business 5 Item 2. Properties 19 Item 3. Legal Proceedings 22 Item 4. Submission of Matters to a Vote of Security Holders 23 PART II - OPERATIONAL AND FINANCIAL INFORMATION Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters 23 Item 6. Management's Discussion and Analysis 25 Item 7. Financial Statements 34 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 34 PART III - CONTROL AND COMPENSATION INFORMATION Item 9. Directors and Executive Officers of the Registrant 34 Item 10. Executive Compensation 38 Item 11. Security Ownership of Certain Beneficial Owners and Management 40 Item 12. Certain Relationships and Related Transactions 41 PART IV - CORPORATE GOVERNANCE AND SUSTAINABILITY REPORT Item 13. Corporate Governance 42 Item 14. Sustainability Report 42 PART V- EXHIBITS AND SCHEDULES Item 15. Exhibits and Reports on SEC Form 17-C 42 SIGNATURES 43 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 44 4 PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business a) Corporate History PAL Holdings, Inc. (PHI, or the Company) was incorporated on May 10, 1930 as “Baguio Gold Mining Company”. On September 23, 1996, the Philippine Securities and Exchange Commission (SEC) approved the change in the Company’s name to “Baguio Gold Holdings Corporation” and the change in its primary purpose to that of a holding company. On January 19, 2007, the Philippine SEC approved the change in the Company’s name from Baguio Gold Holdings Corporation to “PAL Holdings, Inc.” On August 13, 2007, the Company acquired directly from the Six Holding Companies 8,823,640,223 shares in PAL, which is equivalent to 81.57% of the issued and outstanding common shares in the Airline. At the same time, it acquired from the Six Holding Companies except Maxell Holdings Corporation 50,591,155 shares in PR Holdings, Inc. (PR), equivalent to 82.33% of the outstanding shares in PR. Both acquisitions were made by way of dacion en pago, whereby the total acquisition price of P=12.55 billion for the shares in PAL and PR was satisfied by an equivalent reduction of the liability owing to the Company from the Six Holding Companies. In April 2012, San Miguel Equity Investments Inc. (SMEII), a wholly owned subsidiary of San Miguel Corporation, acquired 49% equity interest in Trustmark Holdings Corporation (Trustmark). Trustmark then owns 97.71% of the Company, which in turn beneficially owns (directly and indirectly, thru PR) 84.67% of PAL. In May and June 2012, the proceeds from the investment of SMEII to Trustmark flowed down to PAL with the subscription by Trustmark of 17.00 billion shares in the Company for P=17.00 billion and subsequently, the subscription by the Company of 85 billion shares in PAL for P=17.00 billion. On June 26 and September 28, 2012, the BOD, by majority vote, and the stockholders representing at least 2/3 of the outstanding capital stock, approved the increase in authorized capital stock from P=20.0 billion divided into 20.00 billion shares with P=1 par value per share to P=23.00 billion divided into 23.00 billion shares with P=1 par value per share. Out of the increase in the authorized capital stock, P=2.42 billion have been subscribed and fully paid by way of cash infusion by Trustmark. Accordingly, as a result of the infusion, Trustmark’s ownership in the Company increased from 97.71% to 99.45%. The increase in authorized capital stock was approved by the Philippine SEC on December 12, 2012. On February 4 and March 15, 2013, the BOD, by majority vote, and the stockholders representing at least 2/3 of the outstanding capital stock, approved the increase in authorized capital stock from P=23.00 billion divided into 23.00 billion shares with P=1 par value per share to P=30.00 billion divided into 30.00 billion shares with P=1 par value per share. The increase in authorized capital stock was approved by the Philippine SEC on June 28, 2013. Out of the increase in the authorized capital stock, P=2.42 billion have been subscribed, of which P=603.75 million have been fully paid as of December 31, 2015. As a result of the additional issuance of shares, Trustmark’s ownership in the Company decreased from 99.45% to 89.78%. On February 4, 2013, the BOD, pursuant to the authority duly delegated to it by the stockholders on April 30, 1973, approved the Company’s change in accounting period from fiscal year ending March 31 to calendar year ending December 31. The Amended By-Laws in connection with the change in accounting period was approved by the Philippine SEC on July 5, 2013. On October 31, 2013, the Bureau of Internal Revenue (BIR) approved the request for change in accounting period. In October 2014, Buona Sorte Holdings, Inc. (BSHI) and Horizon Global Investments Limited (HGIL) acquired 9% and 40%, respectively, the 49% stake of SMEII in Trustmark. As of 5 December 31, 2019 and 2018, Trustmark is 60% owned by BSHI and 40% owned by HGIL. BSHI and Trustmark were likewise incorporated in the Philippines and are part of the Lucio Tan Group of Companies while HGIL was incorporated in British Virgin Islands. On September 26, 2016, the Company’s BOD approved and authorized the acquisition, in a share swap transaction, of PAL shares from existing PAL shareholders. Relative thereto the BOD likewise approved the share swap ratio of 5:1 or equivalent to five PAL shares to one PHI share.