PART III CONTROL AND COMPENSATION
Item 12. Certain Relationship and Related Transactions
The Group’s related parties include related parties under common management, key management personnel and others as described in Note 2.20 of the consolidated financial statements. The following are the Group’s transactions with such related parties:
2019 2018 2017
Amount of Outstanding Amount of Outstanding Amount of Outstanding
Notes Transaction Receivable Transaction Receivable Transaction Receivable Terms Conditions
Related Parties Under Common Management:
Subscription of
preferred stocks 24.1 P 112,500,000 P 529,000,000 P - P - P 416,500,000P - nonredeemable; not applicable
non-controlling
Advances 24.2(a), due and demandable; unsecured; not impaired
to related parties 24.2(b),
24.2(c) ( 9,229,702) 38,840,013 16,756,062 48,069,715 6,832,457 31,313,653 noninterest-bearing unsecured; not impaired Reimbursement
of expenses 24.8 - 4,892,015 ( 4,302,990 ) 4,892,015 1,300,891 9,195,005 due and demandable; unsecured; not impaired
Rental income 24.3 19,951,790 10,643,063 20,823,538 11,358,633 21,817,203 10,302,738 payable within 30 days; unsecured; not impaired noninterest-bearing
Advances due and demandable; unsecured; not impaired
from related party 24.2(b) ( 6,343,848) - 2,019,088 ( 6,343,848) 7,558,327 ( 4,324,760) noninterest-bearing
Others 24.9 ( 9,000 ) ( 1,443,500) 110,014 ( 1,452,500) ( 95,264 ) ( 1,562,514) due and demandable; unsecured; impaired
noninterest-bearing Retirement Funds: 24.4
Retirement plan
assets P - P 756,932,798 P - P 756,979,018 P - P 632,111,250 not applicable not applicable
Reimbursement due and demandable;
of fund - - - - - 995,779 noninterest-bearing unsecured; not-impaired
Others –
Key management personnel
compensation 24.5 202,226,542 - 235,796,087 - 213,277,760 - not applicable not applicable
Advances from previous BOT
of RCI 24.6 - - - - 16,508,793 - due and demandable; unsecured; not impaired
interest-bearing
A. Subscription of Preferred Shares of Stock of EACCI
In 2015, EAEF, a related party under common management, entered into a subscription agreement for the purchase of 240,000 preferred shares of EACCI. The total consideration paid by EAEF amounted to P240.0 million. There was no outstanding receivable arising from the transaction as the amount was fully paid by EAEF in the year of subscription.
During the year ended May 31, 2019 and 2017, EAEF also entered into a subscription agreement for the purchase of 112,500 and 416,500 preferred shares with total consideration of P112.5 million and P416.5 million. There was no outstanding receivable arising from the transaction as the amount was fully paid by EAEF in the year of subscription. No similar transaction occurred during the period ended May 31, 2018.
B. Noninterest-bearing Advances
(a) Advances of the University to a Related Party
The University grants unsecured and noninterest-bearing advances, which are due and demandable to FEU Public Policy Foundation, Inc., related party under common management of the Group for working capital purposes.
Summarized below are the outstanding receivables from these advances as of May 31, 2019, 2018 and 2017 recorded as part of Non-trade advances from related parties under Trade and Other Receivables account in the consolidated statements of financial position:
2019 2018 2017
Balance at beginning of year P 3,584,102 P 1,636,729 P 1,199,289 Additional advances during
the year 1,142,330 3,146,663 437,440
Repayments during the year - ( 1,199,290) -
Balance at end of year P 4,726,432 P 3,584,102 P 1,636,729
As of May 31, 2019, 2018 and 2017, management believes that these outstanding balances are collectible in full in all the years presented; thus, no allowance for impairment on these receivables are recognized.
(b) Advances between EACCI and EAEF
During the periods ended May 31, 2019, 2018 and 2017, EACCI granted to and obtained from EAEF cash advances for working capital requirements and other purposes. These advances are non interest-bearing, unsecured and payable in cash upon demand. As of May 31, 2019, 2018 and 2017, outstanding advances to EAEF amounting to P34.1 million, P42.5 million and P26.7 million, respectively, are presented as part of Non-trade advances to related parties under the Trade and Other Receivables account, while the outstanding advances from EAEF amounting to P6.3 million and P4.3 million ( nil as of May 31, 2019), respectively, are presented as Advances from related parties under the Trade and Other Payables account in the consolidated statements of financial position. No impairment loss is recognized by the Group on the receivables arising from advances.
(c) Advances of RCI to its Related Party
RCI grants noninterest-bearing and unsecured advances to RC Educational Enterprises Corporation, Roosevelt College Scholarship Foundation and Roosevelt College Center for Teacher Education, related parties under common management, for working capital purposes. These advances are generally collectible in cash and are due upon demand or through offsetting arrangement. The outstanding balance from these transactions amounts to P2.0 million and P3.0 million as of May 31, 2018 and 2017 (nil as of 2019), respectively, are presented as part of Non-trade advances to related parties under the Trade and Other Receivables account in the consolidated statements of financial position.
C. Leases
(a) Lease of Buildings to EAEF
The University leased out certain buildings to EAEF for a period of one to five years until May 31, 2015. Upon expiration of the term of the contract, the University and EAEF had mutually agreed not to renew such lease agreement. Instead, as of May 31, 2019, 2018 and 2017, only certain floors of the buildings were leased out to EAEF.
Total rental income earned by the University and EACCI from EAEF, presented as part of Rental under Revenues in the consolidated statements of profit or loss, amounted to P2.8 million for the periods ended May 31, 2018 and 2017 (nil as of May 31, 2019). Outstanding receivable arising from the transaction amounted to P2.9 million as of May 31, 2019 and 2018 and P3.3 million as of May 31, 2017, and is presented as part of Rental receivable under Trade and Other Receivables account in the consolidated statement of financial position. There was no similar transaction in 2019 and 2018 as EAEF has already transferred its students to EACCI through a memorandum of agreement in 2017.
(b) Lease of Buildings to FERN College
FRC leased out certain buildings to FERN College effective from June 1, 2007 to May 31, 2017 for an annual rental of P14.0 million or 10% of gross annual revenue, whichever is higher. In January 2013, an amended lease agreement was executed by both parties which stated that the lease term shall now be from January 31, 2013 to December 31, 2023 for an annual rental fee of P12.0 million or 10% of FERN College’s annual gross income, whichever is higher.
Total rental income of FRC from FERN College amounted to P18.7 million, P19.4 million and P18.0 million for the years ended May 31, 2019, 2018 and 2017, respectively, which is recorded as part of Rental under Revenues in the consolidated statements of profit or loss. Outstanding receivables from this transaction amount to P7.7 million, P8.4 million and P7.0 million as of May 31, 2019, 2018 and 2017, respectively, are presented as part of Rental receivable under the Trade and Other Receivables account in the consolidated statements of financial position. No impairment loss is recognized by the Group on this receivable from FERN College.
(c) Lease of Transportation Vehicle to FERN College
In 2012, FRC entered into a contract with FERN College for the lease of a bus to the latter for a fixed monthly rental of P0.1 million covering a term of five years.
The rental income earned from this transaction amounted to P1.3 million and P1.4 million for the years ended May 31, 2019 and 2018 and is presented as part of Rental under Revenues in the consolidated statements of profit or loss. No similar income was earned during the two months ended May 31, 2017. The Group recognized unearned rental income in accordance with PAS 17 from FERN College amounting to P0.1 million as of May 31, 2017 (nil in 2019 and 2018) and is presented as part of the Deferred Revenues account in the 2017 consolidated statements of financial position.
D. Retirement Funds
The University, FECSI and EACCI’s retirement funds are in the form of trustee-banks managed accounts. The fair value of the University’s retirement plan assets amounted to P757.0 million as of May 31, 2019 and 2018 and P632.1 million as of May 31, 2017, respectively. The University, FECSI and EACCI have no transactions with the retirement plans other than contributions and benefit payments in all periods presented.
During the periods ended May 31, 2017, the University funded the retirement pay of certain employees who availed of the ERGP, which will be reimbursed by the Fund. The outstanding receivable from this transaction amounted to P1.0 million as of May 31, 2017 (nil as of May 31, 2019 and 2018), and is recorded as part of Non-trade advances from related parties under Trade and Other Receivables account in the consolidated statements of financial position (see Note 9). No similar transaction occurred for the year ended May 31, 2018.
None of the retirement plan assets are invested in or provided to the University or FECSI, their related parties, and to their officers in the form of advances or loans.
The retirement funds neither provide any guarantee nor surety for any obligation of the University and FECSI.
E. Key Management Personnel Compensation
Total remunerations of the Group’s key management personnel for the periods ended May 31, 2019, 2018 and 2017, which are presented as part of Instructional and academic and Administrative expenses under Costs and Operating Expenses in the consolidated statement of profit or loss, are as follows:
2019 2018 2017
Short-term benefits P 206,160,383 P 208,947,101 P 188,323,195 Post-employment benefits 27,214,947 26,848,986 24,954,565 P 233,375,330 P 235,796,087 P 213,277,760
F. Financial Guaranty for Subsidiaries’ Loans
RCI obtains unsecured, interest-bearing cash advances from the current members of its BOT, with an interest rate ranging from 8% to 12% per annum, for working capital purposes. These advances are generally collectible in cash and are due upon demand. The outstanding balance from this transaction amounted to P16.5 million as of May 31, 2016, and is presented as part of Other payables under the Trade and Other Payables account in the consolidated statement of financial position. The outstanding payable was settled in 2017.
G. Financial Guaranty for Subsidiaries’ Loans
In March 2017, the BOT approved that for and in consideration of the loan or credit facilities obtained by any subsidiary of the University, in which the University owns at least 75% of the outstanding voting capital stock of such subsidiary, from a local commercial bank, the University gives its full consent and authority to act as surety for the subsidiary’s obligations arising from any loan or availments from any credit facilities granted by the said local bank in favor of the subsidiary, as well as any renewals, increases, extensions of existing obligations obtained by or which may hereafter be obtained by the subsidiary from the local bank, whether direct or indirect, principal or secondary. In August 2019 and April 2018, RCI availed an unsecured term loan as a drawdown from the University’s credit facility with the local bank. In case of any breaches of RCI with the loan covenants, the University will shoulder any relating liability to such breach.
H. Reimbursement of Expenses
During the periods ended May 31, 2019, 2018 and 2017, the University billed EAEF for related services such as security and janitorial services, light and water and other utilities at cost.
Accordingly, the outstanding receivable amounting to P4.9 million as of May 31, 2019 and 2018 and P9.2 million as of May 31, 2017, is presented as part of Non-trade advances to related parties under the Trade and Other Receivables account in the consolidated statements of financial position.
I. Others
Others include amounts due to non-controlling interest for to the unclaimed payments arising from the fractional shares, treated as treasury stocks in 2007 and 2015 by FRC. Outstanding payable to non-controlling interest amounted to P1.5 million as of May 31, 2019, 2018 and 2017, and is presented as part of Other payables to related parties under the Trade and Other Payables account in the consolidated statements of financial position.