Bacnotan Consolidated Industries, Inc.

Transcription

EDUCATION • HOUSING • BUSINESS PROCESS OUTSOURCING • ENERGY • FINANCIAL SERVICES
12th Floor, PHINMA Plaza, 39 Plaza Drive, Rockwell Center, Makati City, Philippines
Annual Report
2008
A n n u a l R e p ort 2008 | Bacnotan Consolidated Industries, Inc.
Table of
Contents
1
Consolidated Financial Highlights
2
Tribute
3
Message to our Shareholders
10
Corporate Social Responsibility
12
Report of Audit Committee
13
Statement of Management’s Responsibility
for Financial Statements
14
Independent Auditors Report
15
Consolidated Balance Sheets
16
Consolidated Statements of Income
17
Consolidated Statements of Changes in Equity
18
Consolidated Statements of Cash Flows
20
Notes to Consolidated Financial Statements
56
Board of Directors
58
Management Team
60
Directory
Annual Report 2008 | Bacnotan Consolidated Industries, Inc.
Financial
Highlights
(amounts in thousands except ratios and earnings per share)
DURING THE YEAR
2008
2007
2006
Revenues
3,264,059
2,798,761 2,655,940 Net Income
317,227
367,255
353,381
Net Income Attributable to BCII Equity Holders
273,160
330,410 336,886
Stock Dividend
234,307 305,618 339,575
Stock Dividend %
10%
15%
20%
END OF THE YEAR
Current Assets
4,282,122
4,192,788 4,384,201 Total Assets
8,474,059 7,956,671 7,724,028
Current Liabilities
1,274,330
1,010,126 1,111,825
Non-current Liabilities
584,705 627,637 636,068
Equity Attributable to BCII Equity Holders
5,789,243 5,537,564 5,191,534
PER SHARE
Earnings
1.06 1.28
1.31
Book Value of Common shares
22.46
21.49
20.14
FINANCIAL RATIOS
Current Ratio
3.36
4.15 3.94
Debt to Equity Ratio
0.32 0.30
0.34
TRIBUTE
Amb. Ramon V. del Rosario, Sr.
BCII’s growth from a one-plant company to a holding
company with the leadership position in the country’s
cement industry, and with significant interests in steel
roofing, energy and mining, paper and packaging,
property development and, more recently, education.
RVR’s influence went beyond the corporations he built.
Early in his career, he organized the first Philippine
chapter of the Jaycees and later became the first Asian
elected as World President of the Junior Chamber
International. He also joined a group of pioneering
business leaders that established the Asian Institute of
Management (AIM). In 1978, RVR stepped into the
arena of government service, with his appointment as
Philippine Ambassador to Canada, and later went on to
serve as Ambassador to Germany, and then Ambassador
to Japan, until 1992.
In September 2008, the BCII family bade farewell to our
founder and Chairman Emeritus, Ramon V. del Rosario,
Sr., fondly referred to by most as “RVR”.
In 1957, RVR established Phinma and, together with
Atty. Ernesto Escaler, spearheaded a group of local
entrepreneurs that successfully bid for the Cebu Portland
Cement (CEPOC) plant in Bacnotan, La Union. On
March 12, 1957, the group established Bacnotan Cement
Industries, Inc. (later renamed Bacnotan Consolidated
Industries, Inc.) with RVR as its Founding President.
Over the company’s fifty two year history, RVR oversaw
As a private citizen, he served as an adviser to various
charitable organizations, but was perhaps most involved
as Vice Chairman of Caritas Manila, where he was active
in the Caritas Restorative Justice Ministry through which
he personally reached out and assisted prisoners. He
believed, as he once said, that “to leave a lasting legacy
of your life here on earth, you should espouse causes
which are greater than your own.”
RVR is missed, but he continues to serve as our
inspiration to be true professionals and to be men for
others. We at BCII have all pledged to pay tribute to him
by continuing his tradition of professionalism and service
to others, and to be good stewards of the companies he
has built over the years.
“To leave a lasting legacy of your life here on earth, you should
espouse causes which are greater than your own.”
Message to our
Shareholders
As you may recall, after the sale by your Company
of its investment in cement companies, we laid out
our company’s plans for the future and formulated
a new mission statement. This mission is to help
build our nation through competitive and wellmanaged business enterprises that enable Filipinos
to attain a better quality of life. In particular,
we aim to build decent and affordable homes
in wholesome communities, offer affordable
high quality education, provide reliable and
affordable power and offer attractive investment
opportunities and sound investment advice to
encourage capital formation.
In pursuit of our mission of making life better
for our fellow Filipinos, this past year has been
dedicated to remolding our companies and
laying the groundwork for growth in the coming
years.
Education
EDUCATION
This year, the company took major steps in the
education business, with intensive discussions and
negotiations that laid the groundwork for two major
acquisitions. As a result the Company succeeded in
acquiring early in 2009 a 70% stake in University
of Pangasinan (Upang) in Dagupan City. Upang is
the leading educational institution in Pangasinan,
with total enrolled base of 9,300 students, offering
courses in nursing, engineering, and accountancy,
among others. Soon after its acquisition of Upang,
the Company acquired a 70% interest in University
of Iloilo (UI). Located in Iloilo City, UI currently
serves approximately 7,200 students and offers
courses in nursing, criminology, hotel and restaurant
management, and accountancy.
We believe both UPang and UI are apt additions to
the Company’s portfolio of schools. Both schools
present attractive growth prospects, both being
located in fast-growing areas with a significant
student population. These acquisitions bring to
four (4) the number of schools owned by Bacnotan
Consolidated Industries, Inc. (BCII), with a total
student base of 27,000. Collectively, these schools
now represent BCII’s biggest investment, reflecting
our belief in the importance of education in nationbuilding.
For our first two schools, Araullo University (AU)
and Cagayan de Oro College (COC), our efforts
since acquisition have been focused on upgrading
academic quality. Toward this end, AU and COC
have implemented stricter academic retention
policies and course requirements, and have
emphasized faculty training and development.
The results have been encouraging; in 2008,
board passing rates for first-timers in criminology,
education, accounting and engineering have
improved and exceeded national passing rates.
However, for the academic year 2008-2009,
AU and COC experienced a 3% decline in the
number of enrollees. This decline is reflective of
the slowdown in the economy, as both schools
cater to tuition-sensitive markets which are
highly vulnerable in a downturn. To assist our
Housing
HOUSING
students, our schools aim to improve work-study
programs and increase scholarships and financial
aid. During the year, AU and COC also continued
to operate under increased competition from a
growing number of state and local government
schools. COC, however, experienced a growth in
freshman enrollment, indicating potential growth
possibilities.
For the calendar year 2008, Araullo University and
Cagayan de Oro College posted net income of
P19.9 million and P11.9 million respectively.
Our challenge in this sector is to continue to deliver
the best possible education we can provide our
students while maintaining affordable tuition fees
and providing a decent return to our shareholders.
Phinma Property Holdings Corporation (PPHC),
BCII’s affiliate in the housing sector, continues to
deliver to the public affordable units in mediumrise buildings. PPHC offers good-value housing
options in wholesome communities within Metro
Manila, with units starting at less than P1 million. Its
projects continue to be well-received by the market,
and its amenities and design have gained the nod of
the public. Last year, PPHC’s Spazio Bernardo was
awarded Best Condo Design by the Housing and
Land Use Regulatory Board.
The year 2008 was a landmark year for PPHC,
as the company achieved revenues of P1.0 billion.
This was in large part due to the sale of units
in San Benissa Garden Villas in Quezon City
and Fountain Breeze in Sucat, Paranaque.
The company also unlocked asset values
with the sale of its property in Quezon City
to the Philippine government for P140 million for
an important road extension project that will link
Commonwealth Avenue to Quirino Highway.
In 2009, PPHC expects to launch the 840-unit
Sofia Bellevue and the 870-unit Flora Vista, both in
Quezon City. Also in the pipeline are other projects
in various parts of Metro Manila.
Union Galvasteel Corporation (UGC), BCII’s steel
roofing subsidiary, faced unprecedented market
conditions in 2008; the spiralling prices for the
industry’s material inputs put pressure on domestic
prices and adversely affected demand. Towards yearend, the U.S. financial crisis caused the sudden fall
in commodity prices.
As a result, sales volume of UGC decreased
2% during the year, from 39.0 thousand metric
tons in 2007 to 38.2 thousand metric tons in
2008. Nevertheless, UGC capped the year with
a net income of over P140 million, up 74% from
income of P80.9 million in 2007. This remarkable
performance stemmed from forward buying
positions for UGC’s material requirements and the
successful implementation of price adjustments to
ease the impact of sharp increases in production
inputs.
During the year, UGC’s Polyurethane Line started
commercial operations to manufacture insulated
panels for cold chain storage facilities in the
agro-industrial markets. This line will further enhance the
company’s strategy to produce and sell higher-margin
products to serve new markets.
With many sectors seriously hit by the global economic
recession, demand in 2009 is expected to weaken, and
depressed prices are likely to squeeze profits. However,
UGC is well-positioned to operate during this downturn
Business
Process
Outsourcing
because of its strong financial position, nationwide
distributorship network, its efficient and reliable
production facilities and its wider range of high
value products.
This new investment showcases to the world
Filipino talent and creativity. Employing some
800 animators and support staff, Toon City also
keeps world-class talent home and brings to the
Philippines much-needed jobs from abroad.
BUSINESS PROCESS OUTSOURCING
ENERGY
We had also earlier made it our mission to
aggressively seek new opportunities in the services
sector which are globally competitive and which
will provide attractive returns for our shareholders.
Toward this end, the company has ventured
into business process outsourcing, in particular
outsourced animation production services.
The Company invested $6.734 million for an
80% interest in One Animate Limited, a company
which owns a ninety five (95%) interest in Toon City
Animation, Inc. (Toon City). The latter is an awardwinning animation studio providing 2D, Flash and
3D CGI animation services and counts among its
clients international names like Walt Disney and
Universal Studios.
Trans-Asia Oil and Energy Development
Corporation (TA Oil) and its subsidiaries, Trans-Asia
Power Generation Corporation (TA Power) and CIP
II Power Corporation (CIPP), continued to provide
affordable and reliable power to their respective
markets. During the year, energy generated and
sold by TA Power totalled 116 GWh. Of this
volume, 61GWh was supplied to its main customer
Holcim Philippines, Inc. while 55 GWh was
exported to the Wholesale Electricity Spot Market
(WESM). Electricity sales of CIPP remained at
89.9 GWh.
Financial
Services
FINANCIAL SERVICES
TA Oil continued its active participation in
electricity trading through WESM, buying
requirements of its customers, and selling the excess
generation of affiliate TA Power.
TA Oil and its subsidiaries ended the year with
consolidated net income of P88.4 million, or 13%
higher than income of P78.2 million the previous
year. Trading of electricity, which started last year,
contributed to the increase in consolidated revenues
from P1.4 billion in 2007 to P1.6 billion in 2008.
Late last year, TA Oil took significant strides towards
renewable energy development, particularly in wind
resource development. Prospects for wind farm
projects are currently being pursued in several sites.
We are encouraged by the results of a pre-feasibility
study which indicates viable wind capacity in
Guimaras island, along with 37 other sites being
surveyed.
The year was particularly tough for AB Capital and
Investment Corporation (AB Capital), the Company’s
investee in the financial services sector. During the
second half of 2008, the global financial crisis took a
turn for the worst. The Dow Jones Industrial Average
tumbled 34% during the year, while the local equity
market dropped 48%.
For 2008, the company turned in revenues of P176
million and earned income before provision of
P65 million; however, as a result of the slump in the
financial markets, AB Capital booked a mark-to-market
loss of P 132.6 million, and sustained a net loss of
P80 million for the year.
AB Capital and other financial institutions will continue
to face ambiguities in the markets this year and
continues to identify short- and long-term measures that
will address the difficulties expected to prevail in these
trying times. However, AB Capital is supported by a
solid balance sheet, with total assets of P1.2 billion and
equity at P1.1 billion.
PARENT COMPANY
Energy
The parent company contributed income of P69 million,
excluding dividends of P166 million from the above
investee companies. The company benefited from
the strengthening of the dollar, and booked a foreign
exchange gain of P181 million, or P120 million net
We look to the immediate future with guarded
optimism, knowing that the coming months will be
challenging for all of our companies. But, as in the
past, we know we can count on the support of our
shareholders, our officers and employees, and the
guidance of our directors to steer us through the
challenges ahead.
of losses on non-deliverable forward contracts.
However, the company was not spared from the
effects of the financial slowdown, and booked a
P22 million mark-to- market loss on marketable
securities.
The Company continues to have a strong balance
sheet with current ratio of 3.4: 1 and debt to equity
ratio of 0.3: 1.
Given the challenges and uncertainties posed by the
markets during the year, we are pleased to report
that BCII posted a respectable consolidated net
income of P317 million, of which P273 million is
income attributable to equity holders of the parent.
For the past five years, your Company has paid
dividends in the form of cash or stock dividends.
In 2008, the company distributed a 10% stock
dividend equivalent to P234 million. More recently,
your Company declared a cash dividend of P0.40
per share or a total of P103 million, which will be
paid out on April 24.
Company’s existing investments, present bright
prospects and will provide a steady stream of
earnings for our shareholders in the long-term.
As in the past, we know we can count on the
support of our shareholders, our officers and
employees, and the guidance of our directors
to steer us through the challenges ahead.
We also remember Amb. Ramon V. del Rosario, Sr.
who founded this company more than fifty years ago
as his response to the government’s call to transform
the then-young country into an industrialized nation.
Subsequently, he would set up other companies
that would be the forerunners of the country’s
biggest industries. These include Fil-Oil Refinery
Corporation which ended the multinationals’
dominance in the petroleum industry, and Trans-Asia
Oil and Energy Development Corporation, a pioneer
in the country’s oil exploration industry. We are
inspired by his leadership and his entrepreneurial
spirit and resolve to continue his tradition of helping
in nation-building.
OUTLOOK
This year is fraught with uncertainties. We look
to the immediate future with guarded optimism,
knowing that the coming months will be
challenging for all of our companies. Nevertheless,
we are enthusiastic about the recent investments
in education and business process outsourcing.
We feel that these acquisitions, together with the
Oscar J. Hilado
Chairman of the Board
Ramon R. Del Rosario, Jr.
President
10
10
Corporate
Social Responsibility
During the year, Bacnotan Consolidated Industries, Inc. (BCII),
along with its investee companies, strengthened its Corporate
Social Responsibility (CSR) initiatives in pursuit of its mission
of making life better for fellow Filipinos. Its programs focus on
three key areas: education, the environment, and developing
the spirit of volunteerism among its employees.
EDUCATION
BCII demonstrates its continued commitment
to education by supporting the PHINMA
National Scholarship (PNS) Program of the
PHINMA Foundation. PNS currently supports
25 PNS scholars enrolled in engineering and
accountancy at the University of the Philippines
and in education at Philippine Normal
University. The program includes leadership
training programs, social activities, on-the-job
training, and mentoring opportunities for the
students.
Together with other PHINMA Group
companies, BCII is a major supporter of the
One Thousand Teachers Program of Philippine
Business for Education (PBEd).
Our companies also support WIWAG,
a five-day business management training
program aimed at enhancing the business and
economics education of college students. The
program is implemented through the Education
for Youth Enterprise Foundation, Inc. (EYE
Foundation). Company officers volunteered
to serve as trainers, and a total of 94 students
attended and finished said the training.
BCII’s subsidiary, Union Galvasteel Corporation
(UGC) helped in the repair and reconstruction
of school facilities of Bagong Silang Elementary
School and Sta. Cruz Academy School and
conducted tutorial programs for the students
of Bagong Silang Elementary School.
ENVIRONMENT
Environmental concerns were also a key focus
area during the year. UGC, together with the
Calamba Green Stream Brigade, hosted Sagip
Ilog to help save the Baranca de Sipit River in
Laguna and held several tree planting activities
in areas near its plant in Calamba, Laguna.
TA Oil, another BCII affiliate, through its Energy
Conservation (EnerCon) program, challenged
all companies and employees in the PHINMA
Plaza to conserve energy. To date almost all the
PHINMA Group Companies at the head office
have exceeded the targeted 10% savings in
KWHour usage.
Phinma Property Holdings Corporation (PPHC),
on the other hand, continues to sponsor more
than two hectares of forests in the La Mesa
Watershed, the last remaining watershed of its
size in Metro Manila.
INDIVIDUAL
SOCIAL
RESPONSIBILITY
PPHC also launched the Bagong Buhay
program which aims to uplift the life of the
Filipino by improving the quality of life in its
host communities. Planned programs include
adopt-a-park and adopt-a-barangay activities
and “build-from-scrap” initiatives, where excess
construction materials will be re-used and
recycled to build much needed community
projects such as chapels, classrooms, and
public restrooms.
BCII and its employees also participated in
the launch of the Phinma HERO (Helpful
Employees Responsible for Others) Network.
This initiative of the Phinma Group aims to
elevate the concept of CSR into Individual
Social Responsibility or ISR and encourage
volunteerism among our employees. The group
recently organized a volunteer’s fair featuring
Gawad Kalinga, Center for Restorative Activities
Development and Learning Experiences
(CRADLE), Philippine National Red Cross and
Caritas Manila and thereby provided more
opportunities for employees to volunteer.
Our employees have responded favorably to
this program, and more activities are scheduled
this year.
11
12
R e port of
Audit Committee
The Audit Committee is composed of two (2) independent directors and two (2) executive directors. The Committee has an ample
understanding of the Company’s financial management systems and environment.
We are pleased to report our activities for Calendar Year 2008.
ACTIVITIES
Committee Meetings
We scheduled meetings during the year to review and endorsed for the approval of the Board the Company’s audited and interim
financial statements as follows:
a. April 2008
b. July 2008
-
c. October 2008 Audited statements for Calendar Year 2007 and
Interim statements for the quarter ending March 31, 2008
- Interim statements for the period ending June 30, 2008
-
Interim statements for the period ending September 30, 2008
In reviewing the Financial Statements, the Committee considered the accounting estimates, policies adopted and all significant judgment
by the Company’s Management that materially impacted the financial results.
External Audit
We endorsed to the Board of Directors the nomination of Sycip, Gorres, Velayo and Company (SGV) as the Company’s external auditor
including its corresponding audit fee for calendar year 2008. We reviewed and approved the scope and deliverables of the SGV audit
plan. The Committee ensured that the SGV’s scope included the review of Company’s compliance with International Accounting
Standards (IAS).
Internal Audit
We reviewed and approved the Internal Audit plan for 2008. Based on this plan, the Committee received and reviewed the audit reports
submitted by Internal Audit. Various audit and control issues were discussed in the Committee meetings. Internal Audit’s reports
included the review of the Company’s compliance with PSE and SEC reportorial requirements.
We received information and support from Management, the Compliance Officer and Internal Audit to enable us to carry out our
function effectively.
FELIPE B. ALFONSO
Chairman, Independent Director
FR. NOEL D. VASQUEZ
Independent Director
MAGDALENO B. ALBARRACIN, JR.
Executive Director
VICTOR J. DEL ROSARIO
Executive Director
Statement o f M a n a g e m e n t R e s p o n s i b i l i t y f o r
Financial Statements
Securities and Exchange Commission
SEC Building, EDSA, Greenhills
Mandaluyong City
The management of BACNOTAN CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES is responsible for all information and
representations contained in the consolidated balance sheets as of December 31,2008 and 2007 and the related consolidated statements
of income, changes in equity and cash flows for the years ended December 31,2008, 2007 and 2006. The consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the Philippines and reflect amounts that
are based on the best estimated and informed judgment of management with an appropriate consideration to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure
that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities
are recognized. The management likewise discloses to the Company’s audit committee and to its external auditor : (i)all significant
deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process and report financial
date; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees who exercise
significant roles in internal controls.
The Board of Directors reviews the consolidated financial statements before such statements are approved and submitted to the
stockholders of the company.
SyCip Gorres Velayo & Co., the independent auditors appointed by the Board of Directors and stockholders, have audited the consolidated
financial statements of the Company and its Subsidiaries in accordance with auditing standards generally accepted in the Philippines
and have expressed their opinion on the fairness of presentation upon completion of such audit, in their report to the Stockholders and
the Board of Directors.
OSCAR J. HILADO
Chairman of the Board
RAMON R. DEL ROSARIO, JR.
President
VICTOR J. DEL ROSARIO
Executive Vice President and CFO
13
14
I n d ependent
Auditors’ Report
The Stockholders and the Board of Directors
We have audited the accompanying financial statements of Bacnotan Consolidated Industries, Inc. and Subsidiaries, which comprise the
consolidated balance sheets as of December 31, 2008 and 2007, and the consolidated statements of income, consolidated statements of
changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2008, and a
summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial
Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and
applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance
with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Bacnotan Consolidated
Industries, Inc. and Subsidiaries as of December 31, 2008 and 2007, and their financial performance and their cash flows for each of the
three years in the period ended December 31, 2008 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
BENNETTE A. DAPLAS-BACHOCO
Partner
CPA Certificate No. 86740
SEC Accreditation No. 0112-AR-1
Tax Identification No. 129-433-970
PTR No. 1566405, January 5, 2009, Makati City
March 9, 2009
Consolidated
Balance Sheets
2008
December 31
2007
(In Thousands)
ASSETS
Current Assets
Cash and cash equivalents (Notes 7, 29 and 30)
Short-term investments (Notes 29 and 30)
Investments held for trading (Notes 8, 29 and 30)
Trade and other receivables - net (Notes 9, 28, 29 and 30)
Inventories - at lower of cost or net realizable value (Note 10)
Input value-added taxes
Derivative assets (Note 30)
Other current assets - net
Total Current Assets
Noncurrent Assets
Investments in associates - at equity (Note 11)
Available-for-sale investments - net (Notes 12, 29 and 30)
Property, plant and equipment - net (Notes 13 and 19)
Investment properties - net (Note 14)
Installment contract receivable - net of current portion (Notes 9, 29 and 30)
Intangibles - net (Notes 6 and 15)
Deferred tax assets - net (Note 31)
Other noncurrent assets - net (Note 16)
Total Noncurrent Assets
P1,825,701
86,817
787,295
436,313
1,042,356
79,018
–
24,622
4,282,122
P1,660,878
77,545
1,046,308
368,705
824,363
125,910
66,726
22,353
4,192,788
1,251,378
331,519
1,297,558
774,132
58,482
420,078
13,960
44,830
4,191,937
P8,474,059
1,192,065
313,366
1,294,892
784,577
84,473
67,464
–
27,046
3,763,883
P7,956,671
P123,818
362,971
P219,667
329,856
73,513
537,252
54,476
26,857
143
95,300
1,274,330
79,070
191,302
35,162
–
17,469
137,600
1,010,126
P413,945
P464,007
50,726
101,613
5,152
13,269
584,705
51,892
65,981
3,438
42,319
627,637
2,577,249
255,785
13,443
2,342,942
255,785
13,443
5,054
24,784
LIABILITIES AND EQUITY
Current Liabilities
Notes payable (Notes 17, 29 and 30)
Trade and other payables (Notes 18, 28, 29 and 30)
Unearned revenues - inclusive of current portion of deferred rent revenue of P1.2 million
in 2008 and 2007 (Note 28)
Trust receipts payable (Notes 10, 29 and 30)
Income and other taxes payable
Derivative liabilities (Notes 29 and 30)
Due to related parties (Notes 28, 29 and 30)
Current portion of long-term debt - net of debt issuance cost (Notes 13, 19, 28, 29 and 30)
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion and debt issuance cost
(Notes 13, 19, 28, 29 and 30)
Deferred rent revenue - net of current portion (Note 28)
Deferred tax liabilities - net (Note 31)
Pension and other post-employment benefits (Note 32)
Other noncurrent liabilities (Note 28)
Total Noncurrent Liabilities
Equity
Equity attributable to equity holders of the parent:
Capital stock (Note 20)
Additional paid-in capital
Share in equity component of convertible notes (Note 19)
Share in unrealized gain on change in fair value of available-for-sale
investments of associates (Note 11)
Unrealized gain (loss) on change in fair value of an available-for-sale
investment (Note 12)
Retained earnings (Note 20)
Minority interest
Total Equity
See accompanying Notes to Consolidated Financial Statements.
(600)
2,938,312
5,789,243
825,781
6,615,024
P8,474,059
1,151
2,899,459
5,537,564
781,344
6,318,908
P7,956,671
15
16
C o nsolidated Statements o f
Income
REVENUE
Sale of goods
Tuition and school fees
Investment income (Note 21)
Rental income
Sale of real estate
Port and cargo handling services
COSTS AND EXPENSES
Cost of sales, educational services and real estate
(Notes 22, 26 and 27)
General and administrative expenses (Notes 23 and 27)
Selling expenses (Notes 24, 26 and 27)
OTHER INCOME (CHARGES)
Foreign exchange gains (losses) - net (Note 29)
Net gains (losses) on derivatives (Note 30)
Interest expense and other financial charges (Note 25)
Equity in net earnings of associates (Note 11)
Gain on sale of available-for-sale investment (Note 28)
Others - net (Note 19)
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 31)
Current
Deferred
NET INCOME
Attributable To
Equity holders of the parent
Minority interest
Net income
Basic/Diluted Earnings Per Common Share - Attributable
to Equity Holders of the Parent (Note 34)
Years Ended December 31
2007
2008
(In Thousands, Except Per Share Amounts)
P2,743,537
307,128
85,782
70,608
35,829
21,175
3,264,059
P2,123,785
293,913
193,779
62,447
102,937
21,900
2,798,761
2006
P1,994,420
284,803
294,863
57,375
4,970
19,509
2,655,940
(2,347,838)
(1,931,267)
(1,822,742)
(391,069)
(179,338)
(374,353)
(159,176)
(345,742)
(143,484)
190,728
(100,314)
(99,862)
41,586
–
22,027
(214,914)
302,831
(109,393)
108,478
–
13,009
(76,404)
72,596
(123,893)
133,598
17,073
9,587
399,979
433,976
376,529
88,343
(5,591)
82,752
61,021
5,700
66,721
31,963
(8,815)
23,148
P317,227
P367,255
P353,381
P273,160
44,067
P317,227
P330,410
36,845
P367,255
P336,886
16,495
P353,381
P1.06
P1.28
P1.31
17
Conso l i d a t e d S t a t e m e n t s o f
Changes in Equity
2008
CAPITAL STOCK - P10 par value (Note 20)
Common shares - net of subscriptions receivable of P124 in
2008, 2007 and 2006
Balance at beginning of year
Stock dividends - 10% in 2008, 15% in 2007 and 20% in
2006 (Note 20)
Balance at end of year
ADDITIONAL PAID-IN CAPITAL
SHARE IN EQUITY COMPONENT OF CONVERTIBLE NOTES
(Note 19)
SHARE IN UNREALIZED GAIN ON CHANGE IN FAIR
VALUE OF AVAILABLE-FOR SALE INVESTMENTS
OF ASSOCIATES (Note 11)
Changes in fair value during the year*
UNREALIZED GAIN (LOSS) ON CHANGE IN FAIR VALUE OF
AN AVAILABLE-FOR-SALE INVESTMENT* (Note 12)
Increase (decrease) in fair value gains
on available-for-sale investments
RETAINED EARNINGS
Appropriated for future investments (Note 20)
Unappropriated:
Net income*
Stock dividends on common shares - 10% in 2008,
15% in 2007 and 20% in 2006 (Note 20)
Balance at end of year (Note 20)
MINORITY INTEREST
Net income **
Dividends
Business combination (Notes 6 and 7)
Subscriptions
Acquisition of minority interest
Balance at end of year (Note 21)
2007
2006
(In Thousands, Except Par Value Information)
P2,342,942
P2,037,324
P1,697,749
234,307
2,577,249
305,618
2,342,942
339,575
2,037,324
255,785
255,785
255,785
13,443
13,443
15,409
24,784
(19,730)
5,054
8,349
16,435
24,784
3,412
4,937
8,349
1,151
–
–
1,151
1,151
–
–
1,000,000
1,000,000
1,000,000
1,899,459
273,160
1,874,667
330,410
1,877,356
336,886
(234,307)
1,938,312
2,938,312
(305,618)
1,899,459
2,899,459
(339,575)
1,874,667
2,874,667
P784,601
36,845
(15,005)
–
7,010
(32,107)
781,344
P6,318,908
P629,473
16,495
(1,100)
142,914
–
(3,181)
784,601
P5,976,135
(1,751)
(600)
P781,344
44,067
(21,963)
21,632
701
–
825,781
P6,615,024
* Total recognized income attributable to equity holders of the parent for the years ended December 31, 2008, 2007 and 2006 is P252,830, P347,996 and P341,823,
respectively.
** Total recognized income attributable to minority interest for the years ended December 31, 2008, 2007 and 2006 is P44,067, P36,845 and P16,495, respectively.
18
C o nsolidated Statements o f
Cash Flows
2008
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 13 and 27)
Net losses (gains) on derivatives (Note 30)
Interest expense and other financial charges (Note 25)
Unrealized foreign exchange (gain) loss - net
Investment income (Note 21)
Provisions for:
Doubtful accounts (Note 9)
Unrecoverable input value-added tax
Equity in net earnings of associates (Note 11)
Retirement cost (Note 32)
Gain on:
Sale of property and equipment
Sale of available-for-sale investment
Others
Operating income before working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories
Other current assets
Increase (decrease) in:
Trade and other payables
Trust receipts payable
Other taxes payable
Unearned revenues
Net cash generated from operations
Interest paid
Income tax paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Business combination:
Cash paid - net of cash from business acquired (Note 6)
Cash paid related to the adjustment in acquisition cost
of a subsidiary
Increase in:
Short-term investments
Other noncurrent assets
Proceeds from sale/settlement of:
Investments held for trading
Available-for-sale investment
Forward currency contracts
Property, plant and equipment
(Forward)
2007
2006
(In Thousands)
P399,979
P433,976
P376,529
137,952
100,314
99,862
(87,728)
(85,782)
137,461
(302,831)
109,393
214,069
(193,779)
147,638
(72,596)
123,893
78,965
(294,863)
44,909
4,512
(41,586)
12,632
27,984
5,028
(108,478)
17,667
22,750
30,499
(133,598)
1,844
(631)
–
(27,409)
557,024
(116)
–
21,798
362,172
(417)
(17,073)
–
263,571
(63,765)
(217,993)
42,857
(45,936)
60,857
(3,292)
(98,765)
(217,456)
(65,694)
(5,288)
345,950
(5,655)
(6,723)
646,407
(93,753)
(63,374)
489,280
37,072
(213,453)
601
(5,692)
192,329
(112,713)
(45,763)
33,853
123,893
298,553
(8,810)
2,120
297,412
(103,073)
(11,681)
182,658
(323,959)
–
(5,727)
2,067
1,841,709
–
20,774
687
–
(5,379)
(76,545)
(2,792)
2,682,073
–
254,298
2,931
–
–
–
(10,345)
1,706,504
74,240
19,713
1,758
Consolidated Statements of
Cash Flows
2008
Interest income received
Additions to:
Property, plant and equipment and investment properties
(Notes 13 and 14)
Investments held for trading
Investments in shares of stock
Dividends received
Net cash generated from (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of:
Notes payable
Long-term debt
Increase (decrease) in:
Other noncurrent liabilities
Minority interest
Amounts due to related parties
Proceeds from:
Notes payable
Long-term debt
Net cash used in financing activities
P136,487
P137,047
(65,567)
(444,990)
(1,624,003)
(83,350)
31,359
(119,241)
(1,499,801)
(271,368)
60,975
1,198,769
(1,186,635)
(91,127)
19,130
225,295
(295,580)
(96,251)
(269,543)
(390,500)
(182,103)
(78,069)
(29,050)
(21,262)
(17,326)
(38,448)
(40,102)
7,245
(979)
(4,281)
(7,191)
184,731
–
(274,738)
310,066
400,000
(21,282)
109,735
39,754
(123,134)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
69,522
P119,944
(115,285)
95,301
CASH AND CASH EQUIVALENTS AT END OF YEAR
2006
(In Thousands)
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
2007
1,211,340
(162,664)
284,819
(29,068)
1,660,878
612,202
356,451
P1,825,701
P1,660,878
P612,202
19
20
Notes t o C o n s o l i d a t e d
1. Corporate Information
Bacnotan Consolidated Industries, Inc. (the “Parent Company” or
“BCII”) and the following subsidiaries (collectively referred to as
the “Company”), except for One Animate Limited (OAL) which is
incorporated in Hong Kong, are incorporated in the Philippines and
separately registered with the Philippine Securities and Exchange
Commission (SEC):
Name of Subsidiaries
Atlas Holdings Corporation (AHC)
Union Galvasteel Corporation (UGC)
OAL and subsidiary (see Note 6)
Pamantasan ng Araullo (Araullo
University), Inc.
Cagayan de Oro College, Inc. (COC)
Bacnotan Industrial Park Corporation
(BIPC)
P & S Holdings Corporation (PSHC)
Asian Plaza, Inc. (API)
2. Basis of Preparation and Statement of Compliance
The accompanying consolidated financial statements of the Company
have been prepared using the historical cost basis, except for
investments held for trading, available-for-sale (AFS) investments and
derivative assets and liabilities that have been measured at fair value.
The consolidated financial statements are presented in Philippine
peso, which is the Company’s functional and presentation currency.
All values are rounded to the nearest thousand peso unless otherwise
stated.
The accompanying consolidated financial statements have been
prepared in accordance with Philippine Financial Reporting Standards
(PFRS).
Percentage of Ownership
2008
2007
90.00
90.00
80.50
80.50
80.00
–
78.64
74.35
78.64
74.35
60.00
60.00
57.62
60.00
60.00
57.62
The accompanying consolidated financial statements of the Company
were authorized for issuance by the Board of Directors (BOD) on
March 9, 2009.
OAL owns 95% interest in Toon City Animations, Inc. (Toon City).
3. Changes in Accounting Policies
The Parent Company’s principal activity is investment holdings in
subsidiaries and associates and financial assets. The principal activities
of its subsidiaries are as follows:
Name of Subsidiaries
AHC
UGC
OAL and Toon City
Araullo University
COC
BIPC
PSHC
API
Principal Activities
Investment holdings
Manufacture of galvanized and prepainted iron sheets and allied products for
roofing
Business process outsourcing for
animation services
Educational institution offering
elementary, secondary and tertiary formal
education, and post-graduate courses, as
well as, post-secondary certificate courses
Educational institution offering
elementary, secondary and tertiary formal
education, and post-graduate courses
Development of a 110-hectare industrial
park with port facilities
Real property holdings
Lease of real property
The registered office address of the Parent Company is 12th Floor,
Phinma Plaza, 39 Plaza Drive, Rockwell Center, Makati City.
The parent company of BCII is Philippine Investment-Management
(PHINMA), Inc. BCII is also controlled by PHINMA under an existing
management agreement. PHINMA is incorporated in the Philippines.
The accounting policies adopted are consistent with those of the
previous financial year except for the adoption of the following
Philippine Interpretations which became effective on January 1, 2008,
and an amendment to an existing standard that became effective on
July 1, 2008. Adoption of these changes in PFRS did not have any
significant effect to the Company:
• Philippine Interpretation International Financial Reporting
Interpretation Committee (IFRIC) 11, “PFRS 2 - Group and Treasury
Share Transactions”
• Philippine Interpretation IFRIC 12, “Service Concession
Arrangements”
• Philippine Interpretation IFRIC 14, “Philippine Accounting
Standard (PAS) 19, The Limit on a Defined Benefit Asset, Minimum
Funding Requirement and their Interaction”
• Amendments to PAS 39, “Financial Instruments: Recognition and
Measurement” and PFRS 7, “Financial Instruments: Disclosures Reclassification of Financial Assets”
New Accounting Standards, Interpretations, and Amendments to
Existing Standards Effective Subsequent to December 31, 2008
The Company will adopt the following standards and interpretations
enumerated below when these become effective. Except as otherwise
indicated, the Company does not expect the adoption of these new
and amended PFRS and Philippine Interpretations to have significant
impact on its financial statements.
(OCI). Entities may choose to present all items in one statement,
or to present two linked statements, a separate statement of income
and a statement of comprehensive income. This amendment also
prescribe additional requirements in the presentation of the balance
sheet and statement of changes in equity as well as additional
disclosures to be included in the financial statements.
Effective in 2009
• PFRS 1, “First-time Adoption of Philippine Financial Reporting
Standards - Cost of an Investment in a Subsidiary, Jointly Controlled
Entity or Associate”
The amended standard allows an entity, in its separate financial
statements, to determine the cost of investments in subsidiaries,
jointly controlled entities or associates (in its opening PFRS financial
statements) as one of the following amounts: a) cost determined in
accordance with PAS 27, “Consolidated and Separate Financial
Statements” ; b) at the fair value of the investment at the date of
transition to PFRS, determined in accordance with PAS 39 or c)
previous carrying amount (as determined under generally accepted
accounting principles) of the investment at the date of transition to
PFRS.
• PAS 23, “Borrowing Costs”
The revised standard has been revised to require capitalization of
borrowing costs when such costs relate to a qualifying asset. A
qualifying asset is an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale. The Company’s
current accounting policy requires capitalization of borrowing
costs that relates to a qualifying asset in accordance with PAS 23.
• PFRS 2, “Share-based Payment - Vesting Condition and
Cancellations”
• Amendments to PAS 27, “Consolidated and Separate Financial
Statements - Cost of an Investment in a Subsidiary, Jointly
Controlled Entity or Associate”
The revised standard clarifies the definition of a vesting condition
and prescribes the treatment for an award that is effectively
cancelled. It defines a vesting condition as a condition that includes
an explicit or implicit requirement to provide services. It further
requires non-vesting conditions to be treated in a similar fashion
to market conditions. Failure to satisfy a non-vesting condition
that is within the control of either the entity or the counterparty is
accounted for as cancellation. However, failure to satisfy a nonvesting condition that is beyond the control of either party does not
give rise to a cancellation.
• PFRS 8, “Operating Segments”
The Standard will replace PAS 14, “Segment Reporting”, and
adopts a full management approach to identifying, measuring
and disclosing the results of an entity’s operating segments. The
information reported would be that which management uses
internally for evaluating the performance of operating segments and
allocating resources to those segments. Such information may be
different from that reported in the consolidated balance sheet and
consolidated statement of income and the Company will provide
explanations and reconciliations of the differences. This standard
is only applicable to an entity that has debt or equity instruments
that are traded in a public market or that files (or is in the process
of filing) its financial statements with a securities commission or
similar party. The Company will assess the impact of this standard
to its current manner of reporting segment information.
• Amendments to PAS 1, “Presentation of Financial Statements”
This amendment introduces a new statement of comprehensive
income that combines all items of income and expenses recognized
in the profit or loss together with ‘other comprehensive income’
This amendment prescribes changes in respect of the holding
companies’ separate financial statements including (a) the
deletion of ‘cost method’, making the distinction between preand post-acquisition profits no longer required; and (b) in cases of
reorganizations where a new parent is inserted above an existing
parent of the group (subject to meeting specific requirements),
the cost of the subsidiary is the previous carrying amount of its
share of equity items in the subsidiary rather than its fair value.
All dividends will be recognized in profit or loss. However, the
payment of such dividends requires the entity to consider whether
there is an indicator of impairment.
• Amendment to PAS 32, “Financial Instruments: Presentation and
PAS 1 Presentation of Financial Statements - Puttable Financial
Instruments and Obligations Arising on Liquidation”
This amendment specifies, among others, that puttable financial
instruments will be classified as equity if they have all of the
following specified features: (a) The instrument entitles the holder
to require the entity to repurchase or redeem the instrument (either
on an ongoing basis or on liquidation) for a pro rata share of the
entity’s net assets; (b) The instrument is in the most subordinate
class of instruments, with no priority over other claims to the assets
of the entity on liquidation; (c) All instruments in the subordinate
class have identical features; (d) The instrument does not include
any contractual obligation to pay cash or financial assets other
than the holder’s right to a pro rata share of the entity’s net assets;
and (e) The total expected cash flows attributable to the instrument
over its life are based substantially on the profit or loss, a change
in recognized net assets, or a change in the fair value of the
recognized and unrecognized net assets of the entity over the life
of the instrument.
21
22
N o t e s to Consol idated
• Philippine Interpretation IFRIC 13, “Customer Loyalty Programmes”
related to future services that arise from plan amendments.
Amendments to plans that result in a reduction in
benefits related to future services are accounted for as a
curtailment.
This Interpretation requires customer loyalty award credits to be
accounted for as a separate component of the sales transaction in
which they are granted and therefore part of the fair value of the
consideration received is allocated to the award credits and realized
in income over the period that the award credits are redeemed or
expire.
• Philippine Interpretation IFRIC 16, “Hedges of a Net Investment in a
Foreign Operation”
This Interpretation provides guidance on identifying foreign currency
risks that qualify for hedge accounting in the hedge of net investment;
where within the group the hedging instrument can be held in the
hedge of a net investment; and how an entity should determine the
amount of foreign currency gains or losses, relating to both the net
investment and the hedging instrument, to be recycled on disposal of
the net investment.
Improvements to PFRSs. In May 2008, the International Accounting
Standards Board issued its first omnibus of amendments to certain
standards, primarily with a view to removing inconsistencies and
clarifying wording. There are separate transitional provisions for each
standard:
•
PFRS 5, “Non-current Assets Held for Sale and Discontinued
Operations”
When a subsidiary is held for sale, all of its assets and liabilities
will be classified as held for sale under PFRS 5, even when the
entity retains a non-controlling interest in the subsidiary after the
sale.
•
PAS 1, “Presentation of Financial Statements”
Assets and liabilities classified as held for trading are not
automatically classified as current in the balance sheet.
•
PAS 16, “Property, Plant and Equipment”
•
-
The amendment replaces the term ‘net selling price’ with
‘fair value less costs to sell’, to be consistent with PFRS
5, (Non-current Assets Held for Sale and Discontinued
Operations) and PAS 36, (Impairment of Assets).
-
Items of property, plant and equipment held for rental
that are routinely sold in the ordinary course of business
after rental, are transferred to inventory when rental ceases
and they are held for sale. Proceeds of such sales are
subsequently shown as revenue. Cash payments on initial
recognition of such items, the cash receipts from rents and
subsequent sales are all shown as cash flows from operating
activities.
PAS 19, “Employee Benefits”
-
Revises the definition of ‘past service costs’ to include
reductions in benefits related to past services (‘negative
past service costs’) and to exclude reductions in benefits
-
Revises the definition of ‘return on plan assets’ to exclude
plan administration costs if they have already been included
in the actuarial assumptions used to measure the defined
benefit obligation.
-
Revises the definition of ‘short-term’ and ‘other long-term’
employee benefits to focus on the point in time at which
the liability is due to be settled.
-
Deletes the reference to the recognition of contingent
liabilities to ensure consistency with PAS 37, “Provisions,
Contingent Liabilities and Contingent Assets”.
•
PAS 20, “Accounting for Government Grants and Disclosures of
Government Assistance”
Loans granted with no or low interest rates will not be exempt
from the requirement to impute interest. The difference between
the amount received and the discounted amount is accounted
for as a government grant.
•
PAS 23, “Borrowing Costs”
Revises the definition of borrowing costs to consolidate the types
of items that are considered components of ‘borrowing costs’,
i.e., components of the interest expense calculated using the
effective interest rate method.
•
PAS 28, “Investment in Associates”
-
If an associate is accounted for at fair value in accordance
with PAS 39, only the requirement of PAS 28 to disclose
the nature and extent of any significant restrictions on the
ability of the associate to transfer funds to the entity in the
form of cash or repayment of loans will apply.
-
An investment in an associate is a single asset for the
purpose of conducting the impairment test. Therefore, any
impairment test is not separately allocated to the goodwill
included in the investment balance.
•
PAS 29, “Financial Reporting in Hyperinflationary Economies”
Revises the reference to the exception that assets and liabilities
should be measured at historical cost, such that it notes property,
plant and equipment as being an example, rather than implying
that it is a definitive list.
•
PAS 31, “Interest in Joint Ventures”
If a joint venture is accounted for at fair value, in accordance
with PAS 39, only the requirements of PAS 31 to disclose the
commitments of the venturer and the joint venture, as well as
summary financial information about the assets, liabilities,
income and expense will apply.
Notes to Consolidated
•
PAS 36, “Impairment of Assets”
When discounted cash flows are used to estimate ‘fair value less
cost to sell’, additional disclosure is required about the discount
rate, consistent with disclosures required when the discounted
cash flows are used to estimate ‘value in use’.
•
PAS 38, “Intangible Assets”
-
-
•
-
Effective in 2010
• Revised PFRS 3, “Business Combinations and PAS 27, Consolidated
and Separate Financial Statements”
Expenditure on advertising and promotional activities is
recognized as an expense when the Company either has
the right to access the goods or has received the services.
Advertising and promotional activities now specifically
include mail order catalogues.
Deletes references to there being rarely, if ever, persuasive
evidence to support an amortization method for finite
life intangible assets that results in a lower amount of
accumulated amortization than under the straight-line
method, thereby effectively allowing the use of the unit of
production method.
PAS 39, “Financial Instruments: Recognition and Measurement”
-
Changes in circumstances relating to derivatives specifically derivatives designated or de-designated as
hedging instruments after initial recognition - are not
reclassifications.
-
When financial assets are reclassified as a result of an
insurance company changing its accounting policy in
accordance with paragraph 45 of PFRS 4, Insurance
Contracts, this is a change in circumstance, not a
reclassification.
-
Removes the reference to a ‘segment’ when determining
whether an instrument qualifies as a hedge.
-
Requires use of the revised effective interest rate (rather
than the original effective interest rate) when re-measuring
a debt instrument on the cessation of fair value hedge
accounting.
•
PAS 40, “Investment Properties”
Revises the scope (and the scope of PAS 16) to include property
that is being constructed or developed for future use as an
investment property. Where an entity is unable to determine
the fair value of an investment property under construction, but
expects to be able to determine its fair value on completion,
the investment under construction will be measured at cost until
such time as fair value can be determined or construction is
complete.
•
PAS 41, “Agriculture”
-
Removes the reference to the use of a pre-tax discount rate
to determine fair value, thereby allowing use of either a pretax or post-tax discount rate depending on the valuation
methodology used.
Removes the prohibition to take into account cash flows
resulting from any additional transformations when
estimating fair value. Instead, cash flows that are expected
to be generated in the ‘most relevant market’ are taken into
account.
The revised PFRS 3 introduces a number of changes in the accounting
for business combinations that will impact the amount of goodwill
recognized, the reported results in the period that an acquisition
occurs, and future reported results. The revised PAS 27 requires,
among others, that (a) change in ownership interests of a subsidiary
(that do not result in loss of control) will be accounted for as an equity
transaction and will have no impact on goodwill nor will it give rise
to a gain or loss; (b) losses incurred by the subsidiary will be allocated
between the controlling and non-controlling interests (previously
referred to as ‘minority interests’); even if the losses exceed the
non-controlling equity investment in the subsidiary; and (c) on loss
of control of a subsidiary, any retained interest will be remeasured
to fair value and this will impact the gain or loss recognized on
disposal. The changes introduced by the revised PFRS 3 and PAS 27
must be applied prospectively and will affect future acquisitions and
transactions with non-controlling interests.
• Amendment to PAS 39, “Financial Instruments:Recognition and
Measurement - Eligible Hedged Items”
The amendment addresses only the designation of a one-sided risk
in a hedged item, and the designation of inflation as a hedged risk
or portion in particular situations. The amendment clarifies that an
entity is permitted to designate a portion of the fair value changes or
cash flow variability of a financial instrument as a hedged item.
Effective in 2012
• Philippine Interpretation IFRIC 15, “Agreement for Construction of
Real Estate”
This interpretation covers accounting for revenue and associated
expenses by entities that undertake the construction of real estate
directly or through subcontractors. This interpretation requires that
revenue on construction of real estate be recognized only upon
completion, except when such contract qualifies as construction
contract to be accounted for under PAS 11, “Construction Contracts”,
or involves rendering of services in which case revenue is recognized
based on stage of completion. Contracts involving provision of
services with the construction materials and where the risks and
reward of ownership are transferred to the buyer on a continuous
basis, will also be accounted for based on stage of completion.
23
24
4. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent
Company and the subsidiaries mentioned in Note 1. The financial
statements of the subsidiaries are prepared for the same reporting year as
the Parent Company, using consistent accounting policies.
All intercompany balances, transactions, income and expenses and
profits and losses resulting from intercompany transactions are eliminated
in full.
Subsidiaries are fully consolidated from the date control is transferred to
the Parent Company and cease to be consolidated from the date control is
transferred out of the Parent Company.
OAL has been included in the 2008 consolidated financial statements using
the purchase method of accounting. Accordingly, the 2008 consolidated
statements of income and cash flows include the results of operations and
cash flows of OAL from its initial acquisition date (December 24, 2008) to
December 31, 2008. The purchase considerations have been allocated
to the assets and liabilities on the basis of their fair value at the date of
acquisition.
Minority interest represents the portion of profit or loss and net assets
in subsidiaries not held by the Parent Company and is presented in the
consolidated statement of income and within equity in the consolidated
balance sheet, separately from equity attributable to equity holders of
the parent. Aquisitions of minority interests are accounted for using the
parent entity extension method, whereby, the difference between the
consideration and the book value of the share of the net assets acquired is
recognized as goodwill.
Business Combination
Business combinations are accounted for using the purchase method
of accounting. This involves recognizing identifiable assets (including
previously unrecognized intangible assets) and liabilities (including
contingent liabilities and excluding future restructuring) of the acquired
business at fair value.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are shortterm, highly liquid investments that are readily convertible to known
amounts of cash with original maturities of three months or less and that
are subject to an insignificant risk of change in value.
Short-term Investments
Short-term investments represent investments that are readily convertible
to known amounts of cash with original maturities of more than three
months to one year.
Financial Assets and Liabilities
Financial assets and financial liabilities are recognized initially at fair
value. Transaction costs are included in the initial measurement of all
financial assets and liabilities, except for financial instruments measured
at fair value through profit or loss (FVPL).
The Company recognizes a financial asset or a financial liability in the
consolidated balance sheet when it becomes a party to the contractual
provisions of the instrument.
All regular way purchases and sales of financial assets are recognized
on the trade date, i.e., the date that the Company commits to purchase
the assets. Regular way purchases or sales are purchases or sales of
financial assets that require delivery of assets within the period generally
established by regulation or convention in the marketplace.
The fair value for financial instruments traded in active markets at the
balance sheet date is based on their quoted market price or dealer price
quotations (bid price for long positions and ask price for short positions),
without any deduction for transaction costs. When current bid and asking
prices are not available, the price of the most recent transaction provides
evidence of the current fair value as long as there has not been a significant
change in economic circumstances since the time of the transaction.
For all other financial instruments not quoted in an active market, the fair
value is determined by using appropriate valuation techniques. Valuation
techniques include net present value techniques, comparison to similar
instruments for which observable market prices exist, and other relevant
valuation models.
Where the transaction price in a non-active market is different from the
fair value from other observable current market transactions in the same
instrument or based on a valuation technique whose variables include
only data from observable market, the Company recognizes the difference
between the transaction price and fair value (Day 1 Gain or Loss) in the
consolidated statement of income unless it qualifies for recognition as
some other type of asset. In cases where data which is not observable
is used, the difference between the transaction price and model value
is only recognized in the consolidated statement of income when the
inputs become observable or when the instrument is derecognized. For
each transaction, the Company determines the appropriate method of
recognizing the “Day 1 Gain or Loss” amount.
Financial instruments are classified as liabilities or equity in accordance
with the substance of the contractual arrangement. Interests, dividends,
gains and losses relating to a financial instrument or a component that is
a financial liability, are reported as expense or income. Distributions to
holders of financial instruments classified as equity are charged directly to
equity net, of any related income tax benefits.
Financial assets are classified into the following categories: Financial asset
at FVPL, loans and receivables, held-to-maturity (HTM) investments, and
AFS investments. Financial liabilities are classified into: Financial liabilities
at FVPL, and other financial liabilities. The Company determines the
classification at initial recognition and, where allowed and appropriate,
re-evaluates this designation at every reporting date.
• Financial Assets and Financial Liabilities at FVPL
Financial Assets or Financial Liabilities Designated as at FVPL on
Initial Recognition
Financial assets or financial liabilities classified in this category
included those that are designated by management on initial
recognition as at FVPL when any of the following criteria are met:
a. The designation eliminates or significantly reduces the
inconsistent treatment that would otherwise arise from measuring
the assets or liabilities or recognizing gains or losses on them on
a different basis; or
b. The assets and liabilities are part of a group of financial assets,
financial liabilities or both which are managed and their
performance evaluated on a fair value basis, in accordance with
a documented risk management or investment strategy; or
• Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments and are not quoted in an active market.
Such assets are carried at amortized cost using the effective interest
method. Gains and losses are recognized in income when the loans
and receivables are derecognized or impaired, as well as through the
amortization process. Loans and receivables are included in current
assets if maturity is within one year from the balance sheet date, and
as noncurrent assets if maturity date is more than one year from the
balance sheet date.
The Company’s cash and cash equivalents, short-term
investments and trade and other receivables and installment
contract receivables are classified as loans and receivables
(see Notes 7 and 9).
c. The financial instrument contains an embedded derivative,
unless the embedded derivative does not significantly modify
the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
Financial assets and financial liabilities designated as at FVPL are
recorded in the consolidated balance sheet at fair value. Changes
in fair value on financial assets and liabilities designated at FVPL are
recorded in the consolidated statement of income under investment
income. Interest earned or incurred is recorded in investment income
and interest expense and other financial charges, respectively, while
dividend income is recorded according to the terms of the contract,
or when the right to receive has been established.
The Company has no financial asset or financial liability designated
on initial recognition as at FVPL.
Financial Assets or Financial Liabilities Held for Trading
Financial assets or financial liabilities held for trading are also
included in this category and are classified under financial assets and
liabilities at FVPL. These financial instruments are recorded in the
consolidated balance sheet at fair value. Changes in fair value relating
to the held-for-trading positions are recognized in the consolidated
statement of income as net gain (loss) on investment held for trading
under investment income. Interest earned or incurred is recorded in
investment income and interest expense and other financial charges,
respectively, while dividend income is recorded when the right to
receive payment has been established.
• HTM Investments
Quoted nonderivative financial assets with fixed or determinable
payments and fixed maturities are classified as held-to-maturity
when the Company has the positive intention and ability to hold to
maturity. Such assets are carried at amortized cost using the effective
interest method.
Gains and losses are recognized in consolidated statement of income
when the HTM investments are derecognized or impaired, as well as
through the amortization process. HTM investments are classified as
current if maturity is within 12 months from the balance sheet date.
Otherwise, these are classified as noncurrent assets.
The Company did not classify any financial asset under HTM
investments.
• AFS Investments
The Company’s investments in bonds, unit investment trust funds
(UITFs), trust accounts, marketable equity securities and managed
funds are classified as investments held for trading (see Note 8).
Derivatives recorded at FVPL
The Company enters into short-term forward currency contracts to
hedge its currency exposure. Derivative instruments are initially
recognized at fair value on the date in which a derivative transaction
is entered into and are subsequently re-measured at fair value.
Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative. The Company has opted
not to designate its derivative transactions under hedge accounting.
Consequently, gains and losses from changes in fair value of these
derivatives are recognized immediately in the consolidated statement
of income.
The fair values of freestanding forward currency transactions are
calculated by reference to current forward exchange rates for
contracts with similar maturity profiles.
The Company’s derivative assets or liabilities are classified as financial
assets or liabilities at FVPL (see Note 30).
AFS financial assets are those nonderivative financial assets that are
designated as AFS or are not classified in any of the three preceding
categories.
After initial recognition, AFS financial assets are
measured at fair value with gains or losses being recognized as a
separate component of equity until the investment is derecognized
or until the investment is determined to be impaired at which time
the cumulative gain or loss previously reported in equity is included
in the consolidated statement of income. AFS financial assets are
classified as current if they are expected to be realized within 12
months from the balance sheet date. Otherwise, these are classified
as noncurrent assets.
The Company’s investments in quoted and unquoted equity securities
and other investments are classified as AFS financial assets (see Note
12).
Other Financial Liabilities
Other financial liabilities are initially recognized at the fair value of
the consideration received less directly attributable transaction costs.
After initial recognition, other financial liabilities are subsequently
measured at amortized cost using the effective interest method.
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Gains and losses are recognized in the consolidated statement of
income when the liabilities are derecognized as well as through the
amortization process.
The Company’s notes payable, trade and other payables, trust receipts
payable, due to related parties and long-term debt are classified as
other financial liabilities.
Embedded Derivatives
An embedded derivative is separated from the host contract and
accounted for as a derivative if all of the following conditions are met:
a) the economic characteristics and risks of the embedded derivative
are not closely related to the economic characteristics and risks of
the host contract; b) a separate instrument with the same terms as the
embedded derivative would meet the definition of a derivative; and
c) the hybrid or combined instrument is not recognized at fair value
through profit or loss.
Embedded derivatives are measured at fair value and are carried as
assets when the fair value is positive and as liabilities when the fair
value is negative. Gains and losses from changes in fair value of
these derivatives are recognized immediately in the consolidated
statement of income.
The Company first assesses whether objective evidence of
impairment exists individually for financial assets that are individually
significant, and individually or collectively for financial assets that
are not individually significant. If it is determined that no objective
evidence of impairment exists for an individually assessed financial
asset, whether significant or not, the asset is included in a group of
financial assets with similar credit risk characteristics and that group
of financial assets is collectively assessed for impairment. Assets
that are individually assessed for impairment and for which an
impairment loss is or continues to be recognized are not included in
a collective assessment of impairment. For the purpose of specific
evaluation of impairment, the Company assesses whether financial
assets are impaired through assessment of collectibility of financial
assets considering the debtor’s capacity to pay, history of payment,
and the availability of other financial support. For the purpose of a
collective evaluation of impairment, if necessary, financial assets are
grouped on the basis of such credit risk characteristics such as debtor
type, payment history, past-due status and terms.
Assets Carried at Cost. If there is objective evidence (such as
continuing losses or significant financial difficulties of the investee
company) that an impairment loss has been incurred on an unquoted
equity instrument that is not carried at fair value because its fair value
cannot be reliably measured, the amount of the loss is measured as
the difference between the asset’s carrying amount and the present
value of estimated future cash flows discounted at the current market
rate of return for a similar financial asset.
The Company makes a reassessment on whether an embedded
derivative is to be separated from the host contract only if there is a
change to the contract that significantly modifies the cashflows.
The Company has bifurcated embedded foreign currency derivatives
(see Note 30).
Impairment of Financial Assets
The Company assesses at each balance sheet date whether a financial
asset or group of financial assets is impaired.
AFS Investments. For AFS investments, the Company assesses at
each balance sheet date whether there is objective evidence that a
financial asset or group of financial assets is impaired.
In the case of equity investments classified as AFS, this would include
a significant or prolonged decline in the fair value of the investments
below its cost. Where there is evidence of impairment, the cumulative
loss is measured as the difference between the acquisition cost and
the current fair value, less any impairment loss on that financial asset
previously recognized in the consolidated statement of income.
Impairment losses on equity investments are not reversed through the
consolidated statement of income. Increases in the fair value after
impairment are recognized directly in equity.
In the case of debt instruments classified as AFS, impairment is based
on the same criteria as loans and receivables and HTM investments.
Future interest income is based on the reduced amount based on
the rate of the interest used to discount future cash flows for the
purpose of measuring impairment loss. Such accrual is recorded as
part of interest income in the consolidated statement of income. If,
in the subsequent year, the fair value of a debt instrument can be
objectively related to an asset occurring after the impairment loss was
recognized in the consolidated statement of income, the impairment
loss is reversed through the consolidated statement of income.
Derecognition of Financial Assets and Liabilities
Financial Assets. A financial asset (or, where applicable a part of
a financial asset or part of a group of similar financial assets) is
derecognized where:
Assets Carried at Amortized Cost. If there is objective evidence (such
as the probability of insolvency or significant financial difficulties
of the debtor) that an impairment loss on loans and receivables
carried at amortized cost has been incurred, the amount of the loss
is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows (excluding future
credit losses that have not been incurred) discounted at the financial
asset’s original effective interest rate (i.e., the effective interest rate
computed at initial recognition).The carrying amount of the asset is
reduced through the use of an allowance account and the amount
of the loss is recognized in the consolidated statement of income.
Interest income continues to be accrued on the reduced carrying
amount based on the original effective interest rate of the asset. Loans
and receivables together with the associated allowance are written off
when there is no realistic prospect of future recovery and all collateral,
if any, has been realized or has been transferred to the Company.
If in a subsequent year, the amount of the estimated impairment
loss increases or decreases because of an event occurring after the
impairment was recognized, the previously recognized impairment
loss is increased or reduced by adjusting the allowance account. If
a future write-off is later recovered, the recovery is recognized in
the consolidated statement of income. Any subsequent reversal of
an impairment loss is recognized in the consolidated statement of
income, to the extent that the carrying value of the asset does not
exceed its amortized cost at the reversal date.
•
the rights to receive cash flows from the asset have expired; or
•
the Company retains the right to receive cash flows from
the asset, but has assumed an obligation to pay them in full
without material delay to a third party under a “pass-through”
arrangement; or
•
the Company has transferred its rights to receive cash flows
from the asset and either (a) has transferred substantially all the
risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.
Where the Company has transferred its rights to receive cash flows
from an asset or has entered into a pass-through arrangement, and has
neither transferred nor retained substantially all the risks and rewards
of the asset nor transferred control of the asset, the asset is recognized
to the extent of the Company’s continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the
transferred asset is measured at the lower of the original carrying
amount of the asset and the maximum amount of consideration that
the Company could be required to repay.
Financial Liabilities. A financial liability is derecognized when
the obligation under the liability is discharged or cancelled or has
expired. Where an existing financial liability is replaced by another
from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and
the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in profit or loss.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount
reported in the consolidated balance sheet when there is a currently
legal right to set off the recognized amounts and the Company intends
to either settle on a net basis, or to realize the asset and settle the
liability simultaneously.
Land held for sale are valued at the lower of cost, which includes
expenditures for development and improvements, or net realizable
value.
The net realizable value of inventories, except spare parts, is the selling
price in the ordinary course of business, less costs to complete, sell
and distribute. The net realizable value of spare parts is the current
replacement cost.
Investments in Associates
The Company’s investments in its associates are accounted for under
the equity method. These are entities in which the Company has
significant influence and which are neither subsidiaries nor joint
ventures of the Company. The investments in associates are carried
in the consolidated balance sheet at cost plus post-acquisition
changes in the Company’s share in net assets of the associates,
less any impairment in value. The consolidated statement of
income reflects the Company’s share in the results of operations of
the associates. Unrealized gains arising from transactions with its
associates are eliminated to the extent of the Company’s interest in
the associates against the related investments. Unrealized losses are
eliminated similarly but only to the extent that there is no evidence
of impairment of the asset transferred. The Company’s investment in
an associate includes goodwill on acquisition, which is recorded in
accordance with the accounting policy for goodwill.
When the Company’s accumulated share in net losses of an associate
equals or exceeds the carrying amount of the investment, including
advances for future conversion to equity, the Company discontinues
the recognition of its share in additional losses and the investment
is reported at nil value. If the associate subsequently reports net
income, the Company will resume applying the equity method only
after its share in that net income equals the share in net losses not
recognized during the period the equity method was suspended.
Property, Plant and Equipment
Property, plant and equipment, except land, are carried at cost less
accumulated depreciation and any impairment loss. Land is carried
at cost less any impairment loss. The cost of property, plant and
equipment, comprises its purchase price, including any applicable
import duties and capitalized borrowing costs (for property, plant
and equipment other than land) and other costs directly attributable
to bringing the asset to its working condition and location for its
intended use.
Expenditures incurred after the property, plant and equipment
have been put into operation, such as repairs and maintenance,
are normally charged to current operations in the year the costs are
incurred.
Depreciation is computed using the straight-line method over the
following estimated useful lives of the assets:
Inventories
Inventories, excluding land held for sale and development costs, are
valued at the lower of cost or net realizable value. Costs incurred
in bringing each inventory to its present location and condition are
accounted for as follows:
Finished goods
Raw materials, spare
parts and others
-
-
determined using the
moving average method;
cost includes direct
materials and labor
and a proportion of
manufacturing overhead
costs based on normal
operating capacity but
excludes borrowing costs;
determined using the
moving average method.
Plant site improvements
Buildings and improvements
Port facilities and equipment
Machinery and equipment
Transportation and other equipment
10–20 years
10–20 years
22.5 years
5–20 years
2–10 years
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The useful lives and depreciation method are reviewed periodically to
ensure that the periods and depreciation method are consistent with
the expected pattern of economic benefits from items of property,
plant and equipment.
When each major inspection is performed, its cost is recognized
in the carrying amount of the property, plant and equipment as a
replacement if the recognition criteria are met.
An item of property, plant and equipment is derecognized upon
disposal or when no future economic benefits are expected from its
use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds
and carrying amount of the asset) is credited or charged to current
operations.
Construction in-progress represents plant and properties
under construction/development and is stated at cost.
This includes cost of construction, plant and equipment,
borrowing costs directly attributable to such asset during
the construction period and other direct costs. Construction
in-progress is not depreciated until such time when the relevant assets
are completed and ready for operational use.
Investment Properties
Investment properties are measured initially at cost, including direct
transaction costs. The carrying amount includes the cost of replacing
part of an existing investment property at the time the cost is incurred,
if the recognition criteria are met, and excludes the costs of dayto-day servicing of an investment property. Subsequent to initial
recognition, investment properties are stated at cost less accumulated
depreciation and impairment loss.
Depreciation is calculated on a straight-line basis over the estimated
useful lives of 15 and 20 years.
Investment property is derecognized when either it has been disposed
of or when the investment property is permanently withdrawn from
use and no future economic benefit is expected from its disposal.
Any gains or losses on the retirement or disposal of an investment
property are recognized in the consolidated statement of income in
the year of retirement or disposal.
Transfers are made to investment property when, and only when,
there is a change in use, evidenced by ending of owner-occupation,
commencement of an operating lease to another party or ending of
construction or development. Transfers are made from investment
property when, and only when, there is a change in use, evidenced
by commencement of owner-occupation or commencement of
development with a view to sale.
Goodwill
Goodwill acquired in a business combination is initially measured
at cost being the excess of the cost of the business combination
over the Company’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities. Where the costs of the
business combination and the Company’s interest in the net fair
value of the identifiable assets, liabilities and contingent liabilities
are determined provisionally, goodwill is initially measured using
those provisional values. The Company recognizes any adjustments
to these provisional values and to the goodwill initially recognized,
as a result of completing the initial accounting within twelve months
from the acquisition date. Following initial recognition, goodwill is
measured at cost less any accumulated impairment losses. Goodwill
is reviewed for impairment, annually or more frequently if events or
changes in circumstances indicate that the carrying value may be
impaired.
For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated
to each of the Company’s cash-generating units, or groups of
cash-generating units, that are expected to benefit from the synergies
of the combination, irrespective of whether other assets or liabilities
of the Company are assigned to those units or groups of units. Each
unit or group of units to which the goodwill is so allocated:
•
represents the lowest level within the Company at which the
goodwill is monitored for internal management purposes; and
•
is not larger than a segment based on the Company’s primary or
the Company’s any secondary reporting format determined in
accordance with PAS 14, “Segment Reporting.”
Impairment is determined by assessing the recoverable amount of
the cash-generating unit (group of cash-generating units), to which
the goodwill relates. Where the recoverable amount of the cashgenerating unit (group of cash-generating units) is less than the
carrying amount, an impairment loss is recognized. Where goodwill
forms part of a cash-generating unit (group of cash-generating units)
and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on
disposal of the operation. Goodwill disposed of in this circumstance
is measured based on the relative values of the operation disposed of
and the portion of the cash-generating unit retained.
Intangible Assets
The cost of intangible assets acquired in a business combination is
the fair value as of date of acquisition. Following initial recognition,
intangible assets are carried at cost less accumulated amortization
and any accumulated impairment losses. Intangible assets are
amortized on a straight-line basis over three years and assessed for
impairment whenever there is an indication that the intangible assets
may be impaired. The amortization period and the amortization
method are reviewed at least at each financial yearend. Changes
in the expected useful life or the expected pattern of consumption
of future economic benefits embodied in the asset is accounted for
by changing the amortization period or method, as appropriate, and
treated as changes in accounting estimates.
Provisions
Provisions are recognized when the Company has a present obligation
(legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required
to settle the obligation and a reliable estimate can be made of the
amount of the obligation. If the effect of the time value of money
is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market
assessment of the time value of money and, where appropriate, the
risks specific to the liability. Where discounting is used, the increase
due to the passage of time is recognized as interest expense.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the
economic benefits associated with the transaction will flow to the
Company and the amount of revenue can be measured reliably.
The following specific recognition criteria must also be met before
revenue is recognized:
Sale of Goods. Revenue is recognized when the significant risks and
rewards of ownership of the goods have passed to the buyer.
Tuition and School Fees. Income from tuition and school fees is
recognized as income when earned based on a time-proportion basis.
Tuition and school fees received pertaining to the summer semester
and the next school year are recorded as “Unearned revenues” in the
consolidated balance sheet.
Rental. Revenue is recognized on a straight-line basis over the lease
term.
Sale of Real Estate. Revenue from the sale of real estate, which
includes cost of land and development, is accounted for under the
percentage of completion method when the Company has material
obligations under the sales contracts to complete the project after the
property is sold. Under this method, revenue is recognized as the
related obligations are fulfilled, measured on the basis of the ratio
of actual cost incurred to date over the estimated total costs of the
project as determined by the Company’s contractors and technical
people.
Any excess of collections over the recognized receivables are
included under the “Unearned revenues” account in the current
liabilities section of the consolidated balance sheet.
If none of the revenue recognition criteria are met, deposit method is
applied until all the conditions for recording a sale are met. Pending
recognition of sale, cash received from buyers is presented as part of
“Other noncurrent liabilities” account in the consolidated balance
sheet.
Development cost of land sold before the completion of the
development is determined based on actual costs and cost to
complete. The estimated cost to complete for sold real estate are
included under the “Other noncurrent liabilities” account in the
consolidated balance sheet.
Port and Cargo Handling Services. Revenue from port operations is
recognized when services are rendered.
Interest. Revenue is recognized as the interest accrues, taking into
account the effective yield on the asset. Interest is included as part of
“Investment income.”
Retirement Costs
BCII, Araullo University, COC, BIPC and UGC have distinct
funded, noncontributory defined benefit retirement plans covering
all permanent employees, each administered by their respective
Retirement Committees. Retirement costs are actuarially determined
using the projected unit credit method. Actuarial gains and losses
are recognized as income or expense when the net cumulative
unrecognized actuarial gains and losses for each plan at the end of
the previous financial reporting year exceed 10% of the higher of
the defined benefit obligation and the fair value of plan assets at that
date. These gains or losses are recognized over the expected average
remaining working lives of the employees participating in the plans.
The past service cost, if any, is recognized as an expense on a
straight-line basis over the average period until the benefits become
vested. If the benefits are already vested immediately following the
introduction of, or changes to, a pension plan, past service cost is
recognized immediately.
The defined benefit liability is the aggregate of the present value
of the defined benefit obligation and actuarial gains and losses not
recognized, reduced by past service cost not yet recognized and the
fair value of plan assets out of which the obligations are to be settled
directly. If such aggregate is negative, the asset is measured at the
lower of such aggregate or the aggregate of cumulative unrecognized
net actuarial losses and past service cost and the present value of any
economic benefits available in the form of refunds from the plan or
reductions in the future contributions to the plan.
If the asset is measured at the aggregate of cumulative unrecognized
net actuarial losses and past service cost and the present value of any
reductions in the future contributions to the plan, net actuarial losses
of the current period and past service cost of the current period are
recognized immediately to the extent that they exceed any reduction
in the present value of those economic benefits. If there is no change
or an increase in the present value of the economic benefits, the entire
net actuarial losses of the current period and past service cost of the
current period are recognized immediately. Similarly, net actuarial
gains of the current period after the deduction of past service cost of
the current period exceeding any increase in the present value of the
economic benefits stated above are recognized immediately if the
asset is measured at the aggregate of cumulative unrecognized net
actuarial losses and past service cost and the present value of any
reductions in the future contributions to the plan. If there is no change
or a decrease in the present value of the economic benefits, the entire
net actuarial gains of the current period after the deduction of past
service cost of the current period are recognized immediately.
Leases
The determination of whether an arrangement is, or contains a
lease is based on the substance of the arrangement and requires an
assessment of whether the fulfillment of the arrangement is dependent
on the use of a specific asset or assets and the arrangement conveys
a right to use the asset. A reassessment is made after inception of the
lease only if one of the following applies:
a. There is a change in contractual terms, other than a renewal or
extension of the arrangement;
b. A renewal option is exercised or extension granted, unless that
term of the renewal or extension was initially included in the
lease term;
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c. There is a change in the determination of whether fulfillment is
dependent on a specified asset; or
reversal is recognized in profit or loss unless the asset is carried at
revalued amount, in which case the reversal is treated as a revaluation
increase. After such a reversal, the depreciation charge is adjusted in
future periods to allocate the asset’s revised carrying amount, less any
residual value, on a systematic basis over its remaining useful life.
d. There is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence
or cease from the date when the change in circumstances gave rise
to the reassessment for scenarios a, c or d above, and at the date of
renewal or extension period for scenario b.
Leases where the lessor retains substantially all the risks and benefits
of ownership of the asset are classified as operating leases. Operating
lease payments are recognized as an expense in the statement of
income on a straight-line basis over the lease term.
Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs
are capitalized if they are directly attributable to the acquisition or
construction of a qualifying asset. Capitalization of borrowing costs
commences when the activities to prepare the asset are in progress
and expenditures and borrowing costs are being incurred. Borrowing
costs are capitalized until the assets are substantially ready for
their intended use. If the carrying amount of the asset exceeds its
recoverable amount, an impairment loss is recorded.
Impairment of Non-financial Assets
The Company assesses at each reporting date whether there is an
indication that an asset may be impaired when events or changes
in circumstances indicate that the carrying value of an asset may
not be recoverable. If any such indication exists and if the carrying
value exceeds the estimated recoverable amount, the assets or cash
generating units are written down to their recoverable amounts.
An asset’s recoverable amount is the higher of an asset’s or cashgenerating unit’s fair value less costs to sell and its value in use and is
determined for an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessment of the
time value of money and the risks specific to the asset. Impairment
losses are recognized in the consolidated statement of income in
those expense categories consistent with the function of the impaired
asset.
For assets excluding goodwill, an assessment is made at each reporting
date as to whether there is any indication that previously recognized
impairment losses may no longer exist or may have decreased. If such
indication exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a
change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognized. If that is the
case, the carrying amount of the asset is increased to its recoverable
amount. That increased amount cannot exceed the carrying amount
that would have been determined, net of depreciation, had no
impairment loss been recognized for the asset in prior years. Such
The following criteria are also applied in assessing impairment of
specific assets:
Investments in Associates. After application of the equity method,
the Company determines whether it is necessary to recognize any
additional impairment loss with respect to the Company’s net
investment in the investee companies. The Company determined at
each balance sheet date whether there is any objective evidence that
the investment in associate is impaired. If this is the case, the Company
calculates the amount of impairment being the difference between
the fair value and the carrying value of the investee company and
recognizes the difference in the consolidated statement of income.
Impairment of Goodwill. A test of impairment of goodwill is performed
annually and when circumstances indicate that the carrying value
may be impaired. Impairment is determined for goodwill by assessing
the recoverable amount of each CGU (or group of CGUs) to which
the goodwill relates. Where the recoverable amount of the CGU is
less than the carrying amount, an impairment loss is recognized.
Impairment losses relating to goodwill cannot be reversed in future
periods.
Foreign Currency-denominated Transactions
The consolidated financial statements are presented in Philippine
peso, which is the Company’s functional and presentation currency.
Transactions denominated in foreign currencies are recorded using
the exchange rate at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are restated using the
closing rate of exchange at the balance sheet date. Exchange gains
or losses arising from foreign currency-denominated transactions are
credited or charged to current operations.
Income Taxes
Current Tax. Current tax assets and liabilities for the current and prior
periods are measured at the amount expected to be recovered from or
paid to the tax authority. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted at the
balance sheet date.
Deferred Tax. Deferred income tax is provided, using the balance
sheet liability method, on all temporary differences at the balance
sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. Deferred tax
liabilities are recognized for all taxable temporary differences,
except:
•
where the deferred tax liability arises from the initial recognition
of goodwill or of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
•
Deferred tax assets are recognized for all deductible temporary
differences, carry-forward benefits of unused tax credits from excess
minimum corporate income tax (MCIT) over the regular corporate
income tax and unused net operating loss carryover (NOLCO), to the
extent that it is probable that taxable profit will be available against
which the deductible temporary differences, and the carry-forward of
unused excess MCIT and unused NOLCO can be utilized except:
•
•
in respect of taxable temporary differences associated with
investments in subsidiaries and associates, where the timing of
the reversal of the temporary differences can be controlled and
it is probable that the temporary differences will not reverse in
the foreseeable future.
where the deferred tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
in respect of deductible temporary differences associated with
investments in subsidiaries and associates. Deferred tax assets
are recognized only to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and
taxable profit will be available against which the temporary
differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the
deferred tax assets to be utilized. Unrecognized deferred tax assets
are reassessed at each balance sheet date and are recognized to the
extent that it has become probable that future taxable profit will allow
the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that
are expected to apply to the year when the asset is realized or the
liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the balance sheet date.
Income tax relating to items recognized directly in equity is recognized
in equity and not in the consolidated statement of income.
Deferred tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current tax
liabilities and the deferred taxes relate to the same taxable entity and
the same tax authority.
Earnings Per Common Share (EPS) attributable to the equity holders of
the Parent
Basic EPS is computed by dividing net income (after deducting
dividends on preferred shares) attributable to the common shareholders
by the weighted average number of outstanding common shares
during the year after giving retroactive effect to any stock dividend
declared during the year.
The Company does not have potential common shares nor other
instruments that may entitle the holder to common shares. Hence,
diluted EPS is the same as basic EPS.
Segment Reporting
The Company is organized into four major business segments. Such
business segments are the bases upon which the Company reports
its primary segment information. Financial information on business
segments is presented in Note 35 to the consolidated financial
statements.
Contingencies
Contingent liabilities are not recognized in the consolidated financial
statements. They are disclosed unless the possibility of an outflow
of resources embodying economic benefits is remote. Contingent
assets are not recognized in the consolidated financial statements but
disclosed when an inflow of economic benefits is probable.
Events After the Balance Sheet Date
Post year-end events that provide additional information about the
Company’s financial position at the balance sheet date (adjusting
events) are reflected in the consolidated financial statements. Post
year-end events that are not adjusting events are disclosed in the
notes to the consolidated financial statements when material.
5. Significant Accounting Judgments and Estimates
The Company’s consolidated financial statements prepared in conformity
with PFRS require management to make estimate and assumptions
that affect amounts reported in the consolidated financial statements
and related notes. In preparing the Company’s consolidated financial
statements, management has made its best estimates and judgments of
certain amounts, giving due consideration to materiality. The estimates
and assumptions used in the accompanying consolidated financial
statements are based upon management’s evaluation of relevant facts
and circumstances as of the date of the consolidated financial statements.
Actual results could differ from such estimates.
The Company believes the following represents a summary of these
significant estimates and judgments and related impact and associated
risks in its financial statements.
Judgments
Operating Lease - the Company as Lessor. The Company has entered
into commercial property leases on its investment property portfolio.
The Company has determined that it retains all the significant risks
and rewards of ownership of these properties which are leased out on
operating leases.
Revenue Recognition. Selecting an appropriate revenue recognition
method for a particular sale transaction requires certain judgments based
on sufficiency of cumulative payments by the buyer and completion of
development.
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Estimation Uncertainty
Impairment Testing of Goodwill. The Company performs impairment
testing of goodwill on an annual basis or more frequently if events or
changes in circumstances indicate that the carrying value may be impaired.
This requires an estimation of the value in use of the cash-generating unit
to which the goodwill is allocated. Value in use is determined by making
an estimate of the expected future cash flows from the cash generating
unit and applies a discount rate in order to calculate the present value of
these cash flows. Goodwill acquired through business combination has
been allocated to one cash-generating unit. The recoverable amount of
the goodwill has been determined based on value in use calculation using
cash flow projections covering a five year period. The carrying amounts
of goodwill as of December 31, 2008 and 2007 are P329.6 million and
P65.9 million, respectively, included under “Intangibles” account in
the consolidated balance sheets (see Note 15). The carrying amount
of goodwill, included under “Investments in associates” account, is
P5.1 million as of December 31, 2008 and 2007 (see Note 11). No
impairment loss on goodwill was recognized in 2008, 2007 and 2006.
Impairment of Investments in Associates. The Company assesses
impairment on investments in associates whenever events or changes
in circumstances indicate that the carrying amount of the asset may not
be recoverable. This requires an estimation of the value in use of the
cash-generating units. Estimating the value in use requires the Company
to make an estimate of the expected future cash flows from the cashgenerating unit and also to choose a suitable discount rate in order to
calculate the present value of those cash flows. The carrying amounts
of investments in associates as of December 31, 2008 and 2007 are
disclosed in Note 11 to the consolidated financial statements. Based on
management’s assessment, the Company’s investments in associates are
fairly stated, thus no impairment loss needs to be recognized.
Impairment of AFS Investments. The Company treats AFS equity
investments as impaired when there has been a significant or prolonged
decline in the fair value below its cost or where other objective evidence
of impairment exists. The determination of what is “significant” or
“prolonged” requires judgment. The Company treats “significant”
generally as 20% more of the original cost of investment, and “prolonged”,
greater than 6 months. In addition, the Company evaluates other factors,
including normal volatility in share price for quoted equities and the
future cash flows and the discount factors for unquoted equities. The
carrying values of AFS investments as of December 31, 2008 and
2007 are P331.5 million and P313.4 million, respectively. Based on
management’s assessment, the Company’s AFS investments are fairly
stated, thus, no additional impairment loss needs to be recognized in
2008 and 2007 (see Note 12).
Deferred Tax Assets. The carrying amount of deferred tax assets is
reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all
or part of the deferred tax assets to be utilized.
The recognized deferred tax assets as of December 31, 2008 and 2007
amounted to P50.4 million and P73.9 million, respectively (see Note
31).
The Company’s deductible temporary differences, unused NOLCO and
MCIT for which no deferred tax asset is recognized in the consolidated
balance sheet as of December 31, 2008 and 2007 amounted to P188.3
million and P485.2 million, respectively (see Note 31).
Input Value-Added Taxes. The carrying amounts of input taxes were
reduced to the extent that it is no longer probable that sufficient revenue
subject to value-added tax (VAT) will be available to allow all or part
of the input VAT to be utilized. Allowance for unrecoverable input
VAT amounted to P109.2 million and P104.7 million as of December 31,
2008 and 2007. The carrying amount of input VAT classified as current
assets as of December 31, 2008 and 2007 amounted to P79.0 million
and P125.9 million, respectively. The input VAT fully provided with
allowance for unrecoverable amount as of December 31, 2008 and 2007
amounted to P109.2 million and P104.7 million, respectively (see Note
16).
Estimating Useful Lives of Property, Plant and Equipment, Investment
Properties and Intangibles. The Company estimates the useful lives of
property, plant and equipment, depreciable investment properties and
intangibles with finite useful lives based on the period over which the
property, plant and equipment, investment properties and intangibles
with finite useful lives are expected to be available for use and on the
collective assessment of industry practice, internal technical evaluation
and experience with similar assets and in the case of intangibles, useful
lives are also based on the contracts covering such intangibles. The
estimated useful lives of property, plant and equipment and investment
properties are reviewed periodically and updated if expectations differ
materially from previous estimates due to physical wear and tear, technical
or commercial obsolescence and legal or other limits on the use of the
property, plant and equipment and investment properties. However, it
is possible that future results of operations could be materially affected
by changes in the estimates brought about by changes in factors. The
amounts and timing of recording of expenses for any period would be
affected by changes in these factors and circumstances. The carrying
amounts of property, plant and equipment as of December 31, 2008 and
2007 amounted to P1,297.6 million and P1,294.9 million, respectively
(see Note 13). The carrying amounts of depreciable investment properties
as of December 31, 2008 and 2007 amounted to P235.1 million and
P250.1 million, respectively (see Note 14). The carrying amounts of
intangibles with finite useful lives amounted to P90.5 million and P1.6
million as of December 31, 2008 and 2007, respectively (see Note 15).
Impairment of Trade Receivables. The Company maintains allowance
for doubtful accounts based on the result of the individual and collective
assessments under PAS 39. Under the individual assessment, which
considers the significant financial difficulties of the debtor, the Company
is required to obtain the present value of estimated cash flows using the
receivable’s original effective interest rate. Impairment loss is determined
as the difference between the receivables’ carrying balance and the
computed present value. The collective assessment would require the
Company to group its receivables based on the credit risk characteristics
(debtor type, past-due status and terms) of the debtors. Impairment loss
is then determined based on historical loss experience of the receivables
grouped per credit risk profile. Historical loss experience is adjusted
on the basis of current observable data to reflect the effects of current
conditions that did not affect the period on which the historical loss
experience is based and to remove the effects of conditions in the
historical period that do not exist currently. The methodology and
assumptions used for the individual and collective assessments are based
on management’s judgment and estimate. Therefore, the amount and
timing of recorded expense for any year would differ depending on the
judgments and estimates made for the year. The carrying amounts of
trade and other receivables (including the current portion of installment
contract receivables) as of December 31, 2008 and 2007 are disclosed
in Note 9 to the consolidated financial statements. The noncurrent
portion of the installment contract receivable amounted to P58.5 million
and P84.5 million as of December 31, 2008 and 2007, respectively.
The allowance for impairment of receivables specifically identified and
collectively assessed amounted to P115.5 million and P96.1 million as of
December 31, 2008 and 2007, respectively (see Note 9).
Liability for Land Development. Obligations to complete development
of real estate are based on actual costs and project estimates of
contractors and Company’s technical staff. These costs are reviewed
at least annually and are updated if expectations differ from previous
estimates. Liability to complete project included in liability for land
development are presented under “Other noncurrent liabilities” account
in the consolidated balance sheets amounted to P2.3 million and
P19.1 million as of December 31, 2008 and 2007, respectively.
Pension Benefits. The determination of the Company’s obligation and cost
of pension benefits is dependent on the selection of certain assumptions
used by actuaries in calculating such amounts. The assumptions presented
in Note 32 include among others, discount rates, expected rate of return on
plan assets and rates of salary increase. In accordance with PFRS, actual
results that differ from the assumptions are accumulated and amortized
over future periods and therefore, generally affect the recognized expense
and recorded obligation in such future periods.
The fair values of the identifiable acquired assets and liabilities as of the
date of acquisition determined provisionally are as follows:
Cash and cash equivalents
Receivables
Prepayments and other current assets
Property and equipment
Customer contracts
Refundable deposits and other noncurrent assets
Accounts payable and accrued expenses
Loans payable
Deferred tax liability
Estimating Net Realizable Value of Inventories. The Company carries
inventories at net realizable value when this becomes lower than cost due
to damage, physical deterioration, obsolescence, changes in price levels
or other causes. The carrying amounts of inventories as of December 31,
2008 and 2007 amounted to P1,042.4 million and P824.4 million,
respectively (see Note 10).
Net assets
Percentage of ownership
Goodwill arising from acquisition
Total consideration
Fair Value Recognized
on Acquisition
(Determined Provisionally)
(In Thousands)
P723
20,492
2,746
13,362
90,525
19,851
147,699
(25,265)
(15,000)
(27,158)
(67,423)
80,276
76%
61,011
263,671
P324,682
As of March 9, 2009, the Company is still in the process of determining
the final fair values to be assigned to the acquiree’s identifiable assets,
liabilities or contingent liabilities, hence the Company accounted for the
combination using provisional values. The Company shall recognize any
adjustments to those provisional values as a result of completing the initial
accounting within twelve months from the acquisition date.
Management deemed it impracticable to disclose the carrying amounts of
each of the acquired assets and liabilities, determined in accordance with
PFRS, immediately before the business combination.
Goodwill determined provisionally from the acquisition amounted to
P263.7 million (see Note 15).
Customer contracts pertain to the identifiable intangible asset acquired
and are expected to be fully amortized within 12 months from the
acquisition date.
The cash outflow related to the acquisition is as follows:
The Company’s net pension liability under “Pension and other postemployment benefits” account amounted to P0.3 million and P0.1 million
as of December 31, 2008 and 2007, respectively. The net pension
expense incurred in 2008, 2007 and 2006 amounted to P12.6 million,
P17.7 million and P11.7 million, respectively (see Note 32).
6. Acquisition of Toon City Animation, Inc.
Amount
(In Thousands)
Cash paid on acquisition dates (cost of shares
and costs associated with the acquisition
amounting to P0.5 million)
Less cash of acquired subsidiary
Net cash outflow
P324,682
723
P323,959
The results of operations of OAL and Toon City from the acquisition date
(December 24, 2008) until yearend is not significant and has not been
included in the Company’s results of operations in 2008. Management
deemed it impracticable to disclose the consolidated revenue and net
income of OAL for the year ended December 31, 2008 as though the
acquisition date for the business combination effected had been January
1, 2008.
The audit of the financial statements of OAL and Toon City as of and for
the year ended December 31, 2008 and as of and for the period ended
December 24, 2008 (acquisition date) is ongoing as of March 9, 2009.
OAL, a limited liability company incorporated in Hong Kong in October
2008 was used as an acquisition vehicle in the purchase of the shares
of stock of Toon City. On December 24, 2008, the Company, through
OAL, acquired an effective interest of 76% in Toon City, a fifteen-year old
animation studio in the Philippines providing services to clients abroad.
OAL owns 95% equity interest in Toon City.
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7. Cash and Cash Equivalents
This account consists of:
Trade and other receivables are noninterest-bearing and are short-term in
nature.
The installment contract receivable with 6% effective interest rate pertains
to a receivable from a third party for the sale of parcels of land. Collection
is on a monthly installment basis for 5 years with 9% interest rate until
March 1, 2012. The noncurrent portion is presented under noncurrent
assets section of the consolidated balance sheets.
Movements in allowance for doubtful accounts in 2008 and 2007 are as
follows:
2007
2008
(In Thousands)
P71,869
1,753,832
P1,825,701
Cash on hand and in banks
Short-term deposits
P40,098
1,620,780
P1,660,878
Cash in banks earn interest at applicable market rates. Short-term deposits
are made for varying periods of up to three months depending on the
immediate cash requirements of the Company and earn interest at the
respective short-term deposit rates.
Trade
8. Investments Held for Trading
Investments in:
Bonds
UITFs
Trust accounts
Marketable equity securities
Managed funds
2007
2008
(In Thousands)
P691,105
76,949
17,682
1,559
–
P787,295
P594,666
287,149
57,451
5,631
101,411
P1,046,308
Total
Balance at January 1, 2008
Provisions
Write-off
Balance at December 31, 2008
P84,363
43,720
(20,188)
P107,895
P11,750
1,189
(5,310)
P7,629
P96,113
44,909
(25,498)
P115,524
Individual impairment
Collective impairment
P103,414
4,481
P107,895
P7,629
–
P7,629
P111,043
4,481
P115,524
Trade
The Company’s unrealized gains from investments held for trading
(included in net gains on investments held for trading under “Investment
income” account in the consolidated statement of income) amounted to
(P28.3) million, P19.4 million and P103.1 million as of December 31,
2008, 2007 and 2006, respectively.
2008
Others
(In Thousands)
Balance at January 1, 2007
Provisions (see Note 23)
Balance at December 31, 2007
P60,706
23,657
84,363
Individual impairment
Collective impairment
P82,013
2,350
P84,363
2007
Others
Total
(In Thousands)
P7,423
P68,129
4,327
27,984
11,750
96,113
P11,750
–
P11,750
P93,763
2,350
P96,113
10.Inventories
9. Trade and Other Receivables
Trade
Due from related parties (see Note 28)
Current portion of installment contract
receivable
Accrued interest
Advances to suppliers and contractors
Receivable from BCII Retirement/Gratuity Plan
(BCII Retirement)
Advances to officers and employees
Others
Less allowance for doubtful accounts
At cost:
Finished goods
Land and development costs held for sale
Raw materials
Other inventories
At net realizable value Spare parts and others
2007
2008
(In Thousands)
P411,756
32,127
P369,840
8,342
25,992
21,269
9,300
11,074
19,000
7,883
8,939
1,757
40,697
551,837
115,524
P436,313
8,929
3,755
35,995
464,818
96,113
P368,705
2007
2008
(In Thousands)
P836,262
122,051
41,869
5,827
P508,293
143,226
147,402
2,309
36,347
P1,042,356
23,133
P824,363
Land held for sale represents parcels of land located in Batangas Industrial
Park (Park) which are available for sale. Land development costs pertain
to expenditures for the development and improvement of the land held for
sale in Phase 1 of the Park.
The acquisition cost of spare parts and other inventories carried at net
realizable value amounted to P37.2 million and P23.9 million as of
December 31, 2008 and 2007, respectively.
Under the terms of the agreements covering liabilities under trust receipts,
inventories amounting to P537.2 million and P191.3 million as of
December 31, 2008 and 2007, respectively, have been released to UGC
in trust for the bank. UGC is accountable to the bank for the trusteed
inventories or its sales proceeds.
Share in the associates’ net assets:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Preferred stock
Net assets attributable to common
stockholders
11.Investments in Associates
This account consists of the Company’s investments in the following
entities:
Percentage of Ownership
Direct
Indirect
Phinma Property Holdings Corporation
(PPHC)
Trans-Asia Oil and Energy Development
Corporation (TA Oil)
AB Capital and Investment Corporation
(AB Capital)
Luzon Bag Corporation(a)
Asia Coal Corporation (Asia Coal)(a) (b)
–
27.03
–
26.51
1.67
20.61
12.08
–
5.99
Share in the associates’ revenue and net income:
Revenue
Net income
Carrying amount of the investments
2007
2008
(In Thousands)
P1,189,069
606,046
(312,453)
(103,810)
(132,550)
P1,203,516
626,772
(303,735)
(207,014)
(132,550)
P1,246,302
P1,186,989
P797,499
41,586
P1,251,378
P724,814
76,295
P1,192,065
As of December 31, 2008 and 2007, the carrying amount of the Company’s
investments exceeded its equity in the net assets of associates by P5.1
million representing goodwill related to AB Capital.
Status of operations and significant transactions of certain associates are
as follows:
a. TA Oil
(a) Ceased commercial operations
(b) Considered as an associate although percentage of ownership is below 20% since the
Company has significant influence as evidenced in its representation in the BOD.
TA Oil is involved in power generation and oil and mineral exploration
activities.
The movements and details of investments in associates are as follows:
On March 25, 2008, the BOD of TA Oil declared a cash dividend of
P0.04 a share to all common stockholders of record as of April 11,
2008. The Company received P18 million cash dividends from TA
Oil.
On June 20, 2007, the SEC approved the stock rights offering of 552.5
million shares of TA Oil at the ratio of 1 share for every 2 shares held
as of record date of November 23, 2007, at a price of P1.10 per share.
The offer period commenced on November 28, 2007 and ended on
December 11, 2007. Total proceeds raised from the stock rights
offering, net of direct costs incurred, amounted to P599.0 million.
The proceeds was used to fund petroleum and mineral explorations
and for general corporate purposes. The Company subscribed to
165.6 million shares and fully paid its subscription at P182.2 million
out of the 552.5 million shares issued.
Also, in 2007, the Company acquired 100.0 thousand shares of
common stock amounting to P0.2 million.
On April 2, 2007, the BOD of TA Oil declared a cash dividend of
P0.04 a share to all common stockholders of record as of April 19,
2007. The Company received P11.3 million cash dividends from TA
Oil.
On July 2, 2007, Trans-Asia Gold and Minerals Development
Corporation (TA Gold) (a wholly-owned subsidiary of TA Oil) was
incorporated and registered with the SEC primarily to engage in the
business of mining and mineral exploration within the Philippines and
other countries. TA Gold has not yet started commercial operations
as of December 31, 2008.
TA Oil has 100% equity interest in CIP II Power Corporation (CIPP)
which operates a 21 MW Bunker C-fired power plant in CIP II Special
Economic Zone in Calamba, Laguna.
Acquisition costs:
Additions
Accumulated equity in net losses:
Equity in net earnings for the year
Dividends received
2007
2008
(In Thousands)
P1,473,643
63,350
1,536,993
(306,362)
41,586
(25,893)
(290,669)
Share in net unrealized gain on change in fair
value of AFS investments of associates:
Change in fair value during the year
35.27
The following table summarizes the financial information of the Company’s
investments in associates:
24,784
(19,730)
5,054
P1,251,378
P1,234,216
239,427
1,473,643
(403,496)
108,478
(11,344)
(306,362)
8,349
16,435
24,784
P1,192,065
The detailed carrying values of investments in associates which are
accounted for under the equity method are as follows:
TA Oil*
PPHC
AB Capital
Asia Coal
2007
2008
(In Thousands)
P772,644
323,976
154,496
262
P1,251,378
P775,787
228,706
187,280
292
P1,192,065
* The fair value as of December 31, 2008 and 2007 amounted to P315.0 million and P557.0 million.
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b. PPHC
12.AFS Investments
PPHC is engaged in real estate development, principally in low and
middle cost housing and vertical development.
On April 15, 2008, the SEC approved the stock rights offering at the
rate of 1 share for every 3 shares held as of record date of April 30,
2008, at a price of P0.12 per share. The availment period was from
May 1 to 30, 2008. The Company availed of the stock rights offering
and paid P63.4 million for 527.9 million shares.
2007
2008
(In Thousands)
Quoted:
Ayala Corporation preferred shares
First Philippine Holdings Corporation
(FPHC) preferred shares
Unquoted:
AB Capital - preferred shares
Others
On March 27, 2008, the BOD of PPHC declared cash dividend of
P0.005 a share to all common stockholders of record as of March
31, 2008. The Company received P7.9 million cash dividends from
PPHC.
Less accumulated impairment losses
c. AB Capital
AB Capital is an investment house that engages in corporate finance,
fixed-income securities dealership, stock brokerage and fund
management.
On February 14, 2007, the BOD of AB Capital approved the sale of
212,770 treasury shares to existing shareholders, PHINMA and BCII.
Also, in 2007, the Company purchased 438,890 common shares
amounting to P57.1 million.
Asia Coal is engaged in the trading of coal. Beginning November 1,
2000, Asia Coal ceased all trading operations.
P8,400
P9,151
19,000
–
250,000
99,636
377,036
45,517
P331,519
250,000
99,732
358,883
45,517
P313,366
AFS investments consist of ordinary shares, and therefore have no fixed
maturity date or coupon rate.
The unquoted AFS investments are carried at cost less accumulated
impairment losses since its fair value cannot be reliably measured. The
quoted AFS securities which are listed in the Philippine Stock Exchange
(PSE) are carried at fair value. Unrealized gain (loss) on change in fair
value on such quoted AFS amounting to (P0.6 million) and P1.2 million
were recognized in the 2008 and 2007 consolidated statement of changes
in equity, respectively.
On February 14, 2007, the BOD of AB Capital declared cash dividend
totaling P80.0 million to preferred stockholders as of March 30, 2007,
payable on April 17, 2007 conditional upon the sale of 212,770 treasury
shares at P345.14 per share. In March 2007, the Company together with
PHINMA acquired the treasury shares. The Company acquired 106,385
treasury shares for P36.7 million. Thereafter, the Company received
P42.3 million cash dividends on preferred shares from AB Capital.
Accumulated impairment losses pertain to unquoted AFS investments
classified as others.
d. Asia Coal
This account consists of investments in quoted and unquoted equity
securities:
13.Property, Plant and Equipment
Following are the details of this account:
Cost:
Land
Less accumulated depreciation:
Construction in-progress
Net book value
December 31, 2007
Additions
P354,573
15,041
748,967
223,664
583,983
282,299
2,208,527
P–
2,481
34,917
2,357
18,286
26,863
84,904
11,371
270,474
82,729
346,369
207,729
918,672
1,289,855
5,037
P1,294,892
810
48,804
11,295
39,294
15,316
115,519
(30,615)
37,943
P7,328
Disposals
(In Thousands)
Reclassification
December 31, 2008
(18,842)
(23,321)
(P4,606)
8,325
23,403
–
2,237
–
29,359
P349,967
25,847
805,165
223,664
604,506
290,320
2,299,469
–
(2,066)
(2,357)
–
(18,842)
(23,265)
(56)
–
(P56)
–
–
–
–
–
–
29,359
(33,965)
(P4,606)
12,181
317,212
91,667
385,663
204,203
1,010,926
1,288,543
9,015
P1,297,558
P–
–
(2,122)
(2,357)
December 31, 2006
Cost:
Land
Less accumulated depreciation:
Construction in-progress
Net book value
Additions
Disposals
(In Thousands)
Reclassification
December 31, 2007
P353,310
14,084
691,247
224,449
585,763
270,031
2,138,884
P1,263
–
14,445
–
8,996
26,631
51,335
P–
–
–
–
–
(5,146)
(5,146)
P–
957
43,275
(785)
(10,776)
(9,217)
23,454
P354,573
15,041
748,967
223,664
583,983
282,299
2,208,527
10,410
195,609
73,564
367,478
156,948
804,009
1,334,875
9,502
P1,344,377
656
38,684
9,950
35,748
26,686
111,724
(60,389)
13,719
(P46,670)
–
–
–
–
(2,331)
(2,331)
(2,815)
–
(P2,815)
305
36,181
(785)
(56,857)
26,426
5,270
18,184
(18,184)
P–
11,371
270,474
82,729
346,369
207,729
918,672
1,289,855
5,037
P1,294,892
As of December 31, 2008 and 2007, the unamortized capitalized borrowing costs included as part of property, plant and equipment amounted to
P2.8 million and P3.1 million, respectively. No borrowing cost has been capitalized in 2008 and 2007.
Certain property, plant and equipment of UGC, Araullo University and PSHC totaling P928.5 million and P943.5 million as of December 31, 2008 and
2007 were used as security for their respective long-term debt and convertible notes as disclosed in Note 19 to the consolidated financial statements.
14.Investment Properties
December 31, 2007
Cost:
Land
Buildings for lease
P534,463
302,112
836,575
51,998
P784,577
Less accumulated depreciation - Buildings for lease
Cost:
Land
Buildings for lease
Less accumulated depreciation - Buildings for lease
Reclassification
December 31,2008
P–
5,800
5,800
20,851
(P15,051)
P4,606
–
4,606
–
P4,606
P539,069
307,912
846,981
72,849
P774,132
December 31, 2006
Additions
(In Thousands)
December 31, 2007
P533,950
302,112
836,062
31,191
P804,871
P513
–
513
20,807
(P20,294)
P534,463
302,112
836,575
51,998
P784,577
Additions
(In Thousands)
Investment properties (except land) are stated at cost less accumulated depreciation and any impairment losses. Land is stated at cost less any
accumulated impairment losses. The fair value of investment properties based on the latest valuation by independent firms of appraisers was
P1.5 billion and P1.4 billion in December 31, 2008 and 2007, respectively.
The buildings for lease are being depreciated over 15 and 20 years.
15.Intangibles
Following are the details and movements of this account:
Cost:
Goodwill (see Note 6)
Intangible - student lists
Intangible - customer contracts (see Note 6)
Accumulated amortization Intangible - student lists
December 31, 2007
Additions
December 31, 2008
P65,882
25,380
–
91,262
P263,671
–
90,525
354,196
P329,553
25,380
90,525
445,458
23,798
P67,464
1,582
P352,614
25,380
P420,078
37
38
December 31, 2006
Amortization
Adjustments
(In Thousands)
Cost:
Goodwill
Intangible - student lists
Accumulated amortization Intangible - student lists
P40,058
25,380
65,438
P–
–
–
P25,824
–
25,824
P65,882
25,380
91,262
18,868
P46,570
4,930
(P4,930)
–
P25,824
23,798
P67,464
In 2007, adjustments were made to the acquisition cost of the Company’s investment in Araullo University. This resulted to the recognition of additional
goodwill of P5.4 million.
16.Other Noncurrent Assets
19.Long-term Debt
This account consists of long-term liabilities of the following
subsidiaries:
2007
2008
(In Thousands)
Input VAT - net of allowance for unrecoverable
amount of P109.2 million and P104.7
million in 2008 and 2007, respectively
Others - net of allowance for doubtful advances
of P66.7 million in 2008
P–
P–
44,830
P44,830
27,046
P27,046
2007
2008
(In Thousands)
UGC:
Banco de Oro (BDO)
Rizal Commercial Banking Corporation
(RCBC)
Less debt issuance cost
PSHC
Araullo University
BIPC
COC
17.Notes Payable
This account consists of notes payable of the following subsidiaries:
UGC
OAL
COC
2007
2008
(In Thousands)
P219,667
P101,610
–
19,752
–
2,456
P219,667
P123,818
Less current portion - net of debt issuance cost
of P0.6 million in 2007
35,322
38,590
60,219
51,178
19,018
10,138
39,453
26,922
62,283
P362,971
21,737
6,331
29,413
39,372
39,918
P329,856
Trade and other payables are noninterest-bearing. Trade payables are
normally settled on 30 to 60-day terms. Other payables are normally
settled within twelve months.
70,000
280,000
(2,818)
277,182
146,422
65,250
20,391
–
509,245
90,000
360,000
1,653
358,347
145,134
74,355
23,693
78
601,607
95,300
137,600
P413,945
P464,007
The salient terms of the agreement covering UGC’s long-term debt from
BDO and RCBC are as follows:
Trade
Payable to third parties
Accruals for:
Personnel cost
Professional fees and others
(see Note 28)
Interest (see Note 28)
Freight, hauling and handling
Dividends
Customers’ deposits
Others
P270,000
UGC
On June 25, 2007, the outstanding BDO loan, syndicated loan and the
convertible notes obtained from five local financial institutions, namely,
AB Capital, Bank of the Philippine Islands, Metropolitan Bank and Trust
Company, Land Bank of the Philippines and Security Bank Corporation
were preterminated by obtaining a term loan aggregating to P400.0 million
from BDO and RCBC for which debt issue cost amounting to P2.0 million
was paid. UGC charged a loss of P8.5 million to operations (included
in “Others” under “Other income (expenses)” in the 2007 consolidated
statement of income) and P2.4 million to equity portion of convertible
notes as a result of pretermination of the loans. BCII’s share in the amount
of loss charged to equity is P2.0 million. Amortization of debt issuance
cost amounted to P0.3 million in 2007.
UGC’s notes payable consist of unsecured short-term peso-denominated
loans from financial institutions with annual interest rates in 2008 and
2007 ranging from 6.75% to 7.5% and 6.0% to 8.25%, respectively.
2007
2008
(In Thousands)
P51,249
P34,094
52,068
75,522
P210,000
18.Trade and Other Payables
December 31, 2007
Interest
Fixed rate of 9.11% computed based on five
year PDST- F plus a spread of 1.75% and
applicable taxes at the time of the drawdown
Repayment period
20 equal quarterly installments until June
2012
As of December 31, 2008, the loans from BDO and RCBC are
collateralized by a mortgage agreement on UGC’s existing land,
plantsite improvements, buildings and installations, and machinery and
equipment of Calamba and Davao plants with estimated market value of
P566.8 million.
The foregoing loan agreements includes, among others, certain restrictions
and requirements with respect to the following:
• Maintenance of the following ratios for the duration of the loan
agreement: (1) current ratio of not less than 1:1; (2) debt to equity
ratio of not more than 1.5:1; and (3) debt service ratio of 1.25:1; and
• Restrictions on declaration and payment of dividends, incurrence of
new long-term debt, entering into management agreement with any
party other than PHINMA, entering into merger or consolidation or any
change of ownership, sale, lease or otherwise, transfer of a substantial
portion of its assets except in the ordinary course of business, making
any loans, advances or investments, making capital expenditures,
prepayment of any other long-term debt and amendment of UGC’s
Articles of Incorporation or By-laws.
As of December 31, 2008 and 2007, UGC is in compliance with the debt
covenants.
PSHC
This represents interest-bearing loan of P154.0 million payable to United
Pulp and Paper Co., Inc. (UPPC) arising from the acquisition of land from
UPPC. UPPC was a former associate of the Company.
This loan is presented at amortized cost as of the balance sheet date. The
present value of the loan at initial recognition in 2006 was calculated
using an effective interest rate of 11.03%. The effective interest used in
computing for the present value of the loan payable was derived based on
the rate inherent to the loan after considering the carrying value and the
future value of the loan payable at the coupon rate of 9.1%.
Initially, the said loan is payable in two installments amounting to P44.0
million on July 15, 2008 and P110.0 million on July 15, 2013. On July 8,
2008, a Memorandum of Agreement was executed by UPPC and PSHC
amending the maturity date of P44.00 million from July 15, 2008 to
July 15, 2013. A recomputation of the effective interest rate of 10.52% was
made in 2008 to reflect the change in the payment terms of the liability
in 2013. Additional interest expense resulting from the accretion of loan
payable amounted to P1.29 million, P1.80 million and P1.66 million in
2008, 2007 and 2006 respectively. The details of the loan are as follows:
Loan payable to UPPC
Less unamortized discount
Less current portion
2007
2008
(In Thousands)
P154,000
P154,000
8,866
7,578
145,134
146,422
44,000
–
P101,134
P146,422
To secure the payment of the loan, PSHC constituted a mortgage over its
land in favor of certain creditors of UPPC.
The payable of PSHC to UPPC incurs an annual interest at a rate subject
to mutual agreement by UPPC and PSHC on each anniversary date.
Interest expense on the amount payable to UPPC, computed at 9.1% of
the outstanding principal balance, amounted to P14.0 million in 2008,
2007 and 2006.
Araullo University
Araullo University’s long-term debt consists of:
2007
2008
(In Thousands)
Loan payable to China Banking Corporation
(China Bank)
Car loan
Less current portion
P65,250
P74,250
–
P65,250
9,000
P56,250
105
P74,355
9,105
P65,250
China Bank
Loan payable to China Bank represents a 10-year loan from China Bank Cabanatuan Branch. The proceeds of the loan were used to preterminate
restructured long-term debt from another local bank, to partially finance
Araullo University’s building renovation, and to purchase various school
equipment. The debt is payable on fixed monthly amortization of
P750,000 starting April 17, 2006. Interest shall be payable monthly in
arrears based on variable pass-on rate plus spread. Actual interest rate
was 8.66% in 2008 and 8.75% in 2007.
Araullo University’s land, including existing and future improvements
thereon is used as collateral for its long-term debt to China
Bank. The net book value of the said land and improvements was
P156.7 million as of December 31, 2008 and 2007.
Car Loan
Car loan represents a bank loan obtained to finance Araullo University’s
acquisition of transportation equipment. The loan is collateralized by the
same transportation equipment.
BIPC
BIPC’s outstanding long-term debt due to Asiatrust Bank which is presented
at accreted value consists of:
(In Thousands)
P22,830
863
23,693
(3,665)
363
P20,391
Balance, January 1, 2007
Interest accruals
Balance, December 31, 2007
Payments during the year
Interest accruals
Current portion of long-term debt
Long-term debt - net of current portion
2007
2008
(In Thousands)
P4,495
P6,945
19,198
13,446
P23,693
P20,391
39
40
As of December 31, 2008 and 2007, the effective interest rate of the debt
is 10.75% and 10.79% respectively.
The terms of BIPC’s debt are as follows:
Facility
Long-term debt
Payment term
Ten years, inclusive of a four-year grace period
on principal repayment
Interest rate
8.0% fixed interest rate for the entire term of the
loan
Interest payments
3-year grace period on interest payment through
June 9, 2008. Interest to be incurred during the
grace period, net of P4 million partial interest
payment to be made on June 9, 2008 will be
capitalized
Principal payment
3½-year grace period on principal amortization
up to December 10, 2008 and seven equal semiannual payments to commence on December 10,
2008
Security
First party real estate mortgage over vacant
industrial lots under Transfer Certificate Title
(TCT) No. 98732 and TCT No. 100923 located at
Barrio Lumbang Municipality of Calaca, Batangas
registered under the name of BIPC aggregating
to 62,342 square meters with appraised value of
P58.4 million as of December 31, 2007
b. Retained Earnings
Date
April 14, 2008
March 30, 2007
May 31, 2006
The balance of the Company’s retained earnings include the
subsidiaries and associates undistributed net earnings of P808.4
million and P753.1 million as of December 31, 2008 and 2007,
respectively, which are available for distribution only upon
declaration of dividends by such subsidiaries and associates of the
Parent Company.
Investment income consists of:
Investments held for
trading
Receivables
Net gain (loss) on
investments held for
trading
Dividend income
Number of Shares
2007
50,000,000
50,000,000
50,000,000
50,000,000
50,000,000
50,000,000
Stock dividends
Subscribed
Issued and subscribed
P62,304
P22,292
42,351
54,323
79,157
5,744
–
–
114,639
116,627
101,449
(34,323)
27,521
193,414
5,466
49,631
–
P85,782
P193,779
P294,863
Cost of educational services
Cost of real estate sold
234,266,572 203,704,783 169,747,320
23,430,741
30,561,789
33,957,463
257,697,313 234,266,572 203,704,783
39,994
39,994
39,994
257,737,307 234,306,566 203,744,777
2007
2006
(In Thousands)
Cost of sales
420,000,000 420,000,000 420,000,000
Issued:
P66,544
2008
Common
Authorized
(In Thousands)
Cost of sales, educational services and real estate consist of:
Class BB
Authorized
2006
22.Cost of Sales, Educational Services and Real Estate
Class AA
2007
2006
Preferred - cumulative,
nonparticipating
Authorized
Interest income:
The composition of the Parent Company’s capital stock as of
December 31, 2008, 2007 and 2006 is as follows:
On October 5 2005, the BOD appropriated P1.0 billion of retained
earnings for future investments.
2008
a. Capital Stock
2008
Shareholders’ Record Date
June 13, 2008
June 15, 2007
August 11, 2006
Dividend rate
10%
15%
20%
21.Investment Income
20.Equity
The BOD of BCII declared the following stock dividends:
P2,171,695
P1,735,395
P1,664,970
148,681
145,503
155,226
27,462
50,369
2,546
P2,347,838
P1,931,267
P1,822,742
41
The details of cost of sales, educational services and real estate are as
follows:
2008
2007
25.Interest Expense and Other Financial Charges
2006
2008
(In Thousands)
P1,924,837
P1,532,504
P1,462,228
162,784
157,843
154,279
Depreciation (see Note 27)
76,669
70,869
64,705
Equipment running
16,330
16,248
13,334
Inventories used
Personnel costs (see Note 26)
Others
162,218
153,803
128,196
P2,342,838
P1,931,267
P1,822,742
Interest expense on loans
and borrowings
2007
2006
(In Thousands)
P98,412
P105,405
1,450
3,988
223
P99,862
P109,393
P123,893
2008
2007
2006
Other financial charges
P123,670
26.Personnel Costs
Personnel costs consist of:
23.General and Administrative Expenses
General and administrative expenses consist of:
2008
Outside services
2007
(In Thousands)
P106,893
P121,203
P93,348
103,768
78,537
30,294
Training
53,693
57,125
70,495
Others
Provision (reversal of
allowance) for doubtful
accounts (see Note 9)
44,909
27,984
(6,362)
Taxes and licenses
20,389
18,049
24,352
Provision for unrecoverable
input value - added tax
4,512
5,598
30,455
Transportation and travel
3,719
5,412
6,440
Provision for impairment losses
Others
–
15,393
49,284
53,186
45,052
47,436
P391,069
374,353
P345,742
24.Selling Expenses
Selling expenses consist of:
2008
2007
2006
P48,285
P42,557
P34,907
Advertising
20,887
17,343
16,672
Transportation and travel
19,687
15,762
8,121
Commission
17,177
27,828
32,886
6,009
4,537
3,978
Others
67,293
51,149
46,920
P179,338
P159,176
P143,484
P290,565
P267,133
P238,009
14,227
17,970
23,528
4,538
1,658
1,537
12,147
34,842
19,460
P321,477
P321,603
P282,534
Depreciation and amortization relate to the following assets:
2008
Property, plant and equipment
and investment properties:
Cost of sales, educational
services and real estate
General and administrative
expenses
Selling expenses
2007
2006
(In Thousands)
P76,669
P70,869
P64,705
53,693
57,125
70,495
6,009
4,537
3,978
Intangible - schools General and administrative
expenses - others
(In Thousands)
(In Thousands)
27.Depreciation and Amortization
Salaries, employee benefits
and bonuses (see Note 28)
Retirement and other postemployment benefits
(see Note 32)
2006
1,582
4,930
8,460
P137,953
P137,461
P147,638
42
additional P2.9 million in April 2005, aggregated and reflected as
“Other noncurrent liabilities” at amortized cost at balance sheet date,
and refundable to UPPC upon the expiration of the lease. The lease
deposit’s present value was calculated using an effective interest rate of
12.0% per annum. On August 2, 2006, PSHC and UPPC amended the
lease agreement increasing the annual rent revenue from P14.6 million to
P19.2 million effective January 1, 2006.
28.Related Party Transactions
Associates and Related Corporations
UPPC
UPPC is a subsidiary of Siam Pulp and Paper Public Company Limited,
who also owns 40% of the outstanding capital stock of PSHC.
PSHC receives assistance from UPPC in carrying out certain administrative
functions. Starting October 1, 2005, PSHC pays, on a monthly basis,
P0.02 million for various general accounting and financial services
rendered by UPPC.
PSHC has noninterest-bearing cash advances from UPPC amounting to
P0.5 million as of December 31, 2006. Such advances were settled in
2007.
On December 27, 2006, PSHC sold its investment in shares of stock of
UPPC, which was acquired at P276.5 million, to Siam Pulp and Paper
Public Company, Ltd. at a selling price of P=85.9 million. Accordingly,
PSHC recorded a gain on sale of investment amounting to P17.1 million as
“Gain on sale of available-for-sale investment” in the 2006 consolidated
statement of income.
PSHC has outstanding long-term payable to UPPC arising from the
acquisition of land from UPPC, then an associate (see Note 19). PSHC
leases the land to UPPC for a period of 50 years, renewable for another
25 years upon the approval of the Philippine Department of Trade and
Industry. Annual lease income during the entire lease term is initially
fixed at P14.6 million. In connection with the lease, UPPC was required
to make a lease deposit with PSHC of P55.5 million in July 2003 and
The difference between the face value of the lease deposit and its
corresponding present value at inception was aggregated and reflected as
deferred rent revenue, that is being amortized as rent revenue simultaneous
with the accretion of the lease deposit. The details of lease deposit are as
follows:
2008
2007
(In Thousands)
P58,400
Lease deposit
Less unamortized discount
P58,400
(58,022)
(58,063)
P378
P337
AB Capital
Transactions with AB Capital pertain to short-term placements made by
the Company in AB Capital.
Others
Other related party transactions primarily relate to the grant of advances
to and sharing of expenses with other companies which are also under the
common control of PHINMA, namely, PPHC, TO Insurance Brokers, Inc.,
TA Oil and others.
Amounts and outstanding balances relating to the aforementioned transactions are as follows:
Related Party
Nature of Transaction
Year
Amount of
Transactions
During
the Year
Share in expenses
2008
P–
P–
P–
2007
–
–
–
2006
8,310
–
96
2008
632
–
632
517
UPPC
AB Capital
Others
Share in expenses
Raw materials purchases, technical service fees,
advances and share in expenses
Amount of
Due to
Related
Parties
(In Thousands)
Amount of
Due from
Related
Parties
2007
747
–
2006
4,151
–
157
2008
35,296
143
31,495
2007
9,661
17,469
7,825
2006
10,374
–
6,493
Management and Directors’ Compensation
BCII, BIPC, UGC, COC and Araullo University are under common
management by PHINMA, and pay PHINMA a fixed annual management
fee plus an annual bonus based on a certain percentage of the respective
companies’ adjusted net income, as defined in the management contract
between PHINMA and the respective companies, pursuant to the
provisions of the same contract.
Total management fees and bonuses incurred in 2008, 2007 and 2006
amounted to P63.1 million, P49.5 million and P44.1 million, respectively.
The related unpaid amount, included under “Trade and other payables”
account in the consolidated balance sheets, was P44 million and P32.6
million as of December 31, 2008 and 2007, respectively.
BCII and AHC recognized bonus to directors computed based on net
income with preagreed adjustments. Directors’ bonus amounted to
P29.6 million in 2008, P20.2 million in 2007 and P10.0 million in 2006.
The related unpaid amount, included under “Trade and other payables”
account in the consolidated balance sheets, was P27.1 million and P20.2
million as of December 31, 2008 and 2007, respectively.
2008
P37,820
2007
P49,443
2006
P42,956
3,355
6,650
6,358
1,927
P43,102
1,287
P57,380
882
P50,196
29.Financial Risk Management Objectives and Policies
The Company’s principal financial instruments comprise of cash and
cash equivalents, short-term investments, corporate promissory notes
and bonds, government bonds, quoted and unquoted shares of stocks,
currency forwards, investments in UITFs, and loans and borrowings in
Philippine peso and U.S. dollar (USD) currencies. The main purpose
of these financial instruments is to finance the Company’s investments.
The Company also has financial assets and liabilities, such as trade and
other receivables and trade and other payables that arise directly from
operations.
The main risks arising from the Company’s treasury transactions are credit
risk, liquidity risk, foreign currency risk, interest rate risk, and equity price
risk. Careful study, skill, prudence and due diligence are exercised at
all times in the handling of the funds of the Company. An Investment
Committee reviews and approves policies and directions for investments
and risks management. The basic parameters approved by the Investment
Committee are:
Safety of Principal
Tenor
Three year maximum for any security, with
average duration between one and two years
Exposure Limits
a.
For banks and fund managers: maximum
of 20% of total funds of the Company per
bank or fund
b.
For peso investments: minimal corporate
exposure except for registered bonds
c.
For foreign currencies: maximum
50% of total portfolio. Limits on third
currencies outside USD are set regularly
and reviewed at least once a year by the
Investment Committee
For investments in equities whether
directly managed or managed by
professional managers: limits are set as
approved by the Investment Committee
and based on current market outlook at the
time of review
d.
Compensation of key management personnel of the Company are as
follows:
Short-term employee benefits
Post-employment benefits:
Retirement benefits
Sick leave and vacation
leave
Investment
Objective
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause
a financial loss for the other party by failing to discharge an obligation.
Due to the Company’s investing and operating activities, the Company is
exposed to the potential credit-related losses that may occur as a result of
an individual, counterparty or issuer being unable or unwilling to honor
its contractual obligations.
In managing credit risk on these financial instruments, the Company
transacts only with the Company’s duly accredited domestic and foreign
banks. Investments per financial institution are subject to a maximum of
20% of the Company’s investible funds. It is the Company’s policy that
investments cannot exceed 10% of the trust or mutual fund’s total assets.
A comprehensive credit and business review in coordination with dealers
or underwriters is performed whenever the Company invests in non-rated
securities. Furthermore, the Company monitors the credit quality of
corporate and sovereign bonds with reference to credit rating studies and
updates from the major rating agencies.
The Company’s exposure to credit risk on its cash and cash equivalents,
short-term investments, investments held for trading, AFS investments,
trade and other receivables, and derivative instruments arises from default
of the counterparty with a maximum exposure equal to the carrying
amount of these instruments.
Credit Quality of Financial Assets. Cash and cash equivalents, short-term
investments and derivative instruments are classified as high grade since
these are deposited in/or transacted with reputable banks which have low
probability of insolvency.
43
44
The following table illustrates credit quality of investments held for trading and AFS investments as of December 31, 2008 and 2007:
2008
Neither Past Due nor Impaired
Standard
High Grade
Grade
Investments held for trading:
Investments in bonds
Investments in UITFs
Investments in trust accounts
Investments in marketable equity securities
Investment in managed funds
AFS investments:
Quoted
Unquoted
Total
Substandard
Grade
Impaired
Total
P687,656
76,949
–
–
–
P3,449
–
17,682
1,559
–
P–
–
–
–
–
P–
–
–
–
–
P691,105
76,949
17,682
1,559
–
–
–
P764,605
27,400
304,119
P354,209
–
–
P–
–
45,517
P45,517
27,400
349,636
P1,164,331
Substandard
Grade
Impaired
Total
2007
Standard
High Grade
Grade
Investment in bonds
AFS investments:
Quoted
Unquoted
Total
P251,346
594,666
–
–
–
P35,803
–
101,411
57,451
5,631
P–
–
–
–
–
P–
–
–
–
–
P287,149
594,666
101,411
57,451
5,631
–
–
P846,012
9,151
304,215
P513,662
–
–
P–
–
45,517
P45,517
9,151
349,732
P1,405,191
The Company uses the following criteria to rate credit quality:
Class
High Grade
Description
Investments in instruments that have a recognized foreign or local third party rating or
instruments which carry guaranty/collateral.
Standard Grade
Investments in instruments of companies that have the apparent ability to satisfy its obligations
in full.
Substandard Grade
Investments in instruments of companies that have an imminent possibility of foreclosure; those
whose securities have declined materially in value, or those whose audited financial statements
show impaired/negative net worth.
The credit quality of the Company’s trade and other receivables (including installment contract receivable) as of December 31, 2008 and 2007 are as
follows:
Trade
Installment contract receivable (current and noncurrent)
Accrued interest (see Note 29)
Receivable from BCII Retirement
Others
2008
Past Due
High Grade
Standard Grade
and Impaired
(In Thousands)
P213,313
P16,073
P182,370
–
84,474
–
9,300
–
–
2,865
18,404
–
–
32,127
–
–
8,939
–
1,465
292
–
11,656
21,412
7,629
P238,599
P181,721
P189,999
Total
P411,756
84,474
9,300
21,269
32,127
8,939
1,757
40,697
P610,319
45
2007
Past Due
High Grade
Standard Grade
and Impaired
(In Thousands)
P13,390
P149,817
P206,633
–
95,547
–
7,883
–
–
–
19,000
–
38
4,472
3,832
–
8,929
–
1,338
1,287
1,130
5,564
21,914
8,517
P28,213
P300,966
P220,112
Trade
Installment contract receivable (current and noncurrent)
Others
Total
P369,840
95,547
7,883
19,000
8,342
8,929
3,755
35,995
P549,291
Trade and other receivables are classified as: a.) high grade when the receivables are secured or covered with collaterals; b.) standard grade when the
receivables are unsecured but debtors have good paying habits; or c.) substandard grade when the receivables are unsecured and debtors have poor paying
habits.
There are no significant concentrations of credit risk within the Company.
As of December 31, 2008 and 2007, the aging analysis of trade and other receivables (including installment contract receivable) are as follows:
2008
Trade
Installment contract receivable (current
and noncurrent)
Advances to suppliers
and contractors
Due from related parties
(see Note 29)
Advances to officers
and employees
Others
Total
Neither
Past Due
nor Impaired
P411,756
P229,386
P51,454
84,474
84,474
–
–
–
9,300
21,269
9,300
21,269
–
–
–
–
32,127
8,939
32,127
8,939
–
–
1,757
40,697
P610,319
1,757
33,068
P420,320
–
–
P51,454
Total
Neither
Past Due
nor Impaired
<30 Days
P369,840
P163,207
P47,795
95,547
95,547
–
–
–
7,883
19,000
7,883
19,000
–
–
–
–
8,342
8,929
4,510
8,929
–
–
3,755
35,995
P549,291
2,625
27,478
P329,179
–
1,097
P48,892
<30 Days
Past Due but not Impaired
30-60 Days
60-90 Days
90-120 Days
(In Thousands)
P8,085
P8,670
P4,453
Past
Due and
Impaired
>130 Days
P1,813
P107,895
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
P8,085
–
–
P8,670
–
–
P4,453
–
–
P1,813
–
7,629
P115,524
>130 Days
Past
Due and
Impaired
P38,175
P89,277
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,112
–
1,720
–
–
286
P17,586
–
426
P9,548
–
1,902
P6,866
–
820
P41,107
1,130
3,986
P96,113
2007
Trade
Installment contract receivable (current
and noncurrent)
Advances to suppliers
and contractors
(see Note 29)
Advances to officers
and employees
Others
Past Due but not Impaired
30-60 Days
60-90 Days
90-120 Days
(In Thousands)
P17,300
P9,122
P4,964
46
Impaired financial instruments comprise of trade receivables from customers, related parties and advances to officers and employees.
Liquidity Risk
Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations on time or at a reasonable price. The Company
manages liquidity risks by restricting investments.
The Company manages liquidity risk by continuously monitoring weekly and monthly cash flows as well as updates of annual plans.
The maturities of the financial liabilities are determined based on the Company’s projected payments and contractual maturities. The average duration
adheres to guidelines provided by the Investment Committee. It is the Company’s policy to restrict investment principally to publicly traded securities with
a history of marketability and by dealing with only large reputable domestic and international institutions.
The table below summarizes the maturity profile of the Company’s financial liabilities as of December 31, 2008 and 2007 based on contractual undiscounted
payments:
2008
Financial Liabilities
Financial liabilities at FVPLDerivative liabilities
Other Financial Liabilities:
Notes payable
Due to related parties
Long-term debt
Within
1 Year
1–2 Years
P26,857
P–
P–
123,818
354,419
537,252
143
96,322
P1,138,811
–
180
–
–
134,110
P134,290
8,007
–
–
226,554
P234,561
More than
5 Years
Total
P–
P–
P26,857
–
365
–
–
58,750
P59,115
P–
–
–
–
52,250
P52,250
P123,818
362,971
537,252
143
567,986
P1,619,027
2–3 Years
3–5 Years
(In Thousands)
2007
Within
1 Year
Other Financial Liabilities:
Notes payable
Long-term debt
P223,533
329,856
195,540
17,469
177,636
P944,034
1–2 Years
P–
–
–
–
112,658
P112,658
2–3 Years
(In Thousands)
P–
–
–
–
105,370
P105,370
3–5 Years
P–
–
–
–
149,400
P149,400
More than
5 Years
P–
–
–
–
278,037
P278,037
Total
P223,533
329,856
195,540
17,469
823,101
P1,589,499
Market Risk
Market risks are managed by constant review of global and domestic economic and financial environments as well as regular discussions with banks’
economists/strategy officers to get multiple perspectives on interest rate trends/forecasts. Regular comparison of the portfolio’s marked-to-market values
and yields with defined benchmarks are also made.
Foreign Currency Risk
The Company’s financial assets that are exposed to foreign currency risk are foreign currency denominated cash and cash equivalents, short-term
investments, investment in managed funds, investments in UITFs, and investment in bonds.
Foreign exchange risks on the USD and other foreign currencies are managed through constant monitoring of the political and economic environment.
Returns are also calibrated on a per currency basis to account for the perceived risks with higher returns expected from weaker currencies. The Company
also enters into currency forward contracts to manage its currency risk.
The following table shows the foreign currency-denominated financial assets and their peso equivalents as of December 31, 2008 and 2007:
2008
Foreign
Currency
In US Dollar:
Investments in bonds
US$15,785
985
7,648
–
–
US$24,418
There are no financial liabilities denominated in foreign currency as of
December 31, 2008 and 2007.
In translating foreign currency-denominated financial assets into peso
amounts, the exchange rates used were P47.52 to US$1.00 and P41.28
to US$1.00 as of December 31, 2008 and December 31, 2007,
respectively.
The following table demonstrates the sensitivity to a reasonably possible
change in the exchange rate, with all other variables held constant, of
the Company’s profit before tax (due to the changes in the fair value
of monetary assets) as of December 31, 2008 and 2007. There is no
impact on the Company’s equity other than those already affecting the
profit or loss. The effect on profit before tax already includes the impact of
derivatives outstanding as of December 31, 2008 and 2007.
Increase/Decrease
in Peso-Dollar
Exchange Rate
P.50
(0.50)
0.50
(0.50)
0.50
(0.50)
UGC
AHC
BCII
UGC
AHC
Cash flow interest rate risk is the risk that the future cash flows of
a financial instrument will fluctuate because of changes in market
interest rates.
The Company is exposed to cash flow interest rate risk due to Araullo
University’s variable rate loan from China Bank (see Note 19).
The following table demonstrates the effect of changes in market
interest rates, on the Company’s profit before income tax, based on
the Company’s expectation, with all other variables held constant
as of December 31, 2008. There is no other significant impact on
the Company’s equity other than those already affecting the profit or
loss.
2008
Increase/Decrease
in Basis Points
P1.00
(1.00)
+5.0%
-5.0%
2.00
(2.00)
+0.50%
-0.50%
Loan payable from China Bank
2007
Increase/Decrease
in Basis Points
Effect
on Profit
Before Tax
(In Millions)
P9.9
(6.5)
11.4
(11.4)
2.7
(2.5)
P684,464
36,574
157,442
225,760
101,411
P1,205,651
2007
Increase/Decrease
in Peso-Dollar
Exchange Rate
US$16,581
886
3,814
5,469
2,457
US$29,207
a. Cash Flow Interest Rate Risk
Effect
on Profit
Before Tax
(In Millions)
P1.4
7.0
.2
(.2)
0.03
(0.04)
P750,103
46,807
363,432
–
–
P1,160,342
Peso
Equivalent
Interest Rate Risk
2008
BCII
2007
Foreign
Currency
Peso
Equivalent
(In Thousands)
Loan payable from China Bank
+0.25%
-0.25%
Effect
on Profit
Before
Tax
(In Thousands)
(P351)
351
Effect
on Profit
Before
Tax
(In Thousands)
(P175)
175
b. Price Interest Rate Risk
Fair value interest rate risk is the risk that the fair value of a financial
instrument will fluctuate due to changes in market interest rates.
The Company accounts for its debt investments at fair value. Thus,
changes in benchmark interest rate will cause changes in the fair
value of quoted debt instruments.
47
48
The following table sets out the carrying amount (in thousands), by maturity, of the Company’s financial instruments that are exposed to interest rate risk
as of December 31, 2008 and 2007:
2008
Fixed Rate
Special savings account (PHP)
Placements (PHP)
Placements (US$)
Short-term investments (PHP)
Short-term investments (US$)
Time deposits (US$)
Investments in bonds (PHP)
Investments in bonds (US$)
Interest Rates
Within 1 Year
1–2 Years
2–3 Years
(In Thousands)
3–5 Years
More than
5 Years
Total
.05–1.5%
2.75–9.3788%
0.005–5.405%
2.001–2.101%
1.85–2.10%
3.00–4.00%
8.5–17.5%
8.375–10.5%
P3,752
892,753
734,299
2,245
44,574
11,204
–
126,930
P–
–
–
–
–
–
27,490
166,648
P–
–
–
–
–
–
273,346
69,854
P–
–
–
–
–
–
13,758
–
P–
–
–
–
–
–
13,079
–
P3,752
892,753
734,299
2,245
44,574
11,204
327,673
363,432
3–5 Years
More than
5 Years
Total
2007
Interest Rates
Fixed Rate
Special savings account (PHP)
Placements (PHP)
Placements (US$)
Short-term investments (PHP)
Short-term investments (US$)
Time deposits (US$)
Investments in bonds (PHP)
Investments in bonds (US$)
.05–4%
2.4–7.73%
3.2–4.58%
4.95–5.69%
3.0–6.25%
3.75–4.5%
8.5–17.5%
8.125–9%
Within 1 Year
P20,241
805,971
663,779
41,000
33,460
13,645
8,175
144,852
Interest on financial instruments classified as fixed rate was fixed until the
maturity of the instrument.
Other financial assets at FVPL are noninterest-bearing investments and are
therefore not subject to interest rate volatility.
The following tables demonstrate the sensitivity to a reasonably possible
change in interest rates, with all other variables held constant, of the
Company’s profit before tax as of December 31, 2008 and December
31, 2007. There is no impact on the Company’s equity other than those
already affecting the profit and loss.
(50)
(100)
(50)
(50)
(100)
BCII - peso
- dollar
UGC - peso
AHC - peso
- dollar
BCII
UGC
AHC
2008
Increase/
Decrease in
Basis Points
2007
Increase/
Decrease in
Basis Points
+0.25%
-0.25%
+0.25%
-0.25%
+0.25%
-0.25%
1–2 Years
Effect
on Profit
Before Tax
(In Thousands)
(P853)
(7,547)
(2,771)
(362)
(134)
Effect
on Profit
Before Tax
(In Thousands)
(P2,912)
2,912
745
(745)
(941)
941
P–
–
–
–
–
–
34,270
12,590
2–3 Years
(In Thousands)
P–
–
–
–
–
–
84,036
–
P–
–
–
–
–
–
139,368
–
P–
–
–
–
–
–
171,375
–
P20,241
805,971
663,779
41,000
33,460
13,645
437,224
157,442
Equity Price Risk
Equity price risk is the risk that the fair values of equities decrease as
a result of changes in the levels of the equity indices and the values of
individual stocks. The Company’s exposure to equity price risk relates
primarily to its equity investments listed in the PSE classified under
investments held for trading.
The Company’s policy is to maintain the risk to an acceptable level.
Movement of share price is monitored regularly to determine impact on
the Company’s financial position.
The following tables demonstrate the effect on the Company’s profit
before income tax (as a result of a change in the fair value of equity
instruments held as investment held for trading) due to a reasonably
possible change in equity indices, based on the Company’s expectation,
with all other variables held constant as of December 31, 2008. There
is no other significant impact on the Company’s equity other than those
already affecting the profit or loss.
BCII
AHC
2008
Increase/
Decrease
in Stock
Exchange Index
+10%
-10%
+10%
-10%
Effect
on Profit
Before Tax
(In Thousands)
P1,118
(1,118)
295
(295)
49
BCII
+13.00%
-13.00%
+13.00%
-13.00%
AHC
2007
Increase/
Decrease
in Stock
Exchange Index
Effect
on Profit
Before Tax
(In Thousands)
P6,062
(6,062)
263
(263)
Capital Management
The objective of the Company’s capital management is to ensure that the
Company maintains a healthy capital structure in order to maintain strong
credit rating and maximize shareholder value.
The Company closely monitors and manages its debt-to-equity ratio,
which it defines as total current and noncurrent liabilities divided by total
equity. The Company considers its equity as the total of capital stock,
additional paid-in-capital, share in equity component of convertible
notes, unrealized gain on change in fair value of an AFS investment,
share in unrealized gain on change in fair value of AFS investments of
associates, retained earnings, and minority interest.
To ensure that there are sufficient funds to settle its liabilities, the
Company’s policy is to keep debt-to-equity ratio below 1:1. The
Company’s consolidated debt-to-equity ratio as of December 31, 2008
and 2007 are as follows:
Total liabilities
Financial assets at FVPL:
Investments in bonds and FXTNs
Investments in unit investment trust funds
Investments in managed funds
Derivative asset
AFS investments:
Quoted
Unquoted
Financial liabilities at FVPL- Derivative liabilities
Other financial liabilities:
Notes payable
Long-term debt (including current portion)
*
6,615,024
0.28:1
Total equity
Debt-to-equity ratio
6,318,908
0.26:1
30. Financial Instruments
Fair Value
Set out below is a comparison by category of carrying amounts and fair
values of all of the Company’s financial instruments that are carried in the
consolidated balance sheets.
Carrying Amount
2008
Financial Assets
Loans and receivables:
Trade and other receivables:
Trade
Accrued interest
Receivable from BCII Retirement/Gratuity Plan (BCII Retirement)
Others
Installment contract receivable*
2007
2008
(In Thousands)
P1,637,763
P1,859,035
2007
(In Thousands)
Fair Value
2008
2007
P1,825,701
86,817
P1,660,878
77,545
P1,825,701
86,817
P1,660,878
77,545
303,861
32,127
21,269
8,939
9,300
1,757
33,068
84,474
2,407,313
280,563
6,622
19,000
8,929
7,883
3,008
31,626
95,547
2,191,601
303,861
32,127
21,269
8,939
9,300
1,757
33,068
78,237
2,401,076
280,563
6,622
19,000
8,929
7,883
3,008
31,626
97,080
2,193,134
691,105
76,949
–
17,682
1,559
–
787,295
594,666
287,149
101,411
57,451
5,631
66,726
1,113,034
691,105
76,949
–
17,682
1,559
–
787,295
594,666
287,149
101,411
57,451
5,631
66,726
1,113,034
27,400
304,119
331,519
P3,526,126
9,151
304,215
313,366
P3,618,001
27,400
304,119
331,519
P3,519,890
9,151
304,215
313,366
P3,619,534
P26,857
–
P26,857
–
123,818
362,971
537,252
143
509,245
1,533,429
P1,560,286
P219,667
329,856
191,302
17,469
601,607
1,359,901
P1,359,901
123,818
362,971
537,252
143
518,396
1,542,580
P1,569,437
P219,667
329,856
191,302
17,469
621,299
1,379,593
P1,379,593
Current portion is included in “Trade and other receivables” account while noncurrent portion is presented as a separate line item in the consolidated balance sheets.
50
The following methods and assumptions are used to estimate the fair
value of each class of financial instruments:
Cash and Cash Equivalents, Trade and Other Receivable, Short-term
Investments, Notes Payable, Trade and Other Payables, Trust Receipts
Payable and Due to Related Parties. The carrying amounts approximate
fair values due to the relatively short-term maturities of the financial
instruments.
Installment Contract Receivable. The fair value of this financial asset
is based on the discounted value of expected future cash flows using
the effective market rate. Discount rates used range from 4% to 8% in
December 31, 2008 and December 31, 2007.
Investments Held for Trading and AFS Investments. Quoted market prices
have been used to determine the fair value of financial assets at FVPL
and listed AFS investments. Unquoted AFS investments are measured at
cost less accumulated impairment loss since the fair value is not readily
determinable. The Company does not intend to dispose the unquoted
AFS in the near future.
Long-term Debt. The fair values are based on the expected cash flows
on the instruments, discounted using the prevailing interest rate as at
December 31, 2008 and 2007 for a comparable instrument in the market
or discounted using MART 1 plus 4% interest as of December 31, 2008
and 2007 of 10.73% and 6.62%, respectively.
Derivative Instruments
Freestanding Derivatives. The fair value of freestanding currency forward
transactions is calculated by reference to current forward exchange rates
for contracts with similar maturity profile.
The Company has outstanding currency forward contracts with an
aggregate notional amount of US$29.6 million as of December 31, 2008
and US$19.5 million as of December 31, 2007. The Company is on a
“Sell-USD” position. The weighted average contracted forward rate is
P46.75 to US$1.00 and P46.91 to US$1.00 as of December 31, 2008
and 2007, respectively. The net fair values of these outstanding currency
forward contracts amounted to P26.9 million loss and P57.0 million gain
as of December 31, 2008 and 2007, respectively.
The net movements in fair value changes of these derivative assets
(liabilities) are as follows:
Net change in fair value during the year
Fair value of settled contracts
2007
2008
(In Thousands)
P40,326
P56,964
270,936
(63,047)
(254,298)
(20,774)
P56,964
(P26,857)
Embedded Derivatives. Embedded foreign currency derivatives were
bifurcated from certain of the Company’s purchase contracts, which are
denominated in a currency that is neither the functional currency of a
party to the contract nor the routine currency for the transaction.
The Company has outstanding embedded forward contracts with an
aggregate notional amount of US$5.6 million and a weighted average
contracted forward rate of P42.97 as of December 31, 2007.
The net movements in fair value changes of these embedded derivatives
are as follows:
Net changes in fair value during the year
Fair value of settled contracts
2008
2007
(In Thousands)
P9,762
P2,480
(37,267)
31,895
27,505
(24,613)
P–
P9,762
The net changes in fair values of derivatives and embedded derivatives in
2008 and 2007 are presented as “Net gains (losses) on derivatives” in the
Company’s consolidated statement of income.
31.Income Tax
The components of the Company’s deferred tax assets and liabilities are as
follows:
Deferred tax assets:
NOLCO
Allowance for doubtful accounts
Revalued net assets of a subsidiary
Unrealized foreign exchange losses
Accrued retirement expense
Impairment loss
Deferred:
Interest income on refunds from Meralco
Cost of sale
Excess of straight-line recognition
of management fee over contract
payment terms
Advances from students
Unearned tuition fee
MCIT
Deferred tax liabilities:
Revalued net assets
Unrealized foreign exchange gains
Revaluation increment
Expansion of school facilities
Pension asset
Excess of straight-line lease over lease
contract terms
Unamortized debt issuance cost
Unamortized capitalized borrowing cost
Unrealized gain on change in fair value
Derivative assets
Deferred sale on real estate
2007
2008
(In Thousands)
P35,515
6,662
4,903
1,984
753
314
P5,256
7,047
5,185
44,575
722
314
131
–
178
6,058
56
92
43
12
–
50,373
–
3,286
1,184
73,897
(52,660)
(33,992)
(27,594)
(12,435)
(6,628)
(28,054)
(6,500)
(27,593)
(12,445)
(5,978)
(2,428)
(937)
(840)
(512)
–
–
(138,026)
(P87,653)
(3,137)
(529)
(961)
(18,157)
(23,354)
(13,170)
(139,878)
(P65,981)
51
The deferred tax assets and liabilities are presented in the consolidated
balance sheets as follows:
2008
P13,960
(101,613)
(P87,653)
Deferred tax assets - net
Deferred tax liabilities - net
2007
P–
(65,981)
(P65,981)
Applicable statutory tax rate
Income tax effects of:
Interest income subjected to lower
final tax rate
Dividend income
Nondeductible interest expense
Change in unrecognized deferred
tax assets and others
Effective tax rates
The Company’s deductible temporary differences, unused NOLCO and
MCIT for which no deferred tax asset is recognized in the consolidated
balance sheets, are as follows:
NOLCO
Allowance for:
Doubtful accounts
Write-down of inventories to net realizable
value
Unrealized loss on change in fair value
of investments held for trading
Unrealized loss on derivatives
Accrual for retirement benefits
Unamortized past service cost
MCIT
Unrealized foreign exchange losses
Accrued personnel cost
2007
2008
(In Thousands)
P217,538
P43,101
32,409
30,909
849
849
29,961
26,857
19,888
15,293
12,860
5,259
1,790
P188,267
–
–
24,584
16,487
11,582
183,278
–
P485,227
Some of the Company’s deferred tax assets were not recognized since
management believes that it is not probable that sufficient future taxable
profit will be available to allow said deferred tax assets to be utilized.
Araullo University and COC, as private educational institutions, are
taxed based on the provisions of Republic Act (R.A.) No. 8424, which
was passed into law effective January 1, 1998. Section 27(B) of R.A. No.
8424 defines and provides that: “A Proprietary Educational Institution is
any private school maintained and administered by private individuals
or groups with an issued permit to operate from the Department of
Education, Culture and Sports, or Commission on Higher Education, or
Technical Education and Skills Development Authority, as the case may
be, in accordance with the existing laws and regulations - shall pay a tax
of ten percent (10%) on their taxable income.”
MCIT totaling P12.9 million can be deducted against regular corporate
income tax (RCIT) due while NOLCO totaling P151.3 million can be
claimed as deduction against taxable income as follows:
Date Incurred
Expiry Date
December 31, 2006
December 31, 2007
December 31, 2008
December 31, 2009
December 31, 20010
December 31, 2011
Amount
MCIT
NOLCO
(In Thousands)
P1,900
P139,630
7,670
–
3,290
11,680
P12,860
P151,310
MCIT and NOLCO totaling P1.4 million and P72.5 million, respectively,
expired in 2008. MCIT and NOLCO totaling P1.8 and P20.4 million were
claimed as deduction against 2008 regular taxable income.
A reconciliation between the statutory tax rates and the Company’s
effective tax rates on income before income tax and minority interest is as
follows:
2008
35.0%
2007
35.0%
2006
35.0%
(2.6)
(2.4)
(6.0)
(0.5)
0.1
(3.9)
0.1
(2.7)
0.4
(11.3)
(13.4)
(20.6)
20.7%
15.4%
6.1%
32.Pension and Other Post-employment Benefits
BCII, UGC, BIPC, COC and Araullo University have actuarially computed
retirement plans covering all permanent employees.
Pension and other post-employment benefits consist of accruals for:
Net pension liability
Vacation and sick leave
2007
2008
(In Thousands)
P136
P255
3,302
4,897
P3,438
P5,152
Employee benefits included under general and administrative expenses
consist of:
2008
P12,632
1,595
P14,227
Net pension expense
Vacation and sick leave
2007
(In Thousands)
P17,667
303
P17,970
2006
P11,657
11,871
P23,528
Annual contribution to the retirement plans consists of a payment to cover
the current service costs for the year plus a payment toward funding the
actuarial accrued liability.
The following tables summarize the components of net benefit expense
recognized in the consolidated statements of income and the funded
status and amounts recognized in the consolidated balance sheets for the
respective plans.
Net pension expense consists of:
2008
Current service cost
Interest cost on defined benefit
obligation
Expected return on plan assets
Net actuarial loss recognized
Effects of curtailment in COC
pension plan on:
Unrecognized net actuarial
losses
Present value of the defined
benefit obligation
Net pension expense
P8,174
2007
2006
(In Thousands)
P9,228
P5,183
7,348
7,722
7,638
(4,554)
1,664
(3,530)
2,429
(1,804)
640
–
6,635
–
–
P12,632
(4,817)
P17,667
–
P11,657
52
Details of net pension liability are as follows:
Experience adjustments on plan assets and plan liabilities are P11.3
million gain and P1.0 million loss, respectively, in 2007.
2008
Present value of defined benefit obligation
Fair value of plan assets
Unfunded obligation
Unrecognized net actuarial losses (gains)
Benefit liability
Changes in the present value of the defined benefit obligation are as
follows:
Actuarial gains
Interest cost
Current service cost
Benefits paid
Curtailment in COC pension plan
2007
(In Thousands)
P86,921
P47,564
(64,809)
(73,022)
22,112
(25,458)
(21,976)
25,713
P136
P255
2007
2008
(In Thousands)
P107,929
P86,921
(9,004)
(49,843)
7,722
7,348
9,228
8,174
(24,137)
(5,036)
(4,817)
–
P86,921
P47,564
a. Unused Credit Lines
Expected return
Contributions by employer
Actuarial gains (losses)
Benefits paid
Actual return on plan assets
The Company expects to contribute P6.7 million to its defined benefit
pension plans in 2008.
The principal assumptions used in determining pension benefits are as
follows:
Discount rates
Expected rates of return
on plan assets
Rates of salary increase
2008
8-30%
2007
8–9%
2006
7%
5-10%
5–7%
6%
5-11%
5–9%
10%
b. Commitments Under Operating Lease Agreements
Lessee
UGC entered into lease agreements covering its warehouse premises
which have terms ranging from one to two years, renewable at the
option of UGC under certain terms and conditions.
Future minimum rental payable as of December 31, 2008 are as
follows:
Equities
Mutual and trust funds
Property
Fixed income securities and others
2007
20%
9
6
65
100%
The expected return on plan assets is based on the Company’s expectation
that assets will yield at least equal to the risk-free rate for the applicable
period over which the obligation is to be settled.
The plan assets include shares of stock of BCII with a fair value of P1.8
million and P15.2 million in 2008 and 2007, respectively.
Experience adjustments on plan assets and plan liabilities are P.036
million gain and P1.9 million gain, respectively, in 2008.
Amount
(In Thousands)
5,958
4,480
2009
2010
Lessor
API’s lease contracts related to its building space were for five to
seven years ending 2011 to 2013, respectively. The lease contracts
included a provision for an annual escalation of 5%, 7% or 10%.
Future minimum rental receivables under the non-cancelable
operating leases as of December 31, 2008 and 2007 are as follows:
Within one year
After one year but not more than five years
The major categories of plan assets as a percentage of the fair value of the
plan assets are as follows:
2008
13%
13
6
68
100%
Amount
(In Thousands)
P540,748
145,000
100,000
200,000
65,000
Letters of credit/trust receipts
Bills purchase line
Invoice financing
Settlement risk
Forward contract
2007
2008
(In Thousands)
P50,363
P64,809
3,530
4,554
23,725
12,513
11,328
(3,818)
(24,137)
(5,036)
P64,809
P73,022
P14,858
P736
UGC has the following unused approved credit lines with local banks
and financial institutions as of December 31, 2008:
Nature
Change in the fair value of plan assets are as follows:
33.Commitment and Contingencies
2007
2008
(In Thousands)
P41,157
P42,899
85,775
49,373
P126,932
P92,272
PSHC’s commitment under its operating lease agreement with UPPC
is discussed in Note 28 to the consolidated financial statements.
c. Property Agreement
On March 2, 2006, API entered into an agreement with Paramount
Property Management Company for services to manage, administer,
operate and maintain the building for a monthly rate of P0.07 million
exclusive of VAT. In consideration, API shall pay a pre-agreed
management fee. Such fee is subject to an annual escalation of 10%.
The agreement shall be for a period of five years up to March 2,
2011.
d. Others
There are contingent liabilities arising from lawsuits primarily
involving collection cases filed by third parties and for tax assessments
occurring in the ordinary course of business. On the basis of
information furnished by the Company’s legal counsel, management
believes that none of these contingencies will materially affect the
Company’s financial position and results of operations.
34.EPS Computation
Net income attributable to
equity holders of the parent
37.Amendments on VAT and Income Tax Laws
2008
2007
(In Thousands)
2006
P273,160
P330,410
P336,886
2008
Number of shares outstanding
at beginning of year
Effects of 10%, 15% and 20% stock
dividends declared in 2008, 2007
and 2006
Weighted average number
of common shares outstanding
Basic/Diluted EPS attributable to
equity holders of the parent
2007
In May 2005, R.A. No. 9337 was signed into law, amending certain
provisions of Tax Reform Act of 1997 including the Expanded Value
Added Tax (VAT) Act (EVAT). R.A. No. 9337 took effect on November 1,
2005.
R.A. No. 9337 introduces the following changes, among others:
a. Lifting of exemptions on power, fuel and on services of doctor and
lawyers, among other transactions.
2006
234,306,566 203,744,777 169,787,314
23,430,741
53,992,530
b. Upon recommendation of the Secretary of Finance and after any
of the following conditions has been satisfied, the President of the
Philippines is given the power to increase the EVAT rate from 10% to
12% starting January 1, 2006 if the following conditions have been
satisfied:
87,949,993
257,737,307 257,737,307 257,737,307
P1.06
P1.28
P1.31
• VAT collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%);
or
35.Segment Information (see page 54)
Segment information is prepared on the following basis:
Business Segments
The Company conducts the majority of its business activities in the
following areas:
•
•
•
•
Steel
Property development
Investment holdings
Educational services
36.Other Matters
a. BIPC’s Port Operations
BIPC was granted a Permit to Operate a permanent and noncommercial port by the PPA on April 6, 1999 until the expiration
date of the Foreshore Lease Contract on July 22, 2022.
On October 11, 2003, the PPA granted BIPC a Permit to Operate a
private commercial port up to May 14, 2005. On March 14, 2005,
BIPC filed for the renewal of the said permit at the Batangas Philippine
Ports Authority. As of July 30, 2007, BIPC was granted a one year
temporary permit to operate commercially effective October 25, 2007.
On July 30, 2007, BIPC was granted a one year temporary permit to
operate commercially effective October 25, 2007 which expired last
October 25, 2008. Application for the renewal has already been filed
at the PPA. BIPC has also secured a Foreshore Lease Agreement from
the Department of Energy and National Resources for 78,331 sq.m.
foreshore area and has completed its Port Operating Policy with
emphasis on safety and proper port use, orderly berth reservation in
order to avoid congestion and conflict in berth schedule and efficient
load and/unload operations.
b. License to Sell of BIPC
BIPC is registered with the Housing and Land Use Regulatory Board
under EO No. 648 and was granted a License to Sell.
• National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1½%).
c. RCIT rate increased to 35% from 32% effective November 1, 2005
and will decrease to 30% effective January 1, 2009. The RCIT rate
shall be applied on the amount computed by multiplying the number
of months covered by the new rate within the year by the taxable
income of the corporation for the year, divided by twelve.
d. Input VAT credit in every quarter shall not exceed 70% of the output
VAT.
Beginning February 1, 2006, the EVAT rate shall be 12%.
38.Events after the Balance Sheet Date
a. Business Acquisition
On February 2, 2009, the Company completed the First Closing on
a transaction to acquire 69.90% of the capital stock of University
of Pangasinan, Inc. (UPANG), a university with principal office and
campus located at Dagupan City.
On February 25, 2009, the Company completed the closing on the
purchase of 34,997 shares of University of Iloilo (UI) in the amount of
P315 million, with the Company shouldering the corresponding tax.
The Company likewise completed the subscription and payment for
1,190,0000 shares in UI at P100 per share or a total of P119 million.
The shares represent 70% interest in UI after the issuance of new
shares.
Since the audit of the financial statements of UPANG and UI is still
ongoing as of March 9, 2009, management deemed it impracticable
to disclose:
− the amounts recognized at the acquisition date for each of the
acquiree’s assets, liabilities and contingent liabilities, and carrying
amounts for each of those classes, determined in accordance with
PFRS, immediately before the combination; and
− the amount of the acquirees’ net income since the acquisition
dates included in the Company’s net income for the year ended
December 31, 2008.
b. On March 9, 2009, the Company’s BOD declared a cash dividend
of P0.40 per share to all common shareholders of record as of March
30, 2009 payable on April 24, 2009.
53
54
Segment Information
Business Segments Data
2008
2007
Steel
Property
Development
Investment
Holdings
Educational
Services
BPO
Steel
Property
Development
Investment
Holdings
Educational
Services
P2,723,285
P99,915
P25,395
P329,682
P–
P2,105,295
P187,553
P36,532
P312,403
832
8,768
238,514
1,341
–
864
4,993
187,268
654
P2,724,117
P108,683
P263,909
P331,023
P–
P2,106,159
P192,546
P223,800
P313,057
P281,773
P17,935
P131,811
P39,530
P–
P207,322
P61,136
832
8,768
238,513
1,341
–
864
4,993
Revenues
Segment revenue (a)
Investment income
Total revenues
Results
Segment results
Investment income
187,268
P41,564
654
Interest expense and other financial charges
(69,941)
(6,679)
(16,793)
(6,449)
–
(78,402)
(19,759)
(354)
(10,878)
Benefit from (provision for) income tax
(72,364)
(5,684)
(4,435)
(2,539)
–
(48,912)
(7,689)
(6,578)
(6,366)
–
–
–
–
–
–
–
–
–
P140,300
P14,340
P349,096
P31,883
P–
P80,872
P38,681
P173,458
P24,974
P–
P39,839
P–
P–
P–
P–
P19,526
P–
P–
P1,939,046
P972,339
P6,129,210
P699,258
505,549
P1,684,826
P1,321,321
P5,124,315
P703,595
–
283
–
8,774
-
–
–
–
–
Total assets
P1,939,046
P972,622
P6,129,210
P708,032
505,549
P1,684,826
P1,321,321
P5,124,315
P703,595
Segment liabilities
P1,053,072
P56,575
P482,359
P202,714
122,574
P898,387
P322,159
P154,894
P219,522
Income and other taxes payable
40,562
8,802
2,704
2,408
–
25,128
1,165
5,422
3,447
Deferred tax liabilities
68,992
2,372
–
38,252
–
77,336
5,354
–
29,384
P1,162,626
P67,749
P485,063
P243,374
122,574
P1,000,851
P328,678
P160,316
P252,353
P80,353
P8,661
P530
P25,741
13,362
P20,954
P14,986
P2,153
P27,474
55,593
36,905
8,041
35,832
–
P50,008
P36,407
P8,247
P32,963
Share of minority interest
Net income (loss)
Equity in net earnings of an associate
Segment assets
Deferred tax assets
Total liabilities
Capital expenditures
Depreciation and amortization
(P6,878)
(a) There are no inter-segment revenues.
2006
Eliminations
Steel
Property
Development
Investment
Holdings
Educational
Services
2008
P1,982,785
P61,502
P20,353
P296,437
P–
1,283
344
292,774
462
P1,984,068
P61,846
P313,127
P296,899
P163,850
P2,802
1,283
344
(75,041)
(4,215)
(15,353)
(14,965)
(29,731)
(4,724)
(2,244)
4,037
–
P60,361
–
(P5,793)
(P65,934)
292,774
(163,673)
(P163,673)
Consolidated
2007
(P36,801)
–
(P36,801)
2006
2008
2007
2006
P–
P3,178,277
P2,604,982
P2,361,077
–
85,782
193,779
294,863
P–
P3,264,059
P2,798,761
P2,655,940
P16,998
(P56,989)
P46,446
P87,843
P414,059
P349,590
P205,559
462
(163,673)
–
–
85,782
193,779
294,863
(14,319)
(99,862)
(109,393)
(123,893)
–
–
2,270
2,824
9,514
(82,752)
(66,721)
(23,148)
(36,845)
(16,495)
(44,067)
(36,845)
(16,495)
–
–
(44,067)
P209,243
P6,532
(P262,459)
P–
P12,425
P66,543
P273,160
P330,410
P336,886
P–
P–
P39,839
P19,526
P17,189
(P1,021,494)
P8,460,099
P7,956,671
P7,723,616
(8,722)
13,960
–
412
P–
P17,189
P–
P–
P1,576,302
P943,010
P5,528,810
P696,988
212
278
–
8,644
P1,576,514
P943,288
P5,528,810
P705,632
(P1,780,400)
(P877,386)
(P1,030,216)
P8,474,059
P7,956,671
P7,724,028
P1,065,173
P101,939
P297,705
P261,064
(P214,348)
(P58,342)
(P60,800)
P1,702,946
P1,536,620
P1,665,081
14,159
1,943
1,886
1,315
11,412
818
–
34,307
(8,003)
P1,090,744
P104,700
P299,591
P296,686
(P222,351)
P30,441
P372,259
P–
P42,290
P–
P–
P50,042
P52,741
P6,639
P38,216
P6,487
P9,836
(P1,785,303)
4,903
–
(P877,386)
–
–
–
54,476
35,162
19,303
(46,093)
16,972
101,613
65,981
63,509
(P104,435)
(P43,828)
P1,859,035
P1,637,763
P1,747,893
P–
P128,647
P65,567
P444,990
P–
137,953
P137,461
P147,638
55
56
56
Board of
Directors
(R to L:)
Oscar J. Hilado
Chairman
Ramon R. Del Rosario, Jr.
President
Roberto M. Laviña
Director
Magdaleno B. Albarracin, Jr.
Director
Victor J. Del Rosario
Director
Felipe B. Alfonso
Director
Jose L. Cuisia
Director
Noel D. Vasquez, S.J.
Director
Guillermo D. Luchangco
Director
Rizalino S. Navarro
Director
57
58
Management
Te a m
(L to R:) Ramon R. Del Rosario, Jr.
President
Magdaleno B. Albarracin, Jr.
Senior Executive Vice President
Victor J. Del Rosario
Executive Vice President &
Chief Financial Officer
58
1
2
3
4
5
6
7
1
Roberto M. Laviña
Senior Vice PresidentTreasurer
2
Juan L. Diaz
Corporate Secretary
3
Regina B. Alvarez
Senior Vice PresidentFinance
4
Carlos I. Arguelles
Vice PresidentCompliance Officer
5
Cecille B. Arenillo
Vice President - Treasury
6
Onisimo L. Prado
Assistant Vice PresidentInternal Audit
7
Rizalina P. Andrada
Assistant Vice PresidentFinance
59
60
60
Directory
HEAD OFFICE 12th Floor, PHINMA Plaza
39 Plaza Drive, Rockwell Center, Makati City Telephone: (632) 870-0100
Fax:
(632) 870-0456
INDEPENDENT PUBLIC ACCOUNTANTS
Sycip, Gorres, Velayo & Co.
6760 Ayala Avenue, Makati City
TRANSFER AGENT
Stock Transfer Services, Inc.
8th Floor, PHINMA Plaza
39 Plaza Drive, Rockwell Center, Makati City UNION GALVASTEEL CORPORATION
39 Plaza Drive, Rockwell Center, Makati City
Plants: Calamba, Laguna
Poro, San Fernando, La Union
Ilang, Davao City
TRANS-ASIA OIL AND
ENERGY DEVELOPMENT CORPORATION 11th Floor, PHINMA Plaza
39 Plaza Drive, Rockwell Center, Makati City AB CAPITAL AND INVESTMENT CORPORATION
8th Floor PHINMA Plaza
ATLAS HOLDINGS CORPORATION
PAMANTASAN NG ARAULLO
(ARAULLO UNIVERSITY), INC.
Barangay Bitas, Maharlika Highway
Cabanatuan City, Nueva Ejica
CAGAYAN DE ORO COLLEGE
Max Suniel St., Carmen
Cagayan de Oro City, Misamis Oriental
BACNOTAN INDUSTRIAL PARK CORPORATION
Batangas Union Industrial Park
Kilometer 116, National Highway
Calaca, Batangas
ASIAN PLAZA, INC.
P & S HOLDINGS CORPORATION
ONE ANIMATE LIMITED
Unit 1202, 12th Floor Malaysia Bldg.
50 Goucester Road, Wanchai, Hong Kong
w w w. b c i i . c o m . p h
61
EDUCATION • HOUSING • BUSINESS PROCESS OUTSOURCING • ENERGY • FINANCIAL SERVICES
12th Floor, PHINMA Plaza, 39 Plaza Drive, Rockwell Center, Makati City, Philippines
Annual Report
2008

Bacnotan Consolidated Industries, Inc.

Transcription

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