COVER SHEET S T I

Transcription

COVER SHEET S T I

COVER SHEET
1 7 4 6
S T I
E D U C A T I O N
S Y S T EM S
H O L D I NG S ,
I NC .
(Company's Full Name)
7/ F
6 7 6 4
i A C A D E M Y
A Y A L A
B U I
A V E N U E
,
L D I N G
M A K A T I
C I T Y
(Business Address : No. Street City / Town / Province)
ARSENIO C. CABRERA, JR.
(6 3 2) 8 1 3 7 1 1 1
Contact Person
0 3
3 1
Month
Day
Company Telephone Number
PRELIMINARY INFORMATION STATEMENT
Last Friday of September
Month
FORM TYPE
Fiscal Year
Day
Annual Meeting
Secondary License Type, If Applicable
Amended Articles Number/Section
Dept. Requiring this Doc.
Total Amount of Borrowings
Domestic
Total No. of Stocholders
To be accomplished by SEC Personnel concerned
File Number
LCU
Document I.D.
Cashier
STAMPS
Foreign
+
EDUCATION SYSTEMS
7 FborlNiCAD EM Y BullThg
STIHOLDINGS
6764 Aya Avenue, N akadC' 1226
NOTICE OF ANNUAL STOCKHOLDERS' MEETING
TO ALL STOCKHOLDERS:
Please be informed that the Annual Stockholders' Meeting of STI
Education Systems Holdings, Inc. ("STI ESH"), shall be held on 26
September 2014, at 3:00 p.m. at 7/17 iACADEMY Building, 6764 Ayala Avenue,
Makati City, for the following purposes:
1. Call to Order
2. Certificate of Notice and Quorum
3. Approval of the Minutes of the 4 October 2013 Annual
Stockholders' Meeting
4. Management Report
5. Approval of Audited Financial Statements as of 31 March 2014
6. Ratification of all legal acts, resolutions and proceedings of the
Board of Directors and of Management, done in the ordinary course
of business from 4 October 2013 up to 26 September 2014
7. Election of Directors
8. Appointment of External Auditor
9. Adjournment
The Board of Directors of STI ESH has fixed the RECORD DATE for
stockholders entitled to vote at this annual meeting on 22 August 2014.
Stockholders who will not be able to attend this meting may designate
their respective proxies and send the proxy forms to the Office of the
Corporate Secretary not later than 18 September 2014.
Registration starts at 2:00 p.m. on the date of the scheduled meeting.
For your convenience in registering your attendance, please have some form
of identification, such as your Professional I.D., Passport o..river's license.
Very
ARSENIO C. çABRERA, JR.
Corporq',te Secretary
A r4N.)AiX(A..-rt4)
+
EDUCATION SYSTEMS
STIHOLDINGS
7 Fbor, ICAD E'4 Y Building
6764 Ay Avenue, F a]caCiy 1226
AGENDA OF 2014 ANNUAL STOCKHOLDERS' MEETING
M
1.
Call to Order
2.
Certification of Notice and Quorum
3.
Approval of the Minutes of the 4 October 2013 Annual
Stockholders' Meeting
4.
Management Report
5,
Approval of Audited Financial Statements as of 31 March 2014
6.
Ratification of all legal acts, resolutions and proceedings of the
Board of Directors and of Management, done in the ordinary
course of business from 4 October 2013 up to 26 September 2014
7,
Election of Directors
8.
Appointment of External Auditors
9.
Adjournment
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 20-IS
INFORMATION STATEMENT PURSUANT TO SECTION 2OSEC U RITIES AND EXCHANGE
COMMISSION
OF THE SECURITIES REGULATION CODE
1.
[
A UG 082014
Check the appropriate box:
1
[X] Preliminary Information Statement
Definitive Information Statement
.
2.
Name of Registrant as specified in its charter STI Education Systems Holdings. Inc.
3.
Metro Manila, Philippines
Province, country or other jurisdiction of incorporation or organization
4.
SEC Identification Number 1746
5.
BIR Tax Identification Code 000-126-853
6.
7/Floor. lAcademy Bldg.. 6764 Ayala Avenue, Makati City
Address of principal office
1226
Postal Code
Registrant's telephone number, including area code (632) 844-9553
8.
26 September 2014 3:00 p.m. at 7/F lAcademy Bldg., 6764 Ayala Avenue, Makati City
Date, time and place of the meeting of security holders
9.
Approximate date on which the Information Statement is first to be sent or given to security
holders 4 September 2014
10.
Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the
RSA (information on number of shares and amount of debt is applicable only to corporate
registrants):
Title of Each Class
Common Stock
11.
Number of Shares of Common Stock
Outstanding or Amount of Debt Outstanding
9,904,806,924
Are any or all of registrant's securities listed on a Stock Exchange?
Yes X No
If yes, disclose the name of such Stock Exchange and the class of securities listed therein:
Philippine Stock Exchange/Common Shares
PART I
INFORMATION REQUIRED IN INFORMATION STATEMENT
A.
Item 1.
Item 2.
GENERAL INFORMATION
Date, time and place of meeting of security holders
Date of Meeting
Time of Meeting
Place of Meeting
:
:
:
Registrant’s Mailing Address
:
Approximate Date on Which the
Information Statement is First Sent
Or Given to Security Holders
:
26 September 2014
3:00 p.m.
7/F, iAcademy Bldg.
6764 Ayala Avenue, Makati City
7/F, iAcademy Bldg.,
6764 Ayala Avenue, Makati City
4 September 2014
Dissenters' Right of Appraisal
There are no corporate matters or action that will entitle a stockholder to exercise a Right of
Appraisal as provided in Title X of the Corporation Code.
However, any Stockholder of the Company shall have the right to dissent and demand payment of
the fair value of his shares in the following instances, as provided by the Corporation Code:
(1)
In case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences in
any respect superior to those outstanding shares of any class, or of extending or shortening
the term of corporate existence (Section 81);
(2)
In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets (Section. 81)
(3)
In case of merger or consolidation (Section 81); and
(4)
In case of investments in another corporation, business or purpose (Section 42).
The appraisal right may be exercised by a dissenting stockholder who shall have voted
against the proposed corporate action in the manner provided below:
(1)
The dissenting stockholder shall make a written demand on the corporation for payment of
the fair value of his shares within 30 days after the date on which the vote was taken. The
failure of the stockholder to make the demand within the 30-day period shall be deemed a
waiver of his appraisal right;
(2)
If the proposed corporate action is implemented or effected, the corporation shall pay to
such stockholder, upon surrender of the corresponding certificate(s) of stock within 10 days
after demanding payment for his shares, the fair value thereof, provided the Company has
unrestricted retained earnings; and
2
(3)
Upon payment of the agreed or awarded price, the stockholder shall transfer his shares to
the corporation.
Item 3.
Interest of Certain Persons in or Opposition to Matters to be Acted Upon
(1)
No director or officer of the Company since the beginning of the last fiscal year, nominee for
election as director, or associate of the foregoing persons, have any substantial interest,
direct or indirect, by security holdings or otherwise, in any matter to be acted upon, other
than election to office.
(2)
No director of the Company has informed it in writing that he/she intends to oppose any
action to be taken by the Company at the meeting.
Market Price and Dividends of Registrant’s Common Equity and Related Stockholder Matters
(1)
Market Information
The Company’s common stock is traded on the PSE under the stock symbol “STI”. As of the
date of this Definitive Information Statement, the Company has 9,904,806,924 shares
outstanding.
As of 6 August 2014, the high share price of the Company was Php 0.80 and the low share
price was Php 0.80.
The Company’s public float as of 31 July 2014 is 3,555,405,214 shares equivalent to 35.90%
of the total issued and outstanding shares of the Company.
The following table sets forth the Company’s high and low intra-day sales prices per share
for the past three years and the first three quarters of 2014:
High
2014
Third Quarter (as of 6 August 2014)
Second Quarter
First Quarter
2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
(2)
Low
0.80
0.87
0.72
0.80
0.69
0.65
0.74
0.90
1.07
0.59
0.73
0.76
1.07
0.97
2.22
0.92
3.00
3.08
3.12
1.50
2.28
2.30
Holders
As of 31 July 2014, there were 1,244 shareholders of the Company’s outstanding capital
stock. The Company only has common shares.
3
The following table sets forth the top 20 shareholders of the Company’s common stock, the
number of shares held, and the percentage of total shares outstanding held by each as of 31
July 2014.
NUMBER OF
SHARES
3,366,135,849
PERCENTAGE OF
OWNERSHIP
33.9849%
PRUDENT RESOURCES, INC.
1,614,264,964
16.2978%
PCD NOMINEE CORPORATION (NON-FILIPINO)
1,398,050,922
14.1149%
TANCO, EUSEBIO H.
NAME OF STOCKHOLDER
PCD NOMINEE CORPORATION (FILIPINO)*
1,157,913,875
11.6904%
RESCOM DEVELOPERS, INC.
794,343,934
8.0198%
EUJO PHILIPPINES, INC.
728,626,048
7.3563%
INSURANCE BUILDERS, INC.
428,723,003
4.3284%
STI EDUCATION SERVICES GROUP, INC.
397,908,895
4.0173%
13,000,000
0.1312%
TANCO, ROSIE L.
HTG TECHNOLOGIES, INC.
1,000,000
0.0101%
EDAN CORPORATION
LERIO CABALLERO CASTIGADOR AND/OR VICTORINA
861,350
399,000
0.0087%
0.0040%
HENRY SY SR.
350,000
0.0035%
QUALITY INVESTMENTS & SECURITIES CORPORATION
200,000
0.0020%
TACUB, PACIFICO B.
200,000
0.0020%
CRUZ, YOLANDA M. DELA
150,000
0.0015%
VICSAL SECURITIES & STOCK BROKERAGE, INC.
129,500
0.0013%
E. SANTAMARIA & CO., INC.
128,919
0.0010%
99,400
0.0010%
TOBIAS JOSEF BROWN
THE PHILIPPINE AMERICAN INVESTMENTS CORP.
88,508
0.0009%
* Eusebio H. Tanco is the beneficial owner of 284,100,000 shares. Eujo Philippines, Inc. is the beneficial owner of 35,247,082 shares. STI
Education Services Group, Inc. is the beneficial owner of 104,399,000 shares. Insurance Builders, Inc. is the beneficial owner of
150,952,989 shares.
(3)
Cash Dividends
On 8 December 2011, cash dividends amounting to P 0.02 per share were paid to
stockholders of record as of 11 November 2011.
On 5 December 2012, cash dividends amounting to P0.01 per share were paid to
stockholders of record as of 19 December 2012.
On 4 September 2013, cash dividends amounting to P 0.015144 per share were paid to
stockholders of record as of 18 September 2013.
Dividends will be evaluated by the Board of Directors on an annual basis. It shall be the policy
of the Company to declare dividends whenever there are unrestricted retain earnings
available. Such declaration will take into consideration factors such as restrictions that may
be imposed by current and prospective financial covenants; projected levels of operating
results, working capital needs and long-term capital expenditures; and regulatory
requirements on dividend payments, among others.
4
(4)
Recent Sales of Unregistered or Exempt Securities
Private Placement
On 21 November 2011, the Board of Directors approved the issuance of 795,817,789 shares
(the “Private Placement Shares”) out of the Company’s authorized and unissued capital stock
at P 0.60 per share through private placement investments in order to fund the Company’s
obligations to PWU and UNLAD under the Joint Venture Agreement and Shareholders’
Agreement by and among PWU, UNLAD, Mr. Benitez and the Company.
The Private Placement Shares were subscribed to by Capital Managers & Advisors, Inc.
(“CMA”), an existing shareholder of the Company) and STI Education Services Group, Inc.,
(“STI ESG”), a related party in the following manner:
Subscriber
CMA
STI ESG
Total
Number of Shares
Amount of Subscription
397,908,894
P238,745,336.40
397,908,895
238,745,337.00
795,817,789
P477,490,673.40
The Subscription Agreements with CMA and STI ESG were executed on 24 November 2011.
On 25 November 2011, the Company filed SEC Form 10-1 with the SEC since the issuance of
the Private Placement Shares qualifies as an exempt transaction under Section 10.1(k) of the
Securities Regulation Code i.e., the sale of securities by an issuer to fewer than twenty (20)
persons in the Philippines during any twelve-month period.
Since STI ESG and CMA are related parties, the Company complied with the Revised Listing
Rules and obtained: (a) shareholders’ approval for the listing of the Private Placement
Shares; and (b) a waiver of the requirement to conduct a rights or public offering in
connection with the Private Placement Shares during the special stockholders’ meeting on 10
August 2012.
The Philippine Stock Exchange (the “PSE”) issued a Notice of Approval in connection with the
listing of the Private Placement Shares on 28 September 2012, subject to the submission of:
(a) a duly executed lock-up agreement at least three days prior to the actual listing date of
the Private Placement Shares; and (b) a confirmation from the SEC that the mandatory
tender offer rule does not apply to the subject private placement transaction, or if a
mandatory tender offer is required to be conducted, a confirmation from the Company that
the mandatory tender offer requirement and other related requirements of the SEC have
been complied with.
On 10 May 2013, the SEC granted the Company’s request for exemptive relief from the
requirements of mandatory tender offer relative to the private placement transaction.
On 27 June 2013, the PSE advised the Company to submit a duly executed lock-up agreement
in compliance with Article V, Part A, Section 7 of the Revised Listing Rules and to facilitate
the listing of the Private Placement Shares.
On 25 July 2013, the Company, STI ESG, and CMA executed an Escrow Agreement with
Unionbank of the Philippines – Trust & Investment Services Group as the Escrow Agent to
implement the 180-day lock-up requirement applicable to the Private Placement Shares
reckoned from the listing date of the said shares. The listing of the additional 795,817,789
5
common shares of the Company was approved on 19 August 2013. The lock-up period of the
Private Placement shares expired on 18 February 2014 and said shares became eligible for
trading on the Exchange on 19 February 2014.
Share-for-Share Swap Transaction
On 28 August 2012, 31 August 2012 and 1 September 2012, the Company executed Share
Swap Agreements with the following stockholders of STI ESG: (a) Prudent Resources, Inc.; (b)
Mr. Eusebio H. Tanco; (c) Eujo Philippines, Inc.; (d) Rescom Developers, Inc.; and (e)
Insurance Builders, Inc. (collectively referred to as the “STI Majority Shareholders”) as well as
with 90 other stockholders of STI ESG. The aforementioned share swap transactions are
based on an exchange ratio of 6.5 shares of the Company for every 1 STI ESG share.
The share swap transactions sought to consolidate all of the education assets of the
STI/Tanco Group of Companies into one holding company. The share swap also provided an
opportunity for the education group of the STI/Tanco Group of Companies to raise funds
through the capital markets for the expansion and upgrading of its current facilities, the
acquisition of educational entities and the improvement of the quality of education being
offered by these entities or institutions.
Pursuant to the aforementioned Share Swap Agreements, the Company issued a total of
5,901,806,924 common shares (the “Share Swap Shares”) in exchange for 907,970,294 STI
ESG shares as follows:
Stockholders
STI Majority Shareholders
Other STI ESG Stockholders
TOTAL
No. of STI ESG Shares
726,749,511
181,220,783
907,970,294
No. of Company Shares
4,723,871,823
1,177,935,101
5,901,806,924
To accommodate the issuance of the Share Swap Shares, the Company increased its
authorized capital stock from 1,103,000,000 shares with a par value of P 0.50 per share to a
total of 10,000,000,000 shares with a par value of Php 0.50 per share or an aggregate par
value of P 5,000,000,000.00. Said increase was approved by the Company’s Board on 14
June 2012 and by the stockholders during the Special Stockholders’ Meeting on 10 August
2012.
On 14 September 2012, the Company filed an application for the increase in its authorized
capital stock with the SEC. The SEC approved the Company’s application on 28 September
2012.
During the 14 June 2012 Board meeting and the Special Stockholders’ meeting on 10 August
2012, the Board and the stockholders likewise approved the exchange ratio and the share
swap transactions with the STI Majority Shareholders and the other STI ESG stockholders.
The Company also complied with the Revised Listing Rules and obtained a waiver of the
requirement to conduct a rights or public offering in connection with the Share Swap Shares
during the 10 August 2012 Special Stockholders’ Meeting.
On 7 September 2012, the Company filed an Amended SEC Form 10-1 with the SEC since the
issuance of the Share Swap Shares qualified as an exempt transaction under Section 10.1(i)
of the Securities Regulation Code i.e., subscriptions for shares of the capital stock of a
corporation in pursuance of an increase in its authorized capital stock under the Corporation
6
Code when no expense is incurred or no remuneration is paid in connection with the sale or
disposition of such securities, and only when the purpose for the giving or taking of such
subscriptions is to comply with the requirements of such law as to the percentage of the
capital stock of a corporation which should be subscribed before its authorized capital is
increased.
On 26 September 2012, the PSE Board of Directors approved the application of STI Holdings
to list an additional 5,901,806,924 common shares (the “Share Swap Shares”) with a par
value of P0.50 per share, to cover the share-for-share swap transaction with various
shareholders of STI ESG (the “STI ESG Shareholders”). The 5,901,806,924 common shares
were issued in exchange for 907,970,295 STI ESG common shares held by the STI ESG
Shareholders. The total swap value is P9,743,378,087.43, broken down as follows: (1)
5,887,969,327 STI Holdings shares at a swap price of P1.65 per share for a consideration of
P9,715,149,389.55; and( 2) 13,837,597 STI Holdings shares at a swap price of P2.04 per
share for a consideration of P28,228,697.88.
In compliance with Article V, Part A, Section 7 of the Revised Listing Rules of the Exchange,
STI Holdings, Ms. Rosie L. Tanco, the STI Majority Shareholders and Union Bank of the
Philippines executed an Escrow Agreement on 22 October 2012 to implement the required
lock-up requirement of their respective Swap Shares reckoned from the listing date. A total
of 4,736,871,823 common shares were covered by the Escrow Agreement.
On 29 October 2012 (the “Listing Date”), 5,901,806,924 common shares of STI Holdings were
listed in the Exchange. Out of the 5,901,806,924 common shares, only 1,164,935,101
common shares were eligible for trading on the Listing Date. The remaining 4,736,871,823
common shares held by Ms. Rosie L. Tanco and the STI Majority Shareholders were placed in
escrow for 180 days counted from the Listing Date. The said lock-up period lapsed on 27
April 2013.
On 9 May 2013, the 4,736,871,823 common shares held by Ms. Rosie L. Tanco and the STI
Majority Shareholders became eligible for trading on the Exchange.
B.
Item 4.
(1)
CONTROL AND COMPENSATION INFORMATION
Voting Securities and Principal Holders Thereof
Voting securities entitled to be voted at the meeting as of 31 July 2014
Title of Each Class
Common Stock
(2)
Number of Shares
Outstanding
9,904,806,924
Number of Votes
One (1) vote per share
Record date
Only stockholders of record on the books of the Company at the close of business on 22
August 2014 will be entitled to vote at the Annual Meeting.
(3)
Election of directors and voting rights (Cumulative Voting)
In the election of the directors, each stockholder may vote the shares registered in his name
in person or by proxy for as many persons as there are directors, or he may cumulate said
shares and give one candidate as many votes as the number of directors to be elected
7
multiplied by the number of his shares shall equal, or he may distribute them on the same
principle among as many candidates as he shall see fit; provided that the total number of
votes cast by him shall not exceed the number of shares owned by him multiplied by the
whole number of directors to be elected.
(4)
Security Ownership of Certain Record/Beneficial Owners and Management
(a)
Security Ownership of Certain Record/Beneficial Owners as of 31 July 2014
As of 31 July 2014, the following stockholders are the only owners of more than 5%
of the Company’s voting capital stock, whether directly or indirectly, as record
owner or beneficial owner.
Title of Class
Name, Address of
Record Owner and
Relationship with Issuer
Common
PCD
Nominee
1
Corporation
37/F Tower I, Enterprise
Center,
6766
Ayala
Avenue cor. Paseo de
Roxas, Makati City
Prudent Resources, Inc.
7/F iAcademy Building,
6764 Ayala Avenue,
Makati City
Common
Common
PCD
Nominee
Corporation
37/F Tower I, Enterprise
Center,
6766
Ayala
Avenue cor. Paseo de
Roxas, Makati City
Common
Mr. Eusebio H. Tanco
(Chairman of the Board)
(Direct and Indirect
shares through PCD
Nominee Corporation)
543 Fordham Street,
Wack-Wack
Village,
Mandaluyong City
Name of Beneficial
Owner and
Relationship with
Record owner
Citizenship
Filipino
Mr. Eusebio H. Tanco,
the
Chairman
of
Prudent
Resources,
Inc. is authorized to
vote its shares in the
Company.
Filipino
(Direct)
2
33.99%
16.30%
1,614,264,964
14.12%
Filipino
(Direct)
1,157,913,875
11.69%
(Indirect)
284,100,000
------------------1,442,013,875
===========
4
2.87%
----------14.56%
======
Total
1
3,366,135,849
3
Non-Filipino
Mr. Eusebio H. Tanco
Percent
No. of Shares
Held
1,398,050,922
PCD Nominee Corporation is a wholly-owned subsidiary of the Philippine Central Depository, Inc. (PCD), and is the registered owner of the
shares in the book of the Company’s transfer agent. The participants of the PCD (with respect to securities in the principal accounts) or the
clients of such participants (with respect to securities in the participants’ client accounts) are, as far as the PCD and PCD Nominee Corporation
are concerned, the presumed beneficial owners of such lodged shares. PCD Nominee Corporation merely holds legal title (and not beneficial
title) to the Company’s lodged shares to facilitate the book-entry trading and settlement of the Company’s shares. Except as disclosed above,
no natural person or juridical entity whose shares are lodged in the name of PCD Nominee Corporation is known to the Company to be directly
or indirectly the record or beneficial owner of more than five percent (5%) of the Company’s voting securities.
2
Eusebio H. Tanco is the beneficial owner of 284,100,000 shares. Eujo Philippines, Inc. is the beneficial owner of 35,247,082 shares. STI
150,952,989 shares.
3
Morgan Stanley Investment Management Company is the beneficial owner of 816,264,000 shares or 8.24%. Contact Person is Linyu Qi;
Address: Morgan Stanley, 16/F, Kerry Parkside, 1155 Fang Dian Road, Pudong New District, Shanghai, China
4
Indirect shares lodged to PCD
8
Title of Class
Name, Address of
Record Owner and
Relationship with Issuer
Common
Rescom Developers, Inc.
6764 Ayala Avenue,
Makati City
Common
Eujo Philippines, Inc.
shares through PCD
6764 Ayala Avenue,
Makati City
Common
Common
(b)
Name of Beneficial
Owner and
Relationship with
Record owner
the
Chairman
of
Rescom Developers,
Company.
the Chairman of Eujo
Philippines, Inc. is
authorized to vote its
shares
in
the
Company.
Citizenship
No. of Shares
Held
Percent
Filipino
(Direct)
794,343,934
8.02%
Filipino
(Direct)
728,626,048
7.35%
(Indirect)
35,247,082
-----------------763,873,130
==========
Insurance Builders, Inc.
shares through PCD
6764 Ayala Avenue,
Makati City
the
Chairman
of
Insurance
Builders,
Company.
Filipino
(Direct)
428, 723,003
(Indirect)
150,952,989
-----------------579,675,992
===========
STI Education Services
Group, Inc.
STI Academic Center,
University
Parkway
Drive, Fort Bonifacio
Global City, Taguig City
Mr. Monico V. Jacob,
the President of STI, is
authorized to vote the
shares of STI ESG in
the Company
Filipino
(Direct)
Total
(Indirect)
397,908,895
104,399,000
----------------502,307,895
===========
0.36%
---------7.71%
======
4.33%
1.52%
----------5.85%
======
4.02%
1.05%
---------5.07%
======
Security Ownership of Management as of 31 July 2014
The following table sets forth as of 31 July 2014, the beneficial ownership of each
director and executive officer of the Company:
Title of Class
Name of Beneficial Owner
Common
Eusebio H. Tanco
(Director and Chairman of the Board)
Common
Monico V. Jacob
(Director, President and CEO)
Common
Amount & Nature of
Beneficial Ownership
1,157,913,875 Direct
284,100,000 Indirect
-----------------1,442,013,875 Total
==========
1 Direct
33,784,056 Indirect
--------------33,784,057 Total
========
1 Direct
5,000,000 Indirect
--------------5,000,001 Total
Yolanda M. Bautista
(Treasurer)
9
Citizenship
Filipino
Percent
of Class
11.69%
2.87%
----------14.56%
=======
Filipino
0.34%
Filipino
0.05%
Title of Class
Common
Name of Beneficial Owner
Amount & Nature of
Beneficial Ownership
6,500,000 Indirect
Arsenio C. Cabrera, Jr.
(Corporate Secretary)
Joseph Augustin L. Tanco
(Director and VP for Investor Relations)
Common
Common
Paolo Martin Bautista
(Director and Chief Investment Officer
and Head of Corporate Strategy)
Vanessa Rose L. Tanco
(Director)
Martin K. Tanco
(Director)
Rainerio M. Borja
(Director)
Maulik R. Parekh
(Independent Director)
Jesli A. Lapus
Ernest Lawrence Cu
Johnip G. Cua
Directors and Officers as a Group
Common
Common
Common
Common
Common
Common
Common
Common
(c)
1
2,000,000
---------------2,000,001
==========
3,250,000
Direct
Indirect
Citizenship
Filipino
Filipino
Percent
of Class
0.06%
Filipino
0.00%
0.02%
-------------0.02%
======
0.03%
Filipino
0.00%
36,560,000 Indirect
Filipino
0.37%
3,200,000 Indirect
Filipino
0.03%
Filipino
0.00%
6,500,000 Indirect
Filipino
0.06%
26,000,000 Indirect
Filipino
0.26%
1,000 Indirect
Filipino
0.00%
Filipino
15.80%
Total
Indirect
1 Direct
1,000 Direct
1,564,808,935 Direct and
Indirect
Voting Trust Holders of 5% Or More
As of 31 July 2014, no person holds at least 5% or more of a class under a voting
trust or similar agreement.
(d)
Changes in Control
On 14 June 2012, the Company entered into a Memorandum of Agreement (the
“MOA”) with the following stockholders of STI ESG: (a) Prudent Resources, Inc.; (b)
Mr. Eusebio H. Tanco; (c) Insurance Builders, Inc.; (d) Eujo Philippines, Inc.; and (e)
Rescom Developers, Inc. (collectively referred to as the “STI Majority Shareholders”).
The MOA relates to the share-for-share swap of the STI ESG shares held by the STI
Majority Shareholders with shares of the Company whereby each STI ESG share
owned by the STI Majority Shareholders will be exchanged for 6.5 Company shares.
The same swap ratio was also offered to other STI ESG shareholders.
To accommodate the issuance of shares to the STI Majority Shareholders and the
other STI ESG shareholders, the Company increased its authorized capital stock from
P551,000,000.00 consisting of 1,103,000,000 shares with a par value of P0.50 per
share to Php5,000,000,000.00 consisting of 10,000,000,000 shares with a par value
of P0.50 per share. The aforementioned increase in authorized capital stock was
approved by the Company’s Board on 14 June 2012 and by the Company’s
shareholders on 10 August 2012.
10
On 1 August 2012, CMA sold its STI ESG shares to Insurance Builders, Inc. Insurance
Builders, Inc. was substituted as a party to the MOA in lieu of CMA and assumed all
of CMA’s rights and obligations thereunder.
On 14 June 2012, the Company filed an application for the increase in its authorized
capital stock with the Securities and Exchange Commission (“SEC”). The SEC
approved the application of the Company on 28 September 2012.
On 28 August 2012, 31 August 2012 and 1 September 2012, the Company and the STI
Majority Shareholders engaged in a series of share swaps that resulted in the STI
Majority Shareholders gaining control over the Company, equivalent to 67.44% of
the Company’s issued and outstanding capital stock.
On 26 September 2012, the PSE Board of Directors approved the application of STI
Holdings to list an additional 5,901,806,924 common shares (the “Share Swap
Shares”) with a par value of P0.50 per share, to cover the share-for-share swap
transaction with various shareholders of STI ESG (the “STI ESG Shareholders”). The
Share Swap Shares were issued in exchange for 907,970,295 STI ESG common shares
held by the STI ESG shareholders. The total swap value is P9,743,378,087.43, broken
down as follows: (1)5,887,969,327 STI Holdings shares at a swap price of P1.65 per
share for a consideration of P9,715,149,389.55; and (2) 13,837,597 STI Holdings
shares at a swap price of P2.04 per share for a consideration of P28,228,697.88.
In compliance with Article V, Part A, Section 7 of the Revised Listing Rules of the
Exchange, STI Holdings, Ms. Rosie L. Tanco, the STI Majority Shareholders (Rescom
Developers, Inc., Eujo Philippines, Inc,, Insurance Builders, Inc., Prudent Resources,
Inc. and Mr. Eusebio H. Tanco) executed an Escrow Agreement dated 22 October
2012 with Union Bank of the Philippines to implement the required lock-up
requirement of their respective Swap Shares reckoned from the listing date. A total
On 29 October 2012 (the “Listing Date”), 5,901,806,924 common shares of STI
Holdings were listed in the Exchange. Out of the 5,901,806,924 common shares,
only 1,164,935,101 common shares were eligible for trading on the Listing Date. The
remaining 4,736,871,823 common shares held by Ms. Rosie L. Tanco and the STI
Majority Shareholders were placed in escrow for 180days counted from the Listing
Date. The said lock-up period lapsed on 27 April 2013.
On 9 May 2013, the 4,736,871,823 common shares held by Ms. Rosie L. Tanco and
the STI Majority Shareholders became eligible for trading on the Exchange.
Item 5.
(1)
Directors and Executive Officers
Certain Relationships and Related Transactions
(a)
Directors and Executive Officers
The Company’s Articles of Incorporation provides for eleven (11) members of the
Board.
11
The term of office of the directors of the Company is one (1) year and they are to
serve as such until the election and qualification of their successors.
The following are the incumbent members of the Board of Directors:
(1)
Eusebio H. Tanco
(2)
Monico V. Jacob
(3)
(4)
Ma. Vanessa Rose L. Tanco
(5)
Martin K. Tanco
(6)
Rainerio M. Borja
(7)
Paolo Martin O. Bautista
(8)
Maulik R. Parekh
(9)
Johnip Cua
(10)
Ernest Lawrence Cu
(11)
Jesli A. Lapus
All of the foregoing incumbent directors have been nominated to the Board for the
ensuing year. Messrs. Johnip Cua, Ernest Lawrence Cu and Jesli A. Lapus have been
nominated as independent directors by Capital Managers & Advisors, Inc. (“CMA”), a
stockholder of the Company. CMA has no business or professional relationship with
Messrs. Cua, Cu and Lapus.
Pursuant to Rule 38 of the Securities Regulation Code and Article IV of the
Company’s By-Laws, the nomination of all of the members of the Company’s Board
of Directors, including independent directors, shall be conducted by the Nomination
Committee prior to the annual stockholders’ meeting in accordance with the
following procedure:
(1)
All recommendations shall be signed by the nominating stockholders
together with the acceptance and conformity of the would-be nominees and
shall be submitted to the Nominations Committee and the Corporate
Secretary.
(2)
The Nominations Committee shall pre-screen the qualifications and prepare
a Final List of all Candidates.
(3)
After the nomination, the Nominations Committee shall prepare a Final List
of Candidates to be submitted to the Board of Directors, which shall contain
all the information regarding the background and experience of the
nominees required to be ascertained and made known under the Securities
Regulation Code and relevant rules and regulations.
(4)
Said Final List of Candidates shall be disclosed in the reports required by law,
rules and regulations to be submitted to the Securities Exchange
Commission, Philippine Stock Exchange and all stockholders.
(5)
Only nominees whose names appear on the Final List of Candidates shall be
eligible for election as directors. No other nominations shall be entertained
after the Final List of Candidates shall have been prepared.
12
The Chairman of the Nominations Committee is Mr. Eusebio H. Tanco. Ms. Ma.
Vanessa Rose L. Tanco and Messrs. Rainerio M. Borja and Ernest Lawrence Cu are
members of the Nomination Committee.
The following are the Final List of Candidates for directors as determined by the
Company’s Nomination Committee:
Candidate for Nomination as
Nominating
Director
Stockholder
Eusebio H. Tanco
Capital Managers
and Advisors, Inc.
(“CMA”)
Monico V. Jacob
CMA
CMA
Ma. Vanessa Rose L. Tanco
CMA
Martin K. Tanco
CMA
Rainerio M. Borja
CMA
CMA
Maulik R. Parekh
CMA
Johnip Cua
CMA
Ernest Lawrence Cu
CMA
Jesli A. Lapus
CMA
Relationship
Citizenship
Chairman
Filipino
President
Director
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Indian
Filipino
Filipino
Filipino
Summary of Term of Office of Directors:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
Eusebio H. Tanco – director since 17 March 2010 up to the present;
Monico V. Jacob – director since 17 March 2010 up to the present
Joseph Augustin L. Tanco – director since 27 October 2010 up to the present
Ma. Vanessa Rose L. Tanco – director since 27 October 2010 up to the
present
Martin K. Tanco – director since 19 December 2012 up to the present
Rainerio M. Borja – director since 19 December 2012 up to the present
Paolo Martin O. Bautista – director since 19 December 2012 up to the
present
Maulik R. Parekh – director since 10 December 2013 up to the present
Johnip Cua – independent director since 19 December 2012 up to the
present
Ernest Lawrence Cu – independent director since 19 December 2012 up to
the present
Jesli A. Lapus – director from 21 March 2013 up to October 2013;
independent director from 4 October 2013 up to the present
The corresponding ages, citizenships, business experiences and directorships held for
the past five (5) years of the incumbent directors who have been nominated to the
Board for the ensuing year are set forth below:
Eusebio H. Tanco, 64, Filipino, Chairman of the Board
Mr. Tanco has been Chairman of STI Holdings since 17 March 2010. He is also the Chairman of the
Executive, Nominations and Compensation Committees of STI Holdings.
13
Mr. Tanco is the Chairman of the Executive Committee and Director of STI ESG and the Chairman of
Mactan Electric Company, Rescom Developers Inc., International Hardwood & Veneer Corp, Cement
Center Inc., Agatha Builders Corp, First Optima Realty Corp, Marbay Homes Inc., Insurance Builders,
Inc., Delos Santos-STI College, West Negros University, STI Investments, Inc. and Capital Managers
and Advisors, Inc. He is Vice-Chairman and President of Asian Terminals, Inc. and Vice-Chairman and
Director of Philippine Women’s University.
Mr. Tanco is President of Philippines First Insurance Co. Inc., Optima Financing Corporation, Classic
Finance Inc., Venture Securities Inc., STMI Logistics, Inc., Total Consolidated Asset Management, Inc.,
Eujo Philippines, Inc., Global Resource for Outsourced Workers, Inc. and Prime Power Holdings
Corporation.
Mr. Tanco is also a director in Advent Capital & Finance Corp., PhilPlans First, Inc., Philippine Life
Financial Assurance Corp., J&P Coats Manila Bay, Manila Bay Spinning Mills, Inc., United Coconut
Chemicals, Inc., MB Paseo, Philippine Health Educators, Inc., i-ACADEMY, PhilhealthCare, Inc., Delos
Santos – STI Medical Center, Delos Santos – STI Megaclinic, Philippine Racing Club, Inc. and Leisure
and Resorts World Corporation.
Mr. Tanco is a director of the Philippine Stock Exchange. He is also Chairman of the PhilippineThailand Business Council and the Philippines-UAE Business Council. He likewise sits as a member of
the Board of Trustees of Philippines, Inc. and member of the Philippine Chamber of Commerce and
Industry.
Mr. Tanco earned his Master of Science in Economics degree from the London School of Economics
and Political Science and his Bachelor of Science degree in Economics from the Ateneo de Manila
University. He was also awarded a Doctorate of Humanities degree, honoris causa, from the Palawan
State University.
Monico V. Jacob, 69, Filipino, Director
Mr. Jacob has been the President and CEO of STI Holdings since 17 March 2010. He is likewise a
member of the Executive, Compensation and Compliance Committees of STI Holdings.
Mr. Jacob is the President and CEO of STI Education Services Group, Inc. He also serves as the
President of West Negros University, Capital Managers and Advisors, Inc., STI Investments, Inc. and
Insurance Builders Inc.
Mr. Jacob is the Chairman of Philplans First, Inc., Philippine Life Financial Assurance Corporation,
Total Consolidated Asset Management, Inc., Global Resource for Outsourced Workers, Inc. Republic
Surety & Insurance Co., Inc., and Classic Finance, Inc.
Mr. Jacob serves as the Chairman of the Executive Committee of Philippine Women’s University.
Mr. Jacob is also a Director in Advent Capital & Finance Corporation, Anvaya Cove Beach and Nature
Club, Asian Terminals, Inc., Ateneo De Naga University, Century Properties, Inc., Delos Santos – STI
College, Delos Santos-STI Medical Center, Information and Communications Technology (iACADEMY), Inc., Jollibee Foods, Inc., PhilhealthCare, Inc., Philippine Health Educators, Inc., Phoenix
Petroleum Philippines, Inc. and UNLAD Resources Development Corporation. He is also an
Independent Director of 2Go Group, Inc. and Negros Navigation Co., Inc.
Prior to his present positions, Mr. Jacob was the Chairman and CEO of Petron Corporation. As
Chairman, he presided over its privatization and implemented and led the partnership of the
14
government with Saudi Aramco in Petron. He also presided over the Initial Public Offering (IPO) of
Petron shares which has since been hailed as one of the most successful IPO offerings in the country.
He retired from Petron at the close of the Ramos Presidency in July of 1998.
He was also Chairman and CEO of Philippine National Oil Company (PNOC) and all of its subsidiaries.
As Chairman of the PNOC, he presided over the privatization of the PNOC Dockyard and Engineering
Corporation.
Before Petron, Mr. Jacob was the General Manager of the National Housing Authority (NHA) where
he successfully introduced the joint venture approach to low cost and socialized housing. He was
also Chief Executive Officer of the Home Development Mutual Fund, popularly known as the PAGIBIG Fund, where he decentralized operations and established regional offices nationwide. He also
introduced various programs that brought back membership to the Fund.
He first joined government in 1986 as Associate Commissioner for the Securities and Exchange
Commission. He carried out needed reforms in the capital market and introduced the express lane
program.
Prior to government, he was a Partner of the law firm Jacob Acaban Corvera Valdez and Del Castillo
and was an active trial lawyer. Today, he is a partner in the law firm of Jacob & Jacob. His areas of
specialization are energy, corporate law, corporate recovery and rehabilitation work, including
receivership and restructuring advisory for companies.
As Rehabilitation Receiver, Mr. Jacob successfully implemented the financial rehabilitation of the
Ramcar Group of Companies, Atlantic Gulf & Pacific Co. of Manila (AG&P), and Negros Navigation
Co., Inc. He is currently wrapping up the termination of rehabilitation proceedings for Philippine
Investment Two (SPV-AMC), Inc. Currently, Mr. Jacob is the Receiver for Trust International Paper
Corporation and is the Court-appointed Assignee for Nasipit Lumber Company and Affiliates.
Mr. Jacob is a member of the Management Association of the Philippines (MAP) of which he was
President for 1998. He is also a member of the Integrated Bar of the Philippines.
Mr. Jacob finished his Bachelor of Arts degree with a Major in Liberal Arts from the Ateneo de Naga
University in 1966 and his Bachelor of Laws degree from the Ateneo de Manila University in 1971.
Joseph Augustin L. Tanco, 33, Filipino, Director
Mr. Tanco has been a Director of STI Holdings since 27 October 2010. He is likewise the Vice
President for Investor Relations as well as a member of the Compensation Committee of STI
Holdings.
Mr. Tanco is the Chairman of the Board of PhilhealthCare, Inc. He is President and Chief Executive
Officer of Philippine Life Financial Assurance Corporation and Comm & Sense, Inc. He founded
Comm & Sense, Inc., an integrated marketing and communications agency offering comprehensive
services in the areas of creative design, event conceptualization and management, public relations
and promotions, in 2005. . Prior to founding Comm & Sense, Inc., Mr. Tanco had years of experience
as the Channel Manager for STI Headquarters and Chief Operating Officer of STI College Makati.
Mr. Tanco serves as a Director of STI Education Services Group, Inc., West Negros University,
Philplans First, Inc., Insurance Builders Inc., EujoPhils. Inc., Capital Managers and Advisors, Inc., STI
Investments, Inc., Prudent Resources, Inc. and Rescom Developers, Inc. He is also the Director and
Chief Operating Officer of UNLAD Resources Development Corporation.
15
Mr. Tanco is the 2013 National Chairman– Nothing but Nets and Area Director for Individual for
Metro Area 2 of the Junior Chamber International Philippines and 2012 LO President of the Junior
Chamber International Philippines – Ortigas Chapter. He is also an Entrepreneurship Mentor at the
University of Asia and the Pacific.
Mr. Tanco is a graduate of the University of Asia and the Pacific with a Bachelor of Science degree in
Entrepreneurial Management. He obtained his Master in Business Administration from the Ateneo
Graduate School of Business.
Ma. Vanessa Rose L. Tanco, 36, Filipino, Director
Ms. Tanco has been a Director of STI Holdings since 27 October 2010. She is likewise a member of
the Nomination Committee of STI Holdings.
Ms. Tanco is currently the President and CEO of iAcademy, Chief Operating Officer of the Philippine
Women’s University, and President of Makati Medical Center College.
Ms. Tanco is also a Director of West Negros University, All Asia Capital Managers, Inc., Classic
Finance, Inc., STI ESG, Philplans First, Inc., Banclife Insurance Co., Inc., PhilhealthCare, Inc., Insurance
Builders Inc., Prudent Resources, Inc. and Rescom Developers, Inc.
Ms. Tanco earned her Master in Business Administration Degree – Major in Finance and Marketing
from the University of Southern California, Marshall School of Business and her Bachelor of Science
degree in Legal Management from the Ateneo de Manila University.
Martin K. Tanco, 48, Filipino, Director
Mr. Tanco has been a Director of STI Holdings since 19 December 2012. He is likewise a member of
the Executive and Audit Committees of STI Holdings.
Mr. Tanco is the Director for Investment of Philplans First, Inc. He is the President of the Philfirst
Condominium Association. Mr. Tanco is also a director of Diliman Realty Corp. and Coats Manila Bay.
Mr. Tanco earned his Bachelor of Science Degree in Electrical Engineering from the University of
Southern California. He obtained his Master of Science degree in Electrical Engineering and Master in
Business Administration from the University of Southern California.
Paolo Martin O. Bautista, 44, Filipino, Director
Mr. Bautista has been a Director of STI Holdings since 19 December 2012. He is likewise the Chief
Investment Officer, Head of Corporate Strategy and a member of the Audit and Compliance
Committees of STI Holdings.
Mr. Bautista is an advisor to the Investment Committees of Philplans, Philcare and PhilLife. He has
over 15 years’ experience in the areas of corporate finance, mergers and acquisition, debt and equity
capital markets, credit risk management and securities law. Prior to joining STI Holdings, he was a
director at Citigroup Global Markets and a Vice President at Investment Banking Division of Credit
Suisse.
16
Mr. Bautista obtained his Bachelor of Arts degree, Bachelor of Laws degree and Juris Doctor from the
Ateneo de Manila University and obtained a Master of Science degree in Management from the
Arthur D. Little School of Management, Cambridge, MA.
Rainerio M. Borja, 51, Filipino, Director
Mr. Borja has been a Director of STI Holdings since 19 December 2012. He is likewise a member of
the Executive and Nomination Committees of STI Holdings.
Mr. Borja serves as a Director of STI ESG, PhilPlans, Inc. and Total Consolidated Asset Management
Inc. He is also Chairman of the Board of Techzone Inc. and 88Gren Inc.
Mr. Borja is also the Country Head and President of Expert Global Solutions, a holding company for
two global leaders in business process outsourcing, namely NCO Financial Systems and APAC
Customer Services. He oversees the overall operations of these companies and the integration of
their processes in the Philippines.
From 2000 to July 2012, Mr. Borja was President of Aegis PeopleSupport in the Philippines and
concurrently head of its Global Operations and Strategy. He also pioneered the setup of call
center/BPO in Cebu and Baguio and expansion to other places. He was also instrumental in the
successful listing of PeopleSupport in NASDAQ (symbol: PSPT) in 2004 and responsible for its global
operations, global strategy and corporate development.
Mr. Borja is credited by many in the Philippines as the man behind the success of the call center and
BPO industry in the country. His opinions and contributions are highly valued and sought by
government officials in the formulation of legislation and policies that will govern ICT and BPO in the
future.
Mr. Borja founded and served as the Chairman of the Business Processing Association of the
Philippines, the umbrella organization of BPO, Contact Center and IT-enabled Service Companies in
the country, for five years. . He is also a director of the Contact Center Association of the Philippines.
He is a member of the US-Asean Business Council and the Makati Business Development Council.
Mr. Borja obtained his Bachelor of Science degree at De La Salle University and Masters of Science in
Economics units at the De La Salle Graduate School of Business and Economics.
Maulik Ramniklal Parekh, 44, Indian, Director
Mr. Parekh was elected as Director of STI Holdings on 10 December 2013.
Mr. Maulik R. Parekh serves as the President and Chief Executive Officer (November 2009 to
present) of SPi Global, Philippines, a leading Knowledge Process Outsourcing (“KPO”) and Customer
Relationship Management (“CRM”) service provider with more than 19,000 employees in 30 facilities
in North America, Latin America, Europe, Australia, and Asia. As such, Mr. Parekh is responsible for
the planning, execution, and management of the overall strategy and operations of the SPi Global
Group of Companies.
Mr. Parekh successfully consolidated all the BPO business of telecoms giant PLDT and integrated it
with other distinct outsourcing operations to create one of the most diversified BPO enterprises. He
formed a strong global leadership team responsible for Business Unit Operations and Corporate
Support from its Headquarters in the Philippines. He led the company to be recognized globally with
17
major awards and recognitions citing leadership and management capability, operational excellence,
employee and customer management practices and corporate social responsibility programs. He
jumpstarted the growth of the combined entities and sustained double-digit growth every year since
2010. He also led a successful management buy-out amounting to more than $300 Million of the
controlling interest in SPi Global by partnering with CVC Capital Partners, a leading private equity
firm.
From January 2006 to May 2009, Mr. Parekh was Executive Vice President and General Manager,
Asia, of TeleTech Holdings Inc., a $1 Billion, publicly traded company (NASDAQ: TTEC) delivering
specialized contact center solutions, including customer management, sales, technology solutions,
collections and BPO services. Key focuses included Financial Services, Insurance, Medical and
Consumer Markets Services, and Communications. Mr. Parekh was responsible for the largest region
within TeleTech, representing over 30% of TeleTech’s employees and over 70% of TeleTech’s profit
and had direct operational responsibility for 14 centers in the Philippines, Hong Kong, Malaysia and
Singapore with 13,000 seats and 23,000 professionals.
He was a member of the Operating
Committee which included the CEO, CFO, CIO and EVP, Human Capital.
During his stint at Teletech, Mr. Parekh successfully orchestrated the largest and the fastest BPO
expansion in the Philippines – growing from 6,000 employees in June 2006 to 23,000 employees in
May 2009. He won seven industry awards as a result of a well-choreographed and well-synchronized
communications strategy to brand TeleTech as the Employer of Choice. He led the due diligence
process for new call center locations in the Philippines and opened and staffed 8 new centers in
three years. He pioneered an award-winning “Leadership Institute” which inspired and trained high
potential employees for promotional opportunities to support the exponential growth. He
consistently met and exceeded operational goals through Six Sigma based and multi-layered process
improvement initiatives. . He helped design and launch Teletech’s internal outsourcing arm “Global
Business Services” to move accounts payable, payroll, financial analysis, global quality, resource
planning and forecasting to the Philippines and other countries. He was recognized and promoted
three times in three years – Vice President of Operations in January 2006 to General Manager, Asia in
September 2006 to Senior Vice President & General Manager, Asia in February 2008 to EVP &
General Manager, Asia in January 2009.
From January 2003 to December 2005, Mr. Parekh was Director, Call Center Services & Special
Projects of Echostar Communications Corporation, a $7 Billion publicly traded company (NASDAQ:
DISH) which delivers Direct Broadcast Satellite television products and services to US customers and
employs over 22,000 employees around the world. DISH currently serves over 14 Million customers.
His previous positions in the company were: from January 2001 to January 2003 - Special Projects
Manager, Call Center Operations; from January 1997 to July 1999 – Regional Sales Director; and from
January 1994 to December 1996 – Project Manager.
Mr. Parekh earned his International MBA from Thunderbird, the American Graduate School of
International Management and his Bachelor of Engineering from Gujarat University, India. He
pursued his MS in Computer Science from Texas Tech University, Lubbock, Texas.
Ernest Lawrence Cu, 52, Filipino, Independent Director
Mr. Cu has been an Independent Director of STI Holdings since 19 December 2012. He is likewise a
member of the Audit and Nomination Committees of STI Holdings.
Mr. Cu is, at present, the President and Chief Executive Officer of Globe Telecom.
18
Mr. Cu is a Director of Asiacom Philippines, Prople BPO, Inc., Games Services Group, ConcettiGlobali
Inc. He also a Trustee of Ayala Foundation, Inc.
Mr. Cu earned his Master of Management degree, specializing in finance, accounting, and operations
management from the J.L. Kellogg Graduate School of Management at Northwestern University. He
also has a Bachelor of Science degree in Industrial Management Engineering and a Minor in
Mechanical Engineering from the De La Salle University.
Johnip Cua, 57, Filipino, Independent Director
Mr. Cua has been an Independent Director of STI Holdings since 19 December 2012. He is likewise
the Chairman of the Audit Committee of STI Holdings.
Mr. Cua is an Independent Director of Philplans First, Inc. and MacroAsia Corporation. He is also the
Chairman and President of Taibrews Corporation. Mr. Cua is also a director of BDO Private Bank,
MacroAsia Catering Services, MacroAsia Airport Services Corporation, Alpha Alleanza Manufacturing,
Inc., Allied Botanical Corporation, Century Pacific Food, Inc., Eton Properties Philippines, Inc.,
Interbake Marketing Corporation, Lartizan Corporation, and Teambake Marketing Corporation.
Mr. Cua has served as the Chairman of the Board of Trustees of Xavier School, Inc. and P&Gers Fund,
Inc. He is also a member of the Board of Trustees of Xavier School Educational & Trust Fund.
Mr. Cua served as the first Filipino President and General Manager of Procter & Gamble Philippines,
Inc. from 1995 to 2006. He also held the position of Vice President, Marketing Function from 2003 to
2006 and Vice President, Market and Customer Operations from 2000 to 2003 for ASEAN,
Australasia and India.
Mr. Cua has received the following citations: GK Bayani Nation Builder, Gawad Kalinga (2006); 100
Most Outstanding U.P. Alumni Engineers (2009); 2007 Most Distinguished Alumnus, U.P. Alumni
Engineers, College of Engineering, U.P. Diliman; Outstanding Achievement in Marketing Management
(1998 Agora Awards); Lifetime Capability Development Award, Procter& Gamble Philippines (2006);
Passionate Leadership Award, Procter & Gamble Global Marketing Organization (2006).
Mr. Cua earned his Bachelor of Science degree in Chemical Engineering from the University of the
Philippines.
Jesli A. Lapus, 64, Filipino, Independent Director
Mr. Lapus was elected as Director of STI Holdings on 21 March 2013. He was also elected as an
Independent Director of STI Holdings at the Annual Stockholders Meeting held on 4 October 2013.
Mr. Lapus is currently Independent Director of: Metropolitan Bank & Trust Company and Philippine
Life Financial Assurance Corporation. He is a Director of iACADEMY; Chairman of the Trust Banking of
Metropolitan Bank and Trust Company, STI Education Services Group, Inc., LBP Service Corporation,
Asian Institute of Management –Center for Tourism and Honorary Chairman of Manila Tytana
Colleges. He is also a Member of the Investment Committee of Philplans First, Inc. and Advisory
Board Member of Radiowealth Finance Company, Inc.
A multi-awarded executive in the private sector (i.e. manufacturing, financial services and
international trade), Mr. Lapus has successfully managed and turned around firms and a universal
bank in attaining industry leaderships.
19
With a solid track record as a prominent professional executive in the private sector behind him, Mr.
Lapus has the distinction of having served in the cabinets of three (3) Philippine Presidents namely:
President Gloria Macapagal-Arroyo, President Fidel Ramos and President Corazon Aquino in the
following capacities: Secretary, Department of Trade and Industry (2010); Secretary, Department of
Education (2006-2010); President and CEO, The Land Bank of the Philippines (1992-1998);
Undersecretary, Department of Agrarian Reform.
He was elected member of the Philippine Congress for three (3) consecutive terms in 1998-2006.
During his stint in Congress, Mr. Lapus was Chairman of the House Committees on Ways and Means,
Trade and Industry, Suffrage and Electoral Reforms and Vice-Chairman of Appropriations.
Mr. Lapus was the former President of Southeast Asia Ministers of Education Organization;
Executive Board Member of UNESCO-Paris; Chairman of Board of Investments, Philippine Export
Zone Authority, Cabinet Committee on Tariff and Related Matters, Export Development Council,
MSMED Council (Micro, Small and Medium Enterprises), and National Development Corporation;
Governor of Management Association of the Philippines and Bankers Association of the Philippines;
and Member of YPO, Finex, PICPA, PCCI, GBAP, and Rotary Club of Manila.
Mr. Lapus earned his Doctor of Public Administration from Polythechnic University of the Philippines;
Master in Business Management from Asian Institute of Management; Investment Appraisal and
Management from Harvard University, USA; Management of Transfer of Technology from INSEAD,
France; and Project Management from BITS, Sweden.
Yolanda M. Bautista, 61, Filipino, Treasurer
Ms. Bautista has served as the Treasurer of STI Holdings since 17 March 2010. She is likewise a
member of the Executive, Compensation and Compliance Committees of STI Holdings. She resigned
as director of STI Holdings on 10 December 2013. Her resignation as Director of the Company was
not due to any disagreement with STI Holdings on any matter relating to its operations, policies or
practices.
Ms. Bautista is a Partner of Bautista Sagcal & Associates. She is Chairman and President of Unitrans
International Forwarders, Inc. and President of Corporate Reference, Inc., Oro Bueno, Inc., Lakeview
Realty, Inc. and Yellow Meadows Business Ventures, Inc.
Ms. Bautista serves as Director and Treasurer of Capital Managers and Advisors, Inc., Banclife
Insurance Co., Inc., Insurance Builders Inc., DLS-STI College, Inc., Philippine Women’s University and
Information and Communications Technology Academy (iAcademy), Inc. She is also the Group Chief
Financial Officer of Philippine Life Financial Assurance Corporation and Philhealthcare, Inc. as well as
the Chief Financial Officer and Treasurer of STI ESG, West Negros University and UNLAD Resources
Development Corporation. Ms. Bautista is a Director of Philippine Healthcare Educators, Inc. and
Southern Textile Mills, Inc. She serves as Treasurer of STI Investments, Inc., Kusang Loob Foundation,
Inc., Lasik Surgery, Inc., Megaclinic Derma Laser Center, Inc. and P & O Management Services Phils.,
Inc. She is also Assistant Treasurer of DLS-STI Megaclinic, Inc. and Total Consolidated Asset
Management, Inc.
Ms. Bautista is a Certified Public Accountant. She graduated Magna Cum Laude from the University
of Santo Tomas with a Bachelor of Science degree in Commerce, major in Accounting.
20
Arsenio C. Cabrera, Jr., 54, Filipino, Corporate Secretary
Atty. Arsenio C. Cabrera, Jr. was elected Corporate Secretary and Chairman of the Compliance
Committee of STI Holdings on 17 March 2010. He is also the current Corporate Information Officer of
the Company.
Atty. Cabrera is a Managing Partner of Herrera Teehankee& Cabrera Law Offices. He is currently
General Counsel of STI Education Services Group, Inc. He also serves as Corporate Secretary of BOIE
Drug, Inc., BOIE, Incorporated, BOIE Prime, Inc., Calatagan Bay Realty, Inc., Canlubang Golf and
Country Club, Inc., Capital Managers and Advisors, Inc., Classic Finance Corporation, Coinage, Inc.,
DLS-STI Colleges, Inc., GEOGEN Corporation, GEOGRACE Resources Philippines, Inc., Masbate13
Philippines, Inc., Mina Tierra Gracia, Inc., NiHAO Mineral Resources International, Inc., Oregalore,
Inc., Philippine American Drug Company, Philippine First Condominium Corporation, Philippines First
Insurance Co., Inc., Philippine Life Assurance Financial Corporation, Philippine Women’s University,
Philhealthcare, Inc., Philplans First, Inc., Renaissance Condominium Corporation, Rosehills Memorial
Management Philippines, Inc. Sonak Holdings, Inc., STI Education Systems Holdings, Inc., STI
Investments, Inc., Total Consolidated Asset Management, Inc., Trend Developers, Inc., Unlad
Resources Development Corporation, Villa Development Corporation, West Negros University Corp.
and WVC Development Corporation.
Atty. Cabrera holds a Bachelor of Laws (Second Honors) and a Bachelor of Science
Management from the Ateneo De Manila University.
in Legal
Ana Carmina S. Herrera, 39, Filipino, Assistant Corporate Secretary
Atty. Ana Carmina S. Herrera was elected Assistant Corporate Secretary of the Company on 17 March
2010.
A Senior Associate of Herrera Teehankee and Cabrera Law Offices, Atty. Herrera also performs the
role of Corporate Secretary of Dunes and Eagle Land Development Corporation, STI College
Batangas, Inc., STI Dagupan, Inc. and STI Tuguegarao, Inc. She also serves as Assistant Corporate
Secretary in a number of other corporations: Amica Corporation, Banclife Insurance Co., Inc., Coastal
Bay Chemicals, Inc., STI Education Systems Holdings, Inc., Palisades Condominium Corporation,
Philippine Life Assurance Financial Corporation, Philhealthcare, Inc., Philippines First Insurance Co.,
Inc., Philippine First Condominium Corporation, Philippine Life Financial Assurance Corporation, STI
College of Kalookan, Inc., STI College of Novaliches, Inc. and Venture Securities, Inc.
Atty. Herrera received her Bachelor of Laws degree from the University of the Philippines in 2000.
(b)
Significant Employees
In general, the Company values its human resources. It expects the employees to
do their share in achieving the Company’s set objectives. There is no person in the
Company who is not an executive officer but is expected to make significant
contribution in the business of the Company.
(c)
Family Relationships
Mr. Joseph Augustin L. Tanco is the son of Mr. Eusebio H. Tanco. Ms. Ma. Vanessa
Rose L. Tanco is the daughter of Mr. Eusebio H. Tanco.
21
Mr. Martin Tanco and Mr. Eusebio H. Tanco are cousins.
There are no other family relationships up to the 4th civil degree, either by
consanguinity or affinity among the current Directors other than those already
disclosed in this report.
(d)
Involvement in Certain Legal Proceedings
None of the above named directors and executive officers of the Company have
been involved in any of the following events for the past five (5) years and up to the
date of this SEC Form 20-IS:
(1)
any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
(2)
any conviction by final judgment;
(3)
being subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, domestic or
foreign, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities,
commodities or banking activities; and
being found by a domestic or foreign court of competent jurisdiction (in a
civil action), the Commission or comparable foreign body, or a domestic or
foreign Exchange or other organized trading market or self regulatory
organization, to have violated a securities or commodities law or regulation,
and the judgment has not been reversed, suspended, or vacated.
(4)
(2)
Certain Relationships and Related Transactions
The Company has the following major transactions with related parties:
Joint Venture Agreement with Philippine Women’s University (“PWU”), Unlad Resources
Development Corporation (“UNLAD”) and Mr. Alfredo Abelardo Benitez (“Mr. Benitez”)
On 21 November 2011, the Company’s Board of Directors approved the following: (1) the assignment
by the Company’s Chairman, Mr. Eusebio H. Tanco (“Mr. Tanco”) in favor of the Company of all of
Mr. Tanco’s rights, interests and obligations arising out of: (a) the 16 November 2011 Joint Venture
Agreement (the “Joint Venture Agreement”) entered into by PWU, UNLAD, Mr. Benitez and Mr.
Tanco for the formation of a strategic arrangement with regard to the efficient management and
operation of PWU; and (b) the 16 November 2011 Shareholders’ Agreement (the “Shareholders’
Agreement”) governing the aforementioned parties’ relationship as shareholders of the joint venture
company, UNLAD; and (2) the accession by the Company to the Joint Venture Agreement and the
Shareholders’ Agreement.
PWU is a private non-stock, non-profit educational institution which provides basic, secondary and
tertiary education while UNLAD is a real estate company controlled by the Benitez Family and has
some assets which are used to support PWU’s educational thrust.
22
Pursuant to the assignment of Mr. Tanco’s rights under the Joint Venture Agreement, the Company
acquired from Banco De Oro Unibank, Inc. (“BDO”) on 28 November 2011 the debt of PWU together
with all of BDO’s rights to the underlying collateral and security for the amount of Php 223.5 Million
(the “Receivable from PWU”), on a without recourse basis. The acquired loan is presented
separately as “Noncurrent receivable” account in the statement of financial position.
Moreover, in accordance with the Joint Venture Agreement, the Company is obliged to extend: (1) a
direct loan to PWU in the amount of Php 26.5 Million (the “Loan to PWU”); and (2) a loan to UNLAD
in the amount of Php 198 Million (the “Loan to UNLAD”). The Receivable from PWU and the Loan to
PWU in the aggregate amount of Php 250 Million shall be secured by the PWU Indiana Property and
the PWU Taft Property. The Loan to UNLAD shall be secured by the PWU Quezon City Property,
UNLAD Davao Property and UNLAD Quezon City Property.
The Receivable from PWU and the Loan to PWU, inclusive of 5% interest per annum, shall be accrued
and paid by way of the assignment by PWU of its shares in UNLAD (which PWU will acquire through a
property-for-share swap transaction). Likewise, the Loan to UNLAD, inclusive of 5% interest per
annum, shall be paid by way of conversion of said loan into equity in UNLAD to enable the Company
to acquire, together with the shares assigned by PWU to the Company as payment for the Receivable
from PWU and Loan to PWU, a total of 40% equity in UNLAD.
On 17 May 2012, Mr. Benitez assigned his rights, title and interest in the Joint Venture Agreement
and the Shareholders’ Agreement to Attenborough Holdings Corporation (“AHC”). AHC thereby
assumed Mr. Benitez’s obligation to grant a loan to UNLAD in the principal amount of P 224 Million
(the “AHC Loan to UNLAD”). Pursuant to the agreement, the Company and AHC (collectively referred
to as the “Lenders”) agreed to lend UNLAD a principal amount of P 422 Million consisting of the
Company’s Loan to UNLAD and the AHC Loan to UNLAD.
Consequently, on 8 June 2012, the Company entered into an Omnibus Agreement with UNLAD and
AHC (the “Omnibus Agreement”) consisting of: (a) a prefatory agreement; (b) a loan agreement; and
(c) a real estate mortgage. Under the loan agreement, the Lenders will extend a loan to UNLAD
which is payable by way of conversion into equity in UNLAD. Said conversion into equity in UNLAD
must enable: (a) the Company to acquire, together with the shares acquired by it as payment of the
Company’s Loan to PWU, 40% of the issued and outstanding capital stock of UNLAD; and (b) AHC to
acquire 20% of UNLAD’s issued and outstanding capital stock.
In June 2012, the Company released the Loan to PWU in the amount of P 26.5 Million. In August
2012 and October 2012, the Company released the Loan to UNLAD amounting to P 166 Million and P
32 Million, respectively.
On 25 March 2013, the Joint Venture Agreement and Omnibus Agreement were amended to
discontinue the imposition of interest on the Loan to PWU, Loan to UNLAD and AHC Loan to UNLAD
effective 1 January 2013.
As of March 31, 2014 and 2013, noncurrent receivables consist of loans of P 448.0 million and
accrued interest of P 16.0. Interest income in 2013 amounted to P
=12.7 million.
As of March 31, 2014 and 2013, the equity interest in UNLAD has not been assigned to the Parent
Company in exchange for the receivables from PWU and the Loan to UNLAD. The said receivables from
PWU and the Loan to UNLAD are presented as “Noncurrent receivables” in the consolidated statements
of financial position.
23
The Company is working on the submission of all required documents to effect the conversion of
these receivables into equity. The Company has nominated its representatives as directors/trustees
and officers of PWU and UNLAD.
Land Held for Swap
On 21 March 2013, the Board of STI ESG approved the transfer of land to Techzone Philippines, Inc.
(“Techzone”), a company under common control with the Group, in exchange for condominium
units.
In April 2013, STI ESG and Techzone entered into a real estate mortgage amounting to P 800 Million
with STI ESG’s land as collateral for Techzone’s loan, to obtain the funds needed for Techzone to
develop the property.
In August 2013, the Deed of Absolute Sale for the sale of the land was executed between STI ESG
and TechZone in accordance with the BOD approval. Title to the land has now been transferred in
favor of TechZone and consequently, the amount was reclassified, including other directly
attributable costs, as “Condominium deposit.” Development of the condominium project is likewise
ongoing.
Advances to STI Investments, Inc.
As at 31 March 2012, the Company made short-term non-interest bearing advances to STI
Investments, Inc. (“STI Investments”) amounting to P 5.9 Million, which is presented under the
“Receivables” account in the statements of financial position. The Company and STI Investments are
under common control.
This advance was fully settled by STI Investments on 14 June 2012.
Short-term cash placement in a financing institution with a common shareholder
As at 31 March 2011, the Company has outstanding short-term cash placement in a financing
institution which is owned by a common shareholder amounting to P 101.5 Million. The short-term
cash placement was terminated on 8 April 2011.
Interest income earned on the short-term cash placement amounted to P 0.1 Million and the years
ended 31 March 2012 and 2011, respectively.
Receivable from Philippine Racing Club, Inc. (PRCI)
The Company has outstanding receivables of P 10.2 Million from PRCI arising from the assignment of
a local tax credit certificate originally issued in favor of the Company by the local government of
Makati. PRCI was the Company’s parent company until 18 March 2010.
PRCI made a partial payment of P 2 Million as of 30 June 2013 and full payment of P 8.2 Million as of
27 December 2013.
Agreement with Comm & Sense
On 15 January 2013, the Company entered into an agreement with Comm & Sense owned by Mr.
Joseph Augustin L. Tanco, Director and Vice President for Investor Relations of STI Holdings, on the
overall management for PR consultation and planning of activities and execution strategies,
24
management of all media interview, development of campaign messaging and media monitoring.
Comm & Sense is in charge of the Press Releases for the Corporation, development of story angles,
writing and editing of articles, media relations and the Corporate Social Responsibility projects of the
Corporation.
Consultancy Agreement with STI ESG
The Company entered into an agreement with STI ESG on the rendering of advisory services starting
01 January 2013.
To date, there are no complaints received by the Company regarding related-party transactions.
(3)
Disagreement with a Director
No director has resigned or declined to stand for re-election to the Board of Directors since
the date of the last annual stockholders’ meeting because of a disagreement with the
Company on any matter relating to the Company's operations, policies or practices.
Item 6.
Compensation of Directors and Executive Officers
(1) During the 28 June 2010 meeting of the Board of Directors, the Board approved a resolution
increasing the per diems of the directors from P10,000.00 to P15,000.00 per board meeting. The
directors are paid P5,000.00 per committee meeting attended by them. There is no arrangement for
compensation of directors.
For FY 2011-2012 and 2012-2013, the CEO and top four (4) executive officers as a group, did not
receive compensation from the Company. There is no employment contract between the Company
and any of its executive officers.
(2) The following table summarizes the aggregate compensation for the fiscal years ended 31 March
2011-2012, 2012-2013 and 2013-2014. The amounts set forth in the table below have been prepared
based on what the Company paid its directors and named executive officers as a group and other
officers for the fiscal years ended 31 March 2011-2012 and 2012-2013 and what the Company
expects to pay for the year ended 31 March 2013-2014.
The compensation for board members comprises per diems.
ANNUAL COMPENSATION
Name and principal
Position
All other Officers as a
Group
All
Named
Executive
2
Officers and Board of
Directors as a Group
Fiscal Year
Ended 31
March
2012-2013
Salary (PHP)
597,052.00
Bonus (PHP)
Other annual
compensation (PHP)
-
-
2013-2014
2014-2015
2011-2012
1,551,053.28
1
P3,800,000.00
-
564,706.00
2012-2013
2013-2014
2014-2015
-
-
1,005,882.00
1,735,000.00
1
1,735,000.00
25
Notes:
1
Figures are estimated amounts.
2
Named executives include: Eusebio H. Tanco (Chairman of the Board), Monico V. Jacob (President and CEO),
Joseph Augustin L. Tanco (Vice President, Investor Relations), Yolanda M. Bautista (Treasurer) and Atty. Arsenio
Cabrera, Jr. (Corporate Secretary).
(3) There are no actions to be taken with regard to any bonus, profit sharing, or other compensation
plan, contract or arrangement in which any director, nominee for election as a director, or executive
officer of the Company will participate.
(4) There are no actions to be taken with regard to any pension or retirement plan in which any
such person will participate.
(5) There are no actions to be taken with regard to the granting or extension to any such person of
any option, warrant or right to purchase any securities.
Item 7.
(1)
Independent Public Accountants
The accounting firm of Sycip Gorres Velayo & Co. (“SGV”) has been the Company’s External
Auditors for the past years (2010 up to the present). They were reappointed in the Annual
Stockholders’ Meeting held on 04 October 2013, as external auditors for the ensuing fiscal
year.
A representative of SGV is expected to be present at the Annual Meeting of the Stockholders
and will have the opportunity to make a statement if he or she so desires. The
representative will also be available to respond to appropriate questions from the
stockholders.
Pursuant to SRC Rule 68 (3) (b) (iv), as amended (Rotation of External Auditors), the
Company has engaged Mr. Roel E. Lucas of SGV as the Partner-in-charge of the Company.
This is his first year of engagement for STI Holdings.
(2)
There has not been any disagreement between the Company and said accounting firm with
regard to any matter relating to accounting principles or practices, financial statement
disclosures or auditing scope or procedure.
As stated in the March 31, 2014 “Statement of Management Responsibility for Financial
Statements”, SGV is the appointed independent auditors of STI Holdings. They have
examined the financial statements of the Company in accordance with Philippine Standards
on Auditing and have expressed their opinion on the fairness of presentation upon
completion of such examination, in its report to the Board of Directors and stockholders.
The Company’s Audit Committee reviews and approves the scope of audit work of the
external auditor and the amount of audit fees for a given year. With respect to services
rendered by the external auditor other than the audit of financial statements, the scope of
and payment for the same are subject to review and approval by the management.
Mr. Johnip G. Cua, Independent Director, is currently the Chairman of the Audit Committee
while Messrs. Martin K. Tanco, Paolo Martin O. Bautista and Ernest Lawrence Cu are its
Members.
26
The Company had engaged SGV for the annual audit covering the period from April 1, 2013
to March 31, 2014 for Php770,000.00. The engagement letter for the year-end audit was
sent to the Company on 11 October 2013.
The following information pertains to their fees and charges over the last two fiscal years
(amounts in thousands):
Audit Fees
Tax Fees
All Other Fees
2013-2014
P995
100
P2,300*
2012-2013
P500
0
P14,400**
*Represents professional fees paid relative to the acquisition of WNU
**Represents professional fees paid relative to the follow-on offering
Item 8.
Compensation Plans
No action is to be taken with respect to any plan pursuant to which cash or non-cash compensation
may be paid or distributed.
C.
ISSUANCE AND EXCHANGE OF SECURITIES
Item 9.
Authorization or Issuance of Securities Other Than For Exchange
No action will be taken with respect to the authorization or issuance of any securities otherwise for
exchange for outstanding securities of the Company.
Item 10.
Modification or Exchange of Securities
There is no action to be taken with respect to the modification of any class of securities of the
Company, or the issuance or authorization for issuance of one class of securities of the Company in
exchange for outstanding securities of another class.
Item 12.
Mergers, Consolidation, Acquisition and Similar Matters
No action will be taken with respect to any of the following: (a) the merger or consolidation of the
Company into or with any other person or of any other person into or with the Company; (b) the
acquisition by the Company or any of its security holders of securities of another person; (c) the
acquisition by the Company of any other ongoing business or of the assets thereof; (d) the sale or
other transfer of all or substantially all of the assets of the Company; or (e) the liquidation or
dissolution of the Company.
Item 13 .
Acquisition or Disposition of Property
No action will be taken with respect to the acquisition or disposition by the Company of any
property.
Item 14 .
Restatement of Accounts
No action will be taken with respect to the restatement of any asset, capital or surplus account of
the Company.
27
D.
OTHER MATTERS
Item 15.
Action with Respect to Reports
The Board of Directors of the Company recommends a vote for confirmation, ratification and
approval of the minutes of the 4 October 2013 Annual Stockholders’ Meeting. The Minutes of the 4
October 2013 Annual Stockholders’ Meeting contained the following items:
1.
2.
3.
4.
5.
6.
Call to Order
Certificate of Notice and Quorum
Approval of the Minutes of the 19 December 2012 Annual Shareholders’ Meeting
Presentation of Management Report
Approval of Audited Financial Statements as of 31 December 2012
Ratification of Legal Acts, Proceedings and Resolutions of the Board of Directors and of
Management from 19 December 2012 up to 4 October 2013
7. Election of Directors
8. Appointment of External Auditor
9. Adjournment
Item 16.
Matters Not Required to be Submitted
The Board of Directors and Management have the power to act as agents of the Company based on
statute, charter, by-laws or in delegation of authority to an officer from the acts of the Board,
formally expressed or implied from a habit or custom of doing business. In this regard, where an
officer has been entrusted with the general management and control of the Company’s business,
that officer is considered to possess an implied authority to enter into any contract or do any other
act which is necessary or appropriate for the conduct of the ordinary business of the Company.
The Board of Directors recommends a vote for approval, confirmation and ratification of all acts and
resolutions of the Board of Directors and of Management since the Annual Stockholders’ Meeting on
4 October 2013 up to 26 September 2014. Said acts and resolutions of the Board of Directors and of
Management since the Annual Stockholders’ Meeting on 4 October 2013 up to 26 September 2014
include, among others: (a) the appointment of officers; (b) the opening of bank accounts and the
appointment of signatories; (c) execution of contracts; (d) procurement of loans; (e) sale and/or
acquisition of assets; (f) investments in West Negros University; (g) approval of Audited Financial
Statements as of 31 March 2014; and (h) amendments to the Manual of Corporate Governance.
Once the ratification has been given, all acts or transactions entered into by the Board of Directors
and of Management since the Annual Stockholders’ Meeting on 4 October 2013 up to the present
become finally and absolutely binding and neither the Company nor individual stockholders nor
strangers can afterwards sue to set them aside or otherwise attack their validity.
Item 17.
Amendment of Charter, By-laws or Other Documents
No action will be taken at the Annual Stockholders’ Meeting for any amendment of the Company’s
Articles of Incorporation, By-laws or other charter documents.
Item 18.
Other Proposed Action
There is no action to be taken at the Annual Stockholders’ Meeting with respect to any matter not
specifically referred to above.
28
Item 19.
(1)
Voting Procedures
Vote required
Each common share entitles the holder to one vote. At each meeting of the stockholders,
each stockholder entitled to vote on a particular question or matter shall be entitled to vote
for each share of stock standing in his name in the books of the Company as of record date.
Pursuant to the By-Laws of the Company, stockholders owning a majority of all of the issued
and outstanding stock of the Company present or represented by proxy and entitled to vote,
shall form a quorum for the transaction of business and the vote of stockholders
representing a majority of a quorum shall be required to approve any action submitted to
the stockholders for approval, except in those cases where the Corporation Code requires
the affirmative vote of a greater proportion.
(2)
Method
The By-Laws provide that the voting must be by ballot or viva voce in the event no contest is
raised at the sole discretion of the Chairman of the meeting.
Moreover, “every question [except the election of Director] submitted to a meeting shall be
decided in the first instance by a show of hands, and in the case of an equality of votes,
whether for the election of Directors, or otherwise, the same shall be decided by drawing of
lots or in such other lawful manner as may be agreed upon in such meeting. Any person
may demand a poll, and such poll shall be taken in such manner as the Chairman of the
meeting directs.”
The Secretary of the meeting, upon motion duly made and seconded, is instructed to count
all votes represented at the meeting in favor of the nominees. Cumulative voting shall be
followed.
The Company will seek the approval of the following:
(1)
Approval of the Minutes of the Annual Stockholders’ Meeting held on 4 October 2013
(2)
Ratification of all acts of the Board of Directors and of Management from 4 October 2013 up
to 26 September 2014
(3)
Election of eleven (11) members of the Board of Directors
(4)
Approval of the Audited Financial Statements for the period ending 31 December 2013
(5)
Election of Directors
(6)
Election of external auditor
Discussion on Compliance with Leading Practices on Corporate Governance
The Company adheres to the principles and practices of good corporate governance, as embodied in
its Corporate Governance Manual and related SEC Circulars.
29
On 11 January 2011, the Company filed a Certification with the SEC that it had substantially complied
with the provisions and requirements of the Company’s Manual on Corporate Governance.
On 4 March 2011, the Company submitted the Amended Manual on Corporate Governance
incorporating the directory provisions of the Revised Code of Corporate Governance to the SEC and
PSE to fully comply with the adopted leading practices on good corporate governance.
On 18 July 2014, the Company submitted the Amended Manual on Corporate Governance in
compliance with SEC Memorandum Circular No. 9.
There have been no deviations from the Company’s Manual of Corporate Governance.
To ensure that the Company observes good corporate governance and management practices and
assure shareholders that the Company conducts its business in accordance with the highest level of
accountability, transparency and integrity, the Company has undertaken the continuous
improvement and monitoring of its governance and management policies. The Company submits a
Certificate of Compliance with the Manual on Corporate Governance on an annual basis to the SEC
and the PSE.
The Company submitted the Annual Corporate Governance Report to the SEC on 28 June 2013.
The Company ensures that it has at least two (2) independent directors, or such number of
independent directors that constitutes twenty percent (20%) of the members of the Board,
whichever is higher, but in no case less than two (2).
The Company, through its Nominations Committee, ensures that all the nominees to the Board
possess all the qualifications and none of the disqualifications provided for in the Company’s ByLaws and Manual, the Corporation Code, Securities Regulation Code and other relevant laws, rules
and regulations.
The Company also has an Audit Committee, which is tasked to review the Audited Financial
Statements of the Company. The Chairman of the Audit Committee is an independent director, and
each member thereof has at least an adequate understanding or competence of most of the
Company’s financial management systems and environment.
The Company consistently strives to raise its financial reporting standards by adopting and
implementing prescribed Philippine Financial Reporting Standards.
STI EDUCATION SYSTEMS HOLDINGS, INC., AS REGISTRANT, WILL PROVIDE WITHOUT
CHARGE, UPON WRITTEN REQUEST, A COPY OF THE REGISTRANT’S ANNUAL REPORT ON SEC
FORM 17-A. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO THE OFFICE OF THE CORPORATE
SECRETARY, 5/F SGV II, BUILDING, 6758 AYALA AVENUE, MAKATI CITY, PHILIPPINES.
30
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this report is true, complete and correct. This report is signed in the City of
Makati on 8 August 2014.
Sit EDUCATION SE1S HOLDINGS, INC.
Is
r
ARSENIO . CABRERA, JR.
Corporte Secretary
3!
MANAGEMENT REPORT
Group History and Structure
STI Education Systems Holdings, Inc.
STI Education Systems Holdings, Inc. (“STI Holdings” or the “Company”) was originally established in
1928 as the Philippine branch office of Theo H. Davies & Co., a Hawaiian corporation. It was
reincorporated as a Philippine corporation in 1946. After many years of operations as part of the
Jardine-Matheson group, STI Holdings was sold to local Philippine investors in 2006. In March 2010,
Capital Managers and Advisors, Inc. (“CMA”), a member of the Tanco Group of Companies (“Tanco
Group”), purchased the majority interest in STI Holdings and simultaneously conducted a tender offer
for all the remaining shares held by minority shareholders. As a result, CMA acquired a 68.57% interest
in the Company and assumed control and management of the Company.
STI Holdings is the holding company within the Tanco Group that drives investment in its education
business. It is a publicly-listed company in the Philippine Stock Exchange (“PSE”) and its registered office
address and principal place of business is 7th Floor iACADEMY Building, 6764 Ayala Avenue, Makati City.
Unless indicated otherwise or the context otherwise requires, reference to the “Group” are to STI
Holdings and its subsidiaries, including STI Education Services Group, Inc., after consolidation.
The Company is a party to a joint venture agreement and a shareholders’ agreement by and among the
Philippine Women’s University (“PWU”), UNLAD Resources Development Corporation (“UNLAD”) and
Attenborough Holdings Corporation. UNLAD is a real estate company controlled by the Benitez Family,
whose assets are used to support the educational mission of PWU. Under the agreements, the parties
engaged in a series of transactions which resulted in the Company extending loans to PWU and UNLAD
that shall be repaid by the conversion of the loans into a 40.0% interest in the total issued and
outstanding capital stock of UNLAD. As a result, the Group nominates its representatives as members
and trustees of PWU, the board of directors of UNLAD and certain key officers of PWU and UNLAD. STI
Holdings has submitted all the required documents to effect the conversion of this loan to equity.
On 14 June 2012 and 10 August 2012, the Board of Directors and stockholders of the Company,
respectively, approved the following: (a) a change in the corporate name from JTH Davies Holdings, Inc.
to STI Education Systems Holdings, Inc.; (b) the share-for-share swap transaction (the “Share Swap”)
with the shareholders of STI Education Services Group, Inc. (“STI ESG Shareholders”); and (c) the
corresponding increase in the Company’s authorized capital stock from 1,103,000,000 shares with an
aggregate par value of P 551.5 Million to 10,000,000,000 shares with an aggregate par value of P 5
Billion. The change in the corporate name was approved by the Securities and Exchange Commission
(“SEC”) on 10 September 2012 while the Share Swap and increase in authorized capital stock were
approved by the SEC on 28 September 2012.
On 28 August 2012, the Board of Directors of STI Holdings approved the offering and issuance by way of
a follow-on offering of up to a maximum 3 Billion common shares (the “Offer Shares”) at an offer price
to be determined based on a bookbuilding process and from discussions between STI Holdings and the
International Lead Manager and Domestic Lead Manager. The Offer comprised the following: (a) up to
2,627,000,000 common shares offered to the public on a primary basis (“Primary Offering”); (b) up to
105,209,527 common shares offered to the public on a secondary basis by Korea Merchant Banking
Corporation (“Secondary Offering”); and (c) over-allotment option to purchase up to 273,000,000
common shares (“Over-Allotment Option”) granted to UBS AG in its role as Stabilizing Agent and on the
same terms and conditions as the Primary Offering and Secondary Offering. The offer price was set at P
1
0.90 per share on 22 October 2012. The Primary Offering and Secondary Offering were completed on 7
November 2012 while the Over-Allotment Option was exercised on 28 November 2012.
Consolidation of STI Education Services Group, Inc. (“STI ESG”) into STI Holdings
On 20 December 2011, STI Holdings acquired a 4.4% interest in STI ESG’s outstanding common shares
(equivalent to approximately 3.3% interest in STI ESG’s outstanding common shares prior to Share
Swap) for a combined purchase price of P80.8 million.
On 10 August 2012, STI Holdings’ shareholders approved an increase in share capital from 1,103,000,000
shares with an aggregate par value of P 551.5 million to 10,000,000,000 shares with an aggregate par
value of P 5 Billion and a share swap agreement with the stockholders of STI ESG (the “STI
Stockholders”) and completed the consolidation of the two companies. Pursuant to the share swap
transaction, STI Holdings issued new shares to STI Stockholders in exchange for shares of STI
Stockholders in STI ESG at an exchange ratio of 6.5 Shares of STI Holdings for every 1 STI ESG share.
Since STI Holdings and the majority of STI Stockholders are related parties, STI Holdings obtained a
waiver from the majority of its minority shareholders of the requirement to conduct a rights or public
offering during the STI Holdings Special Stockholders’ Meeting held on 10 August 2012. On 28
September 2012, the SEC approved the increase in share capital of STI Holdings.
In view of the increase in its authorized capital stock and pursuant to the Share Swap, STI Holdings
issued 5,901,806,924 shares to STI ESG Shareholders in exchange for 907,970,294 common shares of STI
ESG (exclusive of the 32,324,618 STI ESG shares acquired in December 2011). As a result, immediately
after the Share Swap, the STI ESG Shareholders who joined the Share Swap owned approximately 84%
interest in STI Holdings while STI Holdings increased its shareholdings to 96.0% of the total issued and
outstanding capital stock of STI ESG. As of 31 March 2014, STI ESG holds 502,307,895 shares of STI
Holdings equivalent to 5.07% ownership in the Company.
In November and December 2012, STI Holdings subscribed to 2.1 Billion STI ESG shares at a
consideration price equal to its par value of P 2,100.00 Million. As a result, STI Holdings’ ownership
interest in STI ESG increased to approximately 98.71% as of 31 March 2013. STI Holdings’ ownership in
STI ESG is at 98.66% as of 31 March 2014.
Acquisition of West Negros University
On October 1, 2013, STI Holdings acquired 99.45% of the issued and outstanding common shares and
99.93% of the issued and outstanding preferred shares of West Negros University Corp. (“WNU”), a
leading university in the City of Bacolod in Negros Occidental.
WNU offers a wide variety of programs and complements the courses offered by the Company’s other
subsidiary, STI ESG.
The acquisition is part of the planned expansion of the Company. It not only widened its course
offerings at the tertiary level but the acquisition also provided STI Holdings another entry into basic
education which is the focus of the government’s K+12 program, and into the graduate school level
which is vital in updating the development of human capital in the country.
2
Market for Company’s Common Equity and Related Stockholder Matters
(1)
Market Information
The Company’s common stock is traded on the PSE under the stock symbol “STI”. As of the
date of this Definitive Information Statement, the Company has 9,904,806,924 shares
outstanding.
As of 6 August 2014, the high share price of the Company was Php 0.80 and the low share
price was Php 0.80.
The Company’s public float as of 31 July 2014 is 3,555,405,214 shares equivalent to 35.90%
of the total issued and outstanding shares of the Company.
The following table sets forth the Company’s high and low intra-day sales prices per share
for the past three years and the first three quarters of 2014:
High
2014
Third Quarter (as of 6 August 2014)
Second Quarter
First Quarter
2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
(2)
Low
0.80
0.87
0.72
0.80
0.69
0.65
0.74
0.90
1.07
0.59
0.73
0.76
1.07
0.97
2.22
0.92
3.00
3.08
3.12
1.50
2.28
2.30
Holders
As of 31 July 2014, there were 1,244 shareholders of the Company’s outstanding capital
stock. The Company only has common shares.
The following table sets forth the top 20 shareholders of the Company’s common stock, the
number of shares held, and the percentage of total shares outstanding held by each as of 31
July 2014.
NUMBER OF
SHARES
3,366,135,849
NAME OF STOCKHOLDER
PCD NOMINEE CORPORATION (FILIPINO)*
PERCENTAGE OF
OWNERSHIP
33.9849%
PRUDENT RESOURCES, INC.
1,614,264,964
16.2978%
PCD NOMINEE CORPORATION (NON-FILIPINO)
1,398,050,922
14.1149%
TANCO, EUSEBIO H.
1,157,913,875
11.6904%
RESCOM DEVELOPERS, INC.
794,343,934
8.0198%
EUJO PHILIPPINES, INC.
728,626,048
7.3563%
INSURANCE BUILDERS, INC.
428,723,003
4.3284%
STI EDUCATION SERVICES GROUP, INC.
397,908,895
4.0173%
3
TANCO, ROSIE L.
13,000,000
0.1312%
1,000,000
0.0101%
EDAN CORPORATION
LERIO CABALLERO CASTIGADOR AND/OR VICTORINA
861,350
399,000
0.0087%
0.0040%
HENRY SY SR.
350,000
0.0035%
QUALITY INVESTMENTS & SECURITIES CORPORATION
200,000
0.0020%
TACUB, PACIFICO B.
200,000
0.0020%
CRUZ, YOLANDA M. DELA
150,000
0.0015%
VICSAL SECURITIES & STOCK BROKERAGE, INC.
129,500
0.0013%
E. SANTAMARIA & CO., INC.
128,919
0.0010%
99,400
0.0010%
HTG TECHNOLOGIES, INC.
TOBIAS JOSEF BROWN
THE PHILIPPINE AMERICAN INVESTMENTS CORP.
88,508
0.0009%
* Eusebio H. Tanco is the beneficial owner of 284,100,000 shares. Eujo Philippines, Inc. is the beneficial owner of 35,247,082 shares. STI
150,952,989 shares.
(3)
Cash Dividends
On 8 December 2011, cash dividends amounting to P 0.02 per share were paid to
stockholders of record as of 11 November 2011.
On 5 December 2012, cash dividends amounting to P0.01 per share were paid to
stockholders of record as of 19 December 2012.
On 4 September 2013, cash dividends amounting to P 0.015144 per share were paid to
stockholders of record as of 18 September 2013.
Dividends will be evaluated by the Board of Directors on an annual basis. It shall be the policy
of the Company to declare dividends whenever there are unrestricted retain earnings
available. Such declaration will take into consideration factors such as restrictions that may
be imposed by current and prospective financial covenants; projected levels of operating
results, working capital needs and long-term capital expenditures; and regulatory
requirements on dividend payments, among others.
(4)
Recent Sales of Unregistered or Exempt Securities
Private Placement
On 21 November 2011, the Board of Directors approved the issuance of 795,817,789 shares
(the “Private Placement Shares”) out of the Company’s authorized and unissued capital stock
at P 0.60 per share through private placement investments in order to fund the Company’s
obligations to PWU and UNLAD under the Joint Venture Agreement and Shareholders’
Agreement by and among PWU, UNLAD, Mr. Benitez and the Company.
The Private Placement Shares were subscribed to by Capital Managers & Advisors, Inc.
(“CMA”), an existing shareholder of the Company) and STI Education Services Group, Inc.,
(“STI ESG”), a related party in the following manner:
Subscriber
CMA
STI ESG
Total
Number of Shares
397,908,894
397,908,895
795,817,789
4
Amount of Subscription
P238,745,336.40
238,745,337.00
P477,490,673.40
The Subscription Agreements with CMA and STI ESG were executed on 24 November 2011.
On 25 November 2011, the Company filed SEC Form 10-1 with the SEC since the issuance of
the Private Placement Shares qualifies as an exempt transaction under Section 10.1(k) of the
Securities Regulation Code i.e., the sale of securities by an issuer to fewer than twenty (20)
persons in the Philippines during any twelve-month period.
Since STI ESG and CMA are related parties, the Company complied with the Revised Listing
Rules and obtained: (a) shareholders’ approval for the listing of the Private Placement
Shares; and (b) a waiver of the requirement to conduct a rights or public offering in
connection with the Private Placement Shares during the special stockholders’ meeting on 10
August 2012.
The Philippine Stock Exchange (the “PSE”) issued a Notice of Approval in connection with the
listing of the Private Placement Shares on 28 September 2012, subject to the submission of:
(a) a duly executed lock-up agreement at least three days prior to the actual listing date of
the Private Placement Shares; and (b) a confirmation from the SEC that the mandatory
tender offer rule does not apply to the subject private placement transaction, or if a
mandatory tender offer is required to be conducted, a confirmation from the Company that
the mandatory tender offer requirement and other related requirements of the SEC have
been complied with.
On 10 May 2013, the SEC granted the Company’s request for exemptive relief from the
requirements of mandatory tender offer relative to the private placement transaction.
On 27 June 2013, the PSE advised the Company to submit a duly executed lock-up agreement
in compliance with Article V, Part A, Section 7 of the Revised Listing Rules and to facilitate
the listing of the Private Placement Shares.
On 25 July 2013, the Company, STI ESG, and CMA executed an Escrow Agreement with
Unionbank of the Philippines – Trust & Investment Services Group as the Escrow Agent to
implement the 180-day lock-up requirement applicable to the Private Placement Shares
reckoned from the listing date of the said shares. The listing of the additional 795,817,789
common shares of the Company was approved on 19 August 2013. The lock-up period of the
Private Placement shares expired on 18 February 2014 and said shares became eligible for
trading on the Exchange on 19 February 2014.
Share-for-Share Swap Transaction
On 28 August 2012, 31 August 2012 and 1 September 2012, the Company executed Share
Swap Agreements with the following stockholders of STI ESG: (a) Prudent Resources, Inc.; (b)
Mr. Eusebio H. Tanco; (c) Eujo Philippines, Inc.; (d) Rescom Developers, Inc.; and (e)
Insurance Builders, Inc. (collectively referred to as the “STI Majority Shareholders”) as well as
with 90 other stockholders of STI ESG. The aforementioned share swap transactions are
based on an exchange ratio of 6.5 shares of the Company for every 1 STI ESG share.
The share swap transactions sought to consolidate all of the education assets of the
STI/Tanco Group of Companies into one holding company. The share swap also provided an
opportunity for the education group of the STI/Tanco Group of Companies to raise funds
through the capital markets for the expansion and upgrading of its current facilities, the
5
acquisition of educational entities and the improvement of the quality of education being
offered by these entities or institutions.
Pursuant to the aforementioned Share Swap Agreements, the Company issued a total of
5,901,806,924 common shares (the “Share Swap Shares”) in exchange for 907,970,294 STI
ESG shares as follows:
Stockholders
No. of STI ESG Shares
No. of Company Shares
STI Majority Shareholders
726,749,511
4,723,871,823
Other STI ESG Stockholders
181,220,783
1,177,935,101
TOTAL
907,970,294
5,901,806,924
To accommodate the issuance of the Share Swap Shares, the Company increased its
authorized capital stock from 1,103,000,000 shares with a par value of P 0.50 per share to a
total of 10,000,000,000 shares with a par value of Php 0.50 per share or an aggregate par
value of P 5,000,000,000.00. Said increase was approved by the Company’s Board on 14
June 2012 and by the stockholders during the Special Stockholders’ Meeting on 10 August
2012.
On 14 September 2012, the Company filed an application for the increase in its authorized
capital stock with the SEC. The SEC approved the Company’s application on 28 September
2012.
During the 14 June 2012 Board meeting and the Special Stockholders’ meeting on 10 August
2012, the Board and the stockholders likewise approved the exchange ratio and the share
swap transactions with the STI Majority Shareholders and the other STI ESG stockholders.
The Company also complied with the Revised Listing Rules and obtained a waiver of the
requirement to conduct a rights or public offering in connection with the Share Swap Shares
during the 10 August 2012 Special Stockholders’ Meeting.
On 7 September 2012, the Company filed an Amended SEC Form 10-1 with the SEC since the
issuance of the Share Swap Shares qualified as an exempt transaction under Section 10.1(i)
of the Securities Regulation Code i.e., subscriptions for shares of the capital stock of a
corporation in pursuance of an increase in its authorized capital stock under the Corporation
Code when no expense is incurred or no remuneration is paid in connection with the sale or
disposition of such securities, and only when the purpose for the giving or taking of such
subscriptions is to comply with the requirements of such law as to the percentage of the
capital stock of a corporation which should be subscribed before its authorized capital is
increased.
On 26 September 2012, the PSE Board of Directors approved the application of STI Holdings
to list an additional 5,901,806,924 common shares (the “Share Swap Shares”) with a par
value of P0.50 per share, to cover the share-for-share swap transaction with various
shareholders of STI ESG (the “STI ESG Shareholders”). The 5,901,806,924 common shares
were issued in exchange for 907,970,295 STI ESG common shares held by the STI ESG
Shareholders. The total swap value is P9,743,378,087.43, broken down as follows: (1)
5,887,969,327 STI Holdings shares at a swap price of P1.65 per share for a consideration of
P9,715,149,389.55; and( 2) 13,837,597 STI Holdings shares at a swap price of P2.04 per
share for a consideration of P28,228,697.88.
6
In compliance with Article V, Part A, Section 7 of the Revised Listing Rules of the Exchange,
STI Holdings, Ms. Rosie L. Tanco, the STI Majority Shareholders and Union Bank of the
Philippines executed an Escrow Agreement on 22 October 2012 to implement the required
lock-up requirement of their respective Swap Shares reckoned from the listing date. A total
On 29 October 2012 (the “Listing Date”), 5,901,806,924 common shares of STI Holdings were
listed in the Exchange. Out of the 5,901,806,924 common shares, only 1,164,935,101
common shares were eligible for trading on the Listing Date. The remaining 4,736,871,823
common shares held by Ms. Rosie L. Tanco and the STI Majority Shareholders were placed in
escrow for 180days counted from the Listing Date. The said lock-up period lapsed on 27
April 2013.
On 9 May 2013, the 4,736,871,823 common shares held by Ms. Rosie L. Tanco and the STI
Majority Shareholders became eligible for trading on the Exchange.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
This discussion summarizes the significant factors affecting the financial condition and operating
results of STI Education Systems Holdings, Inc. (STI Holdings) and its subsidiaries (hereafter
collectively referred to as the “Group”) for the fiscal years ended March 31, 2014 and 2013. The
following discussion should be read in conjunction with the attached audited consolidated financial
statements of the Company as of and for the year ended 31 March 2014 and for all the other periods
presented.
As a result of the adoption of Philippine Accounting Standards (PAS) 19, Employee Benefits, Revised,
the Group applied the amendments retroactively to the earliest period presented (Refer to Note 2 of
the Notes to Consolidated Financial Statements).
Financial Condition
March 31, 2014 vs. 2013
The Group’s assets as at March 31, 2014 consisted mainly of its Property and Equipment, which at
P4,421.3 million accounts for 53% of its total assets. This is in accordance with the Group’s expansion
plan. In the past one and a half years since the Group’s follow-on offering, total investment in Property
and Equipment has reached P2,470.2 million for the acquisition of land, construction of school facilities
and purchase of school furniture and equipment for STI Ortigas-Cainta, STI Caloocan, STI Cubao, STI
Calamba, STI Batangas and STI Lucena.
Total assets stood at P8,299.1 million as at March 31, 2014, slightly lower by 2% than last year’s figure,
as some investments reflected negative variances due to market conditions.
Cash and cash equivalents declined by 61% from P1,489.5 million last year due to the completion of
building construction and purchase of furniture and equipment for STI Ortigas-Cainta. STI Caloocan was
completed in February, 2014 while construction is ongoing in sites intended for STI Cubao, STI Batangas,
STI Calamba and STI Lucena.
Current receivables, on the other hand, increased by 19% to P297.4 million as receivables from students
increased in line with the 4% increase in the number of students of STI ESG and its subsidiaries.
Receivables from students of WNU contributed P34.6 million, net of allowance for doubtful accounts.
7
Inventories increased by P3.1 million or 9% as the schools increased their stocks of uniforms in
preparation for the start of the coming school year.
Prepaid expenses and other current assets rose by 186% to P107.0 million due to substantial increases
in VAT input taxes and creditable withholding taxes arising from the swap of the Group’s land in Makati
City in exchange for units in the condominium building being constructed on the same property.
Property and equipment increased by 68% to P4,421.3 million due to the completion of the buildings for
STI Ortigas-Cainta and STI Caloocan and the purchase of the needed furniture and equipment to
complete the school facilities. The construction of the buildings for STI Cubao and STI Calamba are in full
swing to meet the target availability of the facilities for school year (SY) 2014-2015. Improvement of
various facilities in other owned schools were also undertaken. Renovations on buildings for STI
Batangas is almost complete and the school is likewise expected to be fully operational in time for SY
2014-15.
Investment properties increased slightly by 2%.
Value of Investments in and advances to associates and joint ventures decreased by 47% mainly due
to the decline in market value of investments in bonds and equities held by an associate and to
losses incurred by some associates.
Available-for-sale financial assets rose by 985% or P45.9 million due to reclassification of
investments in De Los Santos-STI Megaclinic, Inc. (Megaclinic) and De Los Santos General Hospital,
Inc. (the Hospital) from Investments in and advances to associates and joint ventures account as a
result of the Investment Agreement entered into with Metro Pacific Investments Corporation (MPIC)
which was implemented in June 2013. The infusion of equity in the Hospital by MPIC resulted to a
dilution of the ownership of the Group to 10%, thus the reclassification. The shareholdings of De Los
Santos-STI College (DLS-STI College) in Megaclinic were also swapped with shares in the Hospital. On
August 15, 2013 STI Investments purchased 40,051 shares of Megaclinic from the Hospital. This
represents 6% of the total outstanding capital stock of Megaclinic.
Deferred tax assets rose by 289% or P24.6 million primarily due to deferred tax recognized on the swap
of the Group’s land in Makati City in exchange for units in the condominium building being constructed
on the same property. Taxes paid on the transaction were paid by the Group. The related deferred tax
asset will be reversed upon completion of the condominium units swapped for the land.
Goodwill, intangible and other noncurrent assets slightly increased by P90.4 million or 14%. Goodwill on
the purchase of STI Batangas was computed at P2.6 million. The purchase of computer licenses for STI
ESG and iACADEMY amounted to P21.2 million. Balance of the increase was due to utility bill deposits
for STI Ortigas-Cainta, STI Caloocan and STI Cubao. STI ESG has also acquired a new school management
system and is in the process of implementing the same.
Accounts payable and other current liabilities rose by 61% or P196.7 million primarily due to bills for
construction of schools buildings unpaid as of balance sheet date.
Short term loans of P180.0 million were availed to finance short-term working capital requirements.
Nontrade payable of P151.5 million pertains to the amount withheld for payment to WNU’s former
shareholders relative to the acquisition of WNU.
8
Current portion of long-term debt of P49.9 million is part of WNU’s liabilities outstanding as of the time
of purchase of the university.
Current portion of obligations under finance lease increased by 16% due to new availments while the
long-term portion decreased by 14% due to payment of monthly amortizations.
Income tax payable grew by 18% reflecting the increase in taxable income.
Long-term debt, net of current portion, amounting to P58.5 million is part of WNU’s liabilities absorbed
by the Group.
Pension liabilities increased by P38.5 million or 172% primarily from WNU’s pension liability.
Deferred tax liability of P128.0 million represents the tax impact of acquisition-date fair value
measurement of WNU’s net assets arising from business combination.
Unrealized mark-to-market gains or losses on available-for-sale financial assets, including the Group’s
share in its associates’ unrealized mark-to-market gains on available-for-sale financial assets, decreased
by net amount of P1,477.4 million. This represents a decline in the gains earlier reported as of March
31, 2013 by an associate as a result of: (1) the realization of gains on some of the AFS assets; and (2)
decrease in market values of bonds and equities held by an associate as of March 31, 2014.
Cumulative actuarial gains or losses, including the Group’s share in its associates’ cumulative actuarial
losses, amounted to net gain of P3.0 million as of March 31, 2014, representing realization of the remeasurement gains or losses resulting from the adoption of PAS 19R by the Group and its associates.
This represents a 14% decline from last year’s net gain of P14.4 million.
The increase in Unappropriated retained earnings of P1,338.7 million resulted from the year’s net
income earned less dividends declared and from the reclassification of P800.0 million appropriated
retained earnings.
March 31, 2013 vs. 2012
The Group’s total assets as at March 31, 2013 amounted to P8,503.3 million, 85% higher than the
amount as at March 31, 2012. There was a recorded increase of P4,400.9 million in capital arising
from (1) the share-for-share swap between the shareholders of STI ESG and STI Holdings at an
exchange ratio of 6.5 shares of STI Holdings for every one (1) STI ESG share, thus increasing the
capital by P2,950.9 million, and (2) proceeds of the follow-on offering of STI Holdings on November
7, 2012 amounting to P2,610.0 million at an offer price of P0.90 per share for 2,900,000,000 shares.
Paid-up capital increased by P1,450.0 million from the follow-on offering. Additional paid-in capital
increased by P1,041.5 million due to the excess over par value of the shares issued arising from the
follow-on offering, net of transaction costs related to the issuance of shares.
Cash and cash equivalents increased by P933.2 million or 168% due to receipt of proceeds of followon offering by STI Holdings on November 7, 2012, net of transaction costs and actual use of the
proceeds. It can also be attributed to the increase in the number of students of STI ESG and its
subsidiaries from 66,740 last year to 68,363 students this year.
Current receivables slightly decreased by 6% or P15.1 million mainly due to the conversion to equity
of the P41.6 million advances to STI Investments, Inc. (STI Investments), an associate, thus, the
9
transfer to Investments in Associates account. There is no change in the percentage of ownership in
STI Investments after the conversion as the other shareholders proportionately did the same.
Inventories dropped by 18% or P7.4 million, ending the year at P34.7 million. This can be attributed
to the increased demand for uniforms and educational materials resulting from the increased
number of students.
Prepaid expenses and other current assets rose by P12.8 million or 52% as VAT input taxes arising
from disbursements related to the follow-on offering were recognized. Advance payments were
also made to suppliers and other third parties for construction activities in various schools.
Property and equipment increased by 71% or P1,091.0 million due to the acquisition of land for STI
Ortigas-Cainta, STI Caloocan, STI Cubao and STI Las Piñas, construction costs incurred for STI
Academic Center Novaliches, STI Ortigas-Cainta and STI Caloocan, and improvement of various
facilities. Based on past experience, enrollment increased in areas where STI ESG constructed
campuses with better facilities.
Investment properties decreased by 17% or P7.8 million due to the disposal of STI ESG’s idle
property in Manila, and the recognition of depreciation expenses.
Value of Investments in and advances to associates and joint ventures increased by P1,306.6 million
mainly from profitable operations of an associate, STI Investments. The recognition of the
Company’s share in unrealized mark-to-market gain on investments of the same associate also
contributed to the increase.
Noncurrent receivables rose by P236.7 million or 104% due to the full release of loans to Unlad
Resources Development Corporation (Unlad) and the Philippine Women’s University (PWU) in
accordance with existing agreements.
Available-for-sale financial assets slightly decreased by 6% due to decrease in fair market value of
some investments.
Deferred tax assets decreased by P2.5 million or 23% due to the tax impact of the adoption of PAS
19R.
Goodwill, intangible and other noncurrent assets rose 133% from P275.3 million to P642.0 million
due to the reclassification of land from Property and Equipment to Other Noncurrent Assets.
Accounts payable and other current liabilities slightly rose by 6% to P320.7 million mainly due to
increase in payables related to construction.
Short-term loans of P746.7 million were fully paid during the fiscal year, using the proceeds of the
follow-on offering and internally generated funds.
Current portion of obligations under finance lease decreased by 34% due to payment of monthly
amortizations while the long term portion increased by 49% due to additional finance lease
availments. These pertain mostly to company vehicles and computer equipment purchased under
finance lease arrangements.
Income tax payable increased by 150% due to substantial increase in taxable income.
10
Pension liabilities declined by P32.4 million due to the impact of the adoption of PAS 19R.
Capital stock increased by P4,400.9 million due to the issuance by STI Holdings of 5,901.8 million
shares arising from the share-for-share swap between the shareholders of STI ESG and STI Holdings
at an exchange ratio of 6.5 shares of STI Holdings for every one (1) STI ESG share and the follow-on
offering where 2,900.0 million shares were issued last November 7, 2012.
Additional paid-in capital increased by P1,041.5 million due to the excess over par value of the
shares issued arising from the follow-offering, net of transaction costs related to the issuance of
shares.
Unrealized mark-to-market gains or losses on available-for-sale financial assets, including the
Group’s share in its associates’ unrealized mark-to-market gains on available-for-sale financial assets
increased by net amount of P865.2 million.
Retained earnings increased due to the substantial net income earned less dividends declared.
Results of Operations
Years ended March 31, 2014 vs. 2013
Total revenues improved by 15% or P247.7 million due to the increase in the number of students of STI
ESG and its subsidiaries from 68,363 to 71,195 students and the favorable enrollment mix resulting to
higher revenues from tuition and other school fees. WNU’s revenues for the six-month period after
acquisition contributed P78.0 million to the increase.
Tuition and other school fees increased by P265.0 million or 20% from last year’s P1,357.3 million,
mainly due to the increase in the number of students and the 5,000 students of WNU. STI ESG’s
enrollment mix was also more favorable in SY 2014 than in 2013, as enrollment leaned more towards STI
Network’s four-year programs than the two-year programs. Ratio in 2014 was 76% four-year programs
and 24% two-year programs, as compared to 70% and 30%, respectively, in 2013. The four-year
programs charge higher tuition and bring in more revenue per student. STI ESG’s subsidiary, iACADEMY,
had a 25% increase in number of students and more enrollees in programs with higher tuition fees.
WNU’s students accounted for P78.0 million of total tuition and other school fees.
Revenues from educational services also improved by 2% or P4.2 million. Sale of educational materials
and supplies likewise rose by 8%, following the trend of increased enrollment.
Royalty fees slightly increased by 3% reflective of the almost constant number of students in franchised
schools.
Other income went down by 40% or P26.0 million due to various one-time adjustments recognized last
year arising from the merger of schools with STI ESG.
Cost of educational services increased by 14% from P485.4 million last year to P553.0 million this year
due to higher faculty salaries and other direct expenses as a result of the increased number of students.
Depreciation expenses of the recently completed buildings in STI Ortigas-Cainta and STI Caloocan
accounted for P23.5 million of the P67.6 million cost increase.
Cost of educational materials and supplies sold increased by 8%, mainly due to increased sale of
uniforms.
11
General and administrative expenses rose by 13% or P93.2 million. Of this increase, WNU’s
administrative expenses accounted for P26.8 million. STI ESG’s security and janitorial expenses rose by
P19.7 million as STI Fairview, STI Novaliches, STI Ortigas-Cainta and STI Caloocan became fully
operational. This also resulted to P19.6 million increase in depreciation costs. Salaries and employee
benefits likewise rose by P17.7 million as vacant plantilla positions were filled up and performancebased increases were granted to deserving employees.
Equity in net gains of associates and joint ventures decreased by P195.4 million as losses were incurred
by some associates.
Excess of fair values of net assets acquired over acquisition costs of P32.7 million relates to the
acquisition of WNU.
Loss on deemed sale amounting to P36.3 million represents the amount deemed lost due to the dilution
of the Group’s ownership in the Hospital from 33% to 10%.
Loss on swap in the amount of P6.7 million pertains to the exchange of shares of Megaclinic with the
shares in the Hospital held by DLS-STI College.
Interest expense decreased from P18.8 million last year to only P10.9 million this year, with the cost
incurred this year mainly due to the long-term loan of WNU.
Rental income increased by P6.2 million mainly due to the rental income recognized from canteen
concessionaire, gym and auditorium.
Interest income went down by P22.5 million due to the discontinued imposition of interest on the loans
to PWU and Unlad.
Dividend income slightly increased by P0.07 million or 16% while gain on sale of Property and
equipment slightly decreased by P0.09 million or 11%.
As a result of unfavorable market conditions, the Group’s unrealized mark-to-market losses on its
AFS investments slightly increased by 26% while its share in associates’ unrealized mark-to-market
losses, net of realized mark-to-market gains/losses recognized to profit or loss, also rose by 277%.
Consequently, the Group’s total comprehensive income declined by 151%.
Years ended March 31, 2013 vs. 2012
The Group registered substantial improvements in its profitability as shown by the 173% increase in
net income from P291.5 million in 2012 to P794.4 million in 2013. Total comprehensive income
increased by 41% to P1,665.4 million for 2013.
Increase in total revenues of P93.2 million or 6% from last year is due to the increase in the number
of students of STI ESG and its subsidiaries from 66,740 to 68,363 students resulting in higher
revenues from tuition and other school fees.
Tuition and other school fees increased by P84.6 million to P1,357.3 million from last year’s P1,272.7
million, reflective of the increased number of students. In addition, STI ESG’s enrolment mix was
more favorable in 2013 than in 2012, as enrolment leaned more towards the STI Network’s four-year
programs than the two-year programs. Ratio in 2013 was 70% four-year programs and 30% two-year
12
programs, as compared to 65% and 35%, respectively, in 2012. The four-year programs charge
higher tuition and bring in more revenue per student.
Educational services followed suit with a P9.3 million or 6% increase to P177.9 million this year. Sale
of educational materials and supplies likewise rose by 6%.
Cost of educational services was slightly up by 0.7% to P485.4 million as a result of additional
depreciation cost due to the completion of the STI Academic Center Novaliches and the full year
recognition of depreciation of the new building in STI Fairview. This was partially offset by reduced
rental of school facilities from third parties. Economies of scale in terms of faculty costs and
courseware development also reduced the impact of the increased depreciation cost.
Cost of educational materials and supplies sold was 25% higher at P49.5 million. This is mainly due to
the higher cost of items sold and changes in product mix.
General and administrative expenses increased by P57.1 million or 8% from P688.3 million to P745.3
million, mainly due to the share swap and follow-on offering related expenses in 2013 amounting to
P50.4 million. Taxes and licenses rose by P40.5 million as filing fees paid to the SEC and
documentary stamp taxes were incurred when both STI Holdings and STI ESG increased their
respective authorized capital stock. This also includes P13.1 million listing fee paid to the Philippine
Stock Exchange (PSE) for the follow-on offering. Professional fees related to the follow-on offering
resulted to the P4.7 million increase this year as compared to last year. Salaries and wages
increased by P8.3 million from last year’s P215.9 million due to increases in retirement cost. Lower
retirement cost was recorded last year due to actuarial gains recognized in the merger of the schools
with STI ESG. Utilities costs also increased by P5.9 million due to increases in power rates, the
increased utilization in STI Novaliches Academic Center and the full use of the new building in STI
Fairview. Outside services expenses increased by P7.0 million due to the additional security and
janitorial services for current and new facilities. However, this was partially offset by the P8.8 million
reduction in impairment provisions for receivables and goodwill.
Equity in net gains of associates and joint ventures increased by P465.8 million due to the increase in
net income of STI Investments, Inc., in which STI ESG has a 20% interest.
Interest expense in 2013 decreased by P15.0 million as STI ESG fully paid its short term loans during
the year.
Rental income decreased slightly by P0.7 million as facilities originally being leased out were utilized
as school premises.
Interest income increased by P18.5 million as funds from the follow-on offering were invested in
time deposits and special savings accounts.
Dividend income decreased by P2.4 million due to the disposal of available-for-sale financial assets
which generated dividend income in 2012.
Gain on sale of property and equipment was recognized in 2013 due to disposal of fully depreciated
transportation equipment.
Loss on disposal of investment property amounted to P2.3 million as STI ESG’s idle property was
sold.
13
Key Performance Indicators (KPIs)
The top five key performance indicators of the Group include tests of profitability, liquidity and
solvency. Profitability refers to the Group’s earning capacity and ability to earn income for its
stockholders. This is measured by profitability ratios analyzing margins and returns. Liquidity refers
to the Group’s ability to pay its short-term liabilities as and when they fall due. Solvency refers to the
Group’s ability to pay all its debts as and when they fall due, whether such liabilities are current or
non-current.
EBITDA margin
Net
income
excluding
depreciation
and
amortization, equity in net
earnings (losses) of associates
and joint ventures, interest
expense, interest income,
provision for income tax and
loss on deemed sale and
share swap of an associate,
excess of fair values of net
assets
acquired
over
acquisition costs from a
business combination divided
by total revenues
Net income attributable to
equity holders of the Parent
company divided by average
equity attributable to equity
holders
of
the
Parent
company
36.0%
32.9%
EBITDA margin improved
due to faster increase in
revenues from tuition and
other school fees, the
Group’s main source of
revenues, as compared to
direct and operating costs.
9.1%
13.8%
Gross profit divided by total
revenues
68.4%
68.0%
Current ratio
Current assets divided by
Current liabilities
1.12:1.00
5.46:1.00
Debt to equity
ratio
Total liabilities divided by
Total equity
0.16:1.00
0.05:1.00
Net income attributable to
equity holders of the Parent
Company decreased by 12%
or P96.3 million from
P777.4 million in 2013 to
P681.1 million in 2014.
Meantime,
Equity
attributable
to
equity
holders of the parent
company increased by 33%.
Increase in gross profit
margin resulted mainly
from the increase in the
number of students of STI
ESG and its subsidiaries
from 68,363 last year to
71,195 students this year
resulting
to
increased
revenues from tuition and
other school fees.
The substantial decrease in
current ratio as of March
31, 2014 is due to the
payments
made
for
acquisition of property and
equipment in accordance
with the expansion plan and
payments
for
the
acquisition of WNU.
Slight increase due to
payables to contractors for
building construction and to
former shareholders for
Return
equity
on
Gross
margin
profit
14
WNU acquisition as well as
loans incurred for shortterm
working
capital
requirements.
Financial Risk Disclosure
The Group’s present activities expose it to liquidity risk, credit risk, interest rate risk and equity price
risk.
Liquidity risk – Liquidity risk relates to the possibility that the Group might not be able to settle its
obligations/commitments as they fall due. To cover its financing requirements, the Group uses
internally-generated funds and avails of various bank loans. On November 7, 2012 the Company
received the proceeds from its follow on offering. The usage of funds is in line with the plan as
approved by the SEC and the PSE. There are unutilized funds as of the end of the fiscal year, which
funds are invested in short-term bank deposits that provide flexibility of withdrawing the funds
anytime. The Group regularly evaluates available financial products and monitors market conditions
for opportunities to enhance yields at acceptable risk levels.
Credit risk – Credit risk is the risk that the Group will incur a loss arising from students, franchisees or
counterparties that fail to discharge their contractual obligations. The Group manages and controls
credit risk by setting limits on the amount of risk that the Group is willing to accept for each
counterparty and by monitoring expenses in relation to such limits.
It is STI ESG’s policy to require students to pay all their tuition and other incidental fees before they
can get their report cards and other credentials. Receivable balances are monitored such that
exposure to bad debts is minimal.
STI Holdings’ loan exposure to Unlad and PWU are secured by real estate mortgages which minimize
the credit risk to these institutions.
Agreements/Commitments and Contingencies/Other Matters
a.
There are no changes in accounting estimates used in the preparation of the audited
consolidated financial statements for the current and prior financial periods.
b.
Except for STI Holdings’ commitments under the JVA with PWU, Unlad and a private
individual and under the Shareholders’ Agreement governing the aforementioned parties’
relationship as shareholders of the joint venture company, there are no material off-balance
sheet transactions, arrangements, obligations (including contingent obligations), and other
relationships of the company with unconsolidated entities or other persons created during
the reporting period.
c.
On June 3, 2013, STI ESG executed a deed of pledge on all its shares in the Hospital in favor
of Neptune Stroika Holdings, Inc., a wholly owned subsidiary of MPIC, to cover the indemnity
obligations of STI ESG enumerated in the Investment Agreement with MPIC.
d.
There are no material events and uncertainties known to management that would address
the past and would have an impact on future operations of the Group.
e.
There are no known trends, demands, commitments, events of uncertainties that will have
an impact on the Group’s liquidity except for the contingencies and commitments
15
enumerated in Note 29 of the Notes to Audited Consolidated Financial Statements attached
as Annex “A”.
f.
Except for the conditions set forth in the accession made by STI Holdings to the JVA and
Shareholders’ Agreement between PWU, Unlad, a private individual and Mr. Eusebio H.
Tanco, there are no other events that will trigger direct or contingent financial obligations
that is material to the Group, including any default or acceleration of an obligation.
g.
Construction of school buildings and improvements for STI Batangas, STI Cubao, STI Calamba
and STI Lucena are ongoing as of March 31, 2014. Source of funds for the capital
expenditures are provided by financing and internally-generated funds.
h.
The various loan agreements entered into by the Group provide certain restrictions and
conditions with respect to, among others, change in majority ownership and management
and maintenance of financial ratios. The Group is fully compliant with all the covenants of
the loan agreements. Please see notes 16 and 33 of the Notes to Audited Consolidated
Financial Statements of the Company attached as Annex “A”.
i.
The education landscape in the Philippines has changed with the introduction of the K+ 12
program which in summary adds two (2) years prior to tertiary education. For the schools in
the Philippines that offer tertiary education, similar to STI ESG, this will mean two (2)
academic years with no incoming college freshmen students.
This threat has been constructively converted into an opportunity for the STI ESG network of
campuses nationwide. STI ESG has decided to capitalize on its nationwide presence and
ample facilities to be able to implement the first-to-market approach of the Senior High
School program. Seventy three (73) STI Colleges and Education Center nationwide have
applied for the advance implementation of Senior High School for SY 2014-15 and six (6) STI
campuses for SY 2015-16. The Senior High School offering of STI ESG aims to minimize the
impact of the expected reduction in enrollment since there will be no incoming freshmen
during the transition period from Senior High School to College. Likewise, there is an
opportunity for STI ESG to increase its student retention and migration when the students
graduate in Senior High School and decide to pursue a Baccalaureate degree.
j.
There are no significant elements of income or loss that did not arise from the Group’s
continuing operations.
k.
The Group’s business is linked to the academic cycle. The academic cycle which is one
academic year starts in the month of June and ends in the month of March. The core
business and revenues of the Group, which is mainly from tuition and other school fees, is
recognized as income over the corresponding academic year to which they pertain.
SEC FORM 17-A
A COPY OF THE COMPANY’S ANNUAL REPORT ON SEC FORM 17-A WILL BE PROVIDED,
WITHOUT ANY CHARGE, TO ANY STOCKHOLDER OF THE COMPANY UPON WRITTEN REQUEST
ADDRESSED TO: ATTY. ARSENIO C. CABRERA, JR., CORPORATE SECRETARY, 5th FLOOR, SGV II
BUILDING, 6758 AYALA AVENUE, MAKATI CITY, METRO MANILA, PHILIPPINES 1229.
16
SIGNATURE
Pursuart to the requirements of the Securities Regulation Code, the Company has duly
caused this report to be signed on its behalf by the undersigned hereurto duly authorized.
511 EDUCATION S11S HOLDINGS, INC.
/ Issur,
ARS!NIO C. BRERA, JR.
Corporat Secretary
Date: B Augus: 2014
17
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Tel: (632) 891 0307
Fax: (632) 819 0872
ey.com/ph
BOA/PRC Reg. No. 0001,
December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
STI Education Systems Holdings, Inc.
We have audited the accompanying consolidated financial statements of STI Education Systems
Holdings, Inc. (formerly JTH Davies Holdings, Inc.) and Subsidiaries, which comprise the
consolidated statements of financial position as at March 31, 2014 and 2013, and the consolidated
statements of comprehensive income, statements of changes in equity and statements of cash flows for
each of the three years in the period ended March 31, 2014, and a summary of significant accounting
policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the Philippines as described
in Note 2 to the consolidated financial statements, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated 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 about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
*SGVFS008027*
A member firm of Ernst & Young Global Limited
-2Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of STI Education Systems Holdings, Inc. and its subsidiaries as at March 31, 2014
and 2013, and their financial performance and their cash flows for each of the three years in the period
ended March 31, 2014 in accordance with accounting principles generally accepted in the Philippines
as described in Note 2 to the consolidated financial statements.
SYCIP GORRES VELAYO & CO.
Roel E. Lucas
Partner
CPA Certificate No. 98200
SEC Accreditation No. 1079-AR-1 (Group A),
March 4, 2014, valid until March 3, 2017
Tax Identification No. 191-180-015
BIR Accreditation No. 08-001998-95-2014,
January 22, 2014, valid until January 21, 2017
PTR No. 4225185, January 2, 2014, Makati City
July 9, 2014
*SGVFS008027*
A member firm of Ernst & Young Global Limited
STI EDUCATION SYSTEMS HOLDINGS, INC.
(Formerly JTH Davies Holdings, Inc.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31
2014
April 1
2013
2012
(As restated - Note 2)
ASSETS
Current Assets
Cash and cash equivalents (Notes 6, 30 and 31)
Receivables (Notes 7, 12, 27, 30 and 31)
Inventories (Note 8)
Prepaid expenses and other current assets
(Notes 9, 24, 25, 30 and 31)
Total Current Assets
Noncurrent Assets
Property and equipment (Notes 10, 11 15, 16 and 25)
Investment properties (Notes 11 and 16)
Investments in and advances to associates and joint ventures
(Notes 12, 27, 30 and 31)
Noncurrent receivables (Notes 27, 30 and 31)
Available-for-sale financial assets (Notes 14, 30 and 31)
Deferred tax assets - net (Note 26)
Goodwill, intangible and other noncurrent assets
(Notes 15, 25, 30 and 31)
Total Noncurrent Assets
P1,489,451,909
P
=583,302,563 =
250,773,204
297,350,741
34,740,103
37,833,467
P556,282,842
=
265,915,000
42,143,148
107,001,375
1,025,488,146
37,467,793
1,812,433,009
24,660,884
889,001,874
4,421,253,356
40,197,895
2,635,275,971
39,325,291
1,544,229,394
47,107,290
1,532,051,587
463,978,935
50,599,940
33,103,977
2,897,068,557
463,978,935
4,663,478
8,505,574
1,590,477,010
227,254,574
4,987,638
10,989,343
642,000,576
275,286,520
732,429,451
7,273,615,141 6,690,818,382 3,700,331,769
P8,503,251,391 =
P4,589,333,643
P
=8,299,103,287 =
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and other current liabilities
(Notes 17, 18, 30 and 31)
Short-term loans (Notes 16, 30 and 31)
Nontrade payable (Note 3)
Current portion of long-term debt (Note 16)
Current portion of obligations under finance lease (Note 25)
Income tax payable
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion (Note 16)
Obligations under finance lease - net of current portion
(Note 25)
Pension liabilities (Note 24)
Deferred tax liability (Notes 3 and 26)
Total Noncurrent Liabilities
Total Liabilities (Carried Forward)
P
=517,430,492
180,000,000
151,470,221
49,940,706
7,435,444
5,917,572
912,194,435
P
=320,685,821
–
–
–
6,419,251
5,030,213
332,135,285
P
=301,720,294
746,687,336
–
–
9,741,235
2,015,617
1,060,164,482
58,465,494
–
–
11,430,653
60,875,268
127,967,442
258,738,857
1,170,933,292
13,339,807
22,420,108
–
35,759,915
367,895,200
8,956,367
54,774,132
–
63,730,499
1,123,894,981
*SGVFS008027*
-2-
2014
April 1
2013
2012
P
=1,170,933,292
=367,895,200 P
P
=1,123,894,981
March 31
Total Liabilities (Brought Forward)
Equity Attributable to Equity Holders of the Parent
Company (Note 18)
Capital stock
Additional paid-in capital
Cost of shares held by a subsidiary
Unrealized mark-to-market gain (loss) on available-for-sale
financial assets (Note 14)
Share in associates’ unrealized mark-to-market gain on
available-for-sale financial assets (Note 12)
Cumulative actuarial gain (loss)
Share in associates’ cumulative actuarial gain (loss) (Note 12)
Other equity reserve (Note 3)
Retained earnings:
Appropriated
Unappropriated
Total Equity Attributable to Equity Holders
of the Parent Company
Equity Attributable to Non-controlling Interests
Total Equity
4,952,403,462
1,119,079,467
(500,009,337)
4,952,403,462
1,119,079,467
(500,009,337)
(525,048)
(121,773)
428,253,571 1,905,291,022
21,253,817
18,014,452
(6,845,516)
(15,003,756)
(1,653,497,803) (1,649,448,394)
–
2,690,263,952
800,000,000
1,351,532,167
551,500,000
77,592,234
(500,009,337)
207,684
1,039,792,823
(12,708,006)
2,882,164
648,667,134
800,000,000
668,155,173
7,038,978,960 7,993,134,915 3,276,079,869
142,221,276
189,358,793
89,191,035
7,128,169,995 8,135,356,191 3,465,438,662
P8,503,251,391 =
P4,589,333,643
P
=8,299,103,287 =
See accompanying Notes to Consolidated Financial Statements.
*SGVFS008027*
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
REVENUES
Sale of services:
Tuition and other school fees
Educational services
Royalty fees
Others
Sale of goods Sale of educational materials and supplies
COSTS AND EXPENSES
Cost of educational services (Note 20)
Cost of educational materials and supplies sold
(Note 21)
General and administrative expenses (Note 22)
INCOME BEFORE OTHER INCOME
AND INCOME TAX
OTHER INCOME (EXPENSES)
Equity in net earnings (losses) of associates and joint
ventures (Note 12)
Loss on deemed sale and share swap of an associate
(Note 14)
Excess of fair values of net assets acquired over
acquisition cost from a business combination
(Note 3)
Interest income (Note 19)
Interest expense (Note 19)
Rental income (Notes 11, 25 and 27)
Gain (loss) on sale of:
Property and equipment
Investment properties
Investment in an associate
Available-for-sale financial assets (Note 14)
Dividend and other income
INCOME BEFORE INCOME TAX
(Carried Forward)
2014
Years Ended March 31
2013
2012
P
=1,622,310,418
182,182,989
16,294,660
38,857,459
=1,357,315,423 =
P
P1,272,721,163
177,944,697
168,612,940
15,840,267
16,032,509
64,894,222
68,687,863
58,001,750
1,917,647,276
53,943,516
1,669,938,125
50,732,590
1,576,787,065
553,019,985
485,410,056
481,856,696
53,341,680
838,510,401
1,444,872,066
49,489,639
745,328,724
1,280,228,419
39,537,202
688,262,078
1,209,655,976
472,775,210
389,709,706
367,131,089
232,818,520
428,251,940
(37,574,331)
(43,000,287)
–
–
32,681,078
12,199,579
(10,926,797)
10,792,540
–
34,723,888
(18,831,366)
4,610,690
–
16,198,233
(33,865,444)
5,363,360
706,578
–
–
–
510,329
235,781,540
795,160
(2,306,813)
–
–
440,507
447,684,006
–
–
(1,124,356)
4,679,557
2,877,934
(43,445,047)
708,556,750
837,393,712
323,686,042
*SGVFS008027*
-2-
2014
INCOME BEFORE INCOME TAX
(Brought Forward)
PROVISION FOR (BENEFIT FROM) INCOME
TAX (Note 26)
Current
Deferred
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Items to be reclassified to profit or loss in subsequent
years:
Share in associates’ unrealized mark-to-market gain
(loss) on available-for-sale financial assets, net of
realized mark-to-market gain recognized to profit
or loss (Note 12)
Unrealized mark-to-market loss on available-for-sale
Realized mark-to-market gain on available-for-sale
financial assets recognized to profit or loss
(Note 14)
Items not to be reclassified to profit or loss in subsequent
years:
Share in associates’ remeasurement gain (loss) on
pension liability (Notes 2 and 12)
Remeasurement gain (loss) on pension liability
(Notes 2 and 24)
Income tax effect (Note 2)
TOTAL COMPREHENSIVE INCOME (LOSS)
Net Income Attributable To
Equity holders of the Parent Company
Non-controlling interests
Total Comprehensive Income Attributable To
Equity holders of the Parent Company
Basic/Diluted Earnings Per Share on Net Income
Attributable to Equity Holders of the Parent
Company (Note 28)
P
=708,556,750
70,633,909
(17,275,026)
53,358,883
2013
2012
P
=837,393,712
44,333,135
(1,380,231)
42,952,904
P
=323,686,042
28,388,054
3,839,271
32,227,325
655,197,867
794,440,808
291,458,717
(1,496,110,186)
846,474,380
909,831,490
(409,190)
–
(1,496,519,376)
(324,160)
–
846,150,220
(2,708,603)
(4,679,557)
902,443,330
(8,272,379)
(9,938,783)
3,003,867
(3,732,410)
411,355
(11,593,434)
38,640,001
(3,864,000)
24,837,218
(14,716,241)
1,471,624
(10,240,750)
(P
=852,914,943)
P
=1,665,428,246
P
=1,183,661,297
P
=681,123,230
(25,925,363)
P
=655,197,867
=777,415,889
P
17,024,919
=794,440,808
P
=287,028,095
P
4,430,622
=291,458,717
P
(P
=807,556,959)
(45,357,984)
(P
=852,914,943)
=1,630,224,880
P
35,203,366
=1,665,428,246
P
=1,143,096,185
P
40,565,112
=1,183,661,297
P
P
=0.069
P
=0.096
P
=0.044
See accompanying Notes to Consolidated Financial Statements.
*SGVFS008027*
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED MARCH 31, 2014, 2013 AND 2012
Equity Attributable to Equity Holders of the Parent Company
Capital Stock
Additional
Paid-in Capital
Unrealized
Mark-to-Market
Gain (Loss) on
AvailableCost of Shares
Held by for-Sale Financial
a Subsidiary
Assets
Balance at April 1, 2013
Effect of change in accounting policy on employee
benefits (see Note 3)
Balance at April 1, 2013, as restated
Net income
Other comprehensive loss
Total comprehensive income (loss)
Reversal of appropriation of retained earnings (Note
18)
Dividend declaration (Note 18)
Reallocation of non-controlling interests (Note 3)
Share of non-controlling interest on dividends declared
by a subsidiary (Note 18)
=
P4,952,403,462
=
P1,119,079,467
(P
= 500,009,337)
(P
= 121,773)
–
4,952,403,462
–
–
–
–
1,119,079,467
–
–
–
–
(500,009,337)
–
–
–
–
(121,773)
–
(403,884)
(403,884)
–
–
–
–
–
–
–
–
Balance at March 31, 2014
=
P4,952,403,462
=
P1,119,079,467
(P
= 500,009,337)
(P
= 525,048)
=551,500,000
P
=77,592,234
P
(P
=500,009,337)
–
551,500,000
–
77,592,234
–
(500,009,337)
2,950,903,462
1,450,000,000
–
–
–
–
–
–
1,041,487,233
–
–
–
–
–
–
–
–
–
–
–
–
–
=4,952,403,462
P
–
=1,119,079,467
P
Effect of change in accounting policy on employee
benefits (see Note 3)
Issuance of shares through Share Swap
(Notes 1, 3 and 18)
Issuance of shares through offering (Notes 1 and 18)
Net income
Other comprehensive income (loss)
Acquisition of non-controlling interests (Note 3)
Balance at March 31, 2013
–
–
–
–
–
(P
=500,009,337)
–
–
609
–
Share in
Associates’
Unrealized
Mark-to-Market
Gain on
Availablefor-Sale
Financial
Assets
=
P1,905,291,022
Cumulative
Actuarial
Gain (Loss)
=
P–
–
1,905,291,022
–
(1,476,876,802)
(1,476,876,802)
21,253,817
21,253,817
–
(3,232,884)
(3,232,884)
–
–
(160,649)
–
–
(6,481)
Share in
Associates’
Cumulative
Actuarial
Gain (Loss)
=
P–
(6,845,516)
(6,845,516)
–
(8,166,619)
(8,166,619)
–
–
8,379
–
–
=
P428,253,571
=
P18,014,452
=207,684
P
=1,039,792,823
P
=
P–
=
P–
–
207,684
–
1,039,792,823
(12,708,006)
(12,708,006)
2,882,164
2,882,164
–
–
–
(306,875)
(306,875)
–
(22,582)
–
–
–
828,598,831
828,598,831
–
36,899,368
–
–
–
34,327,694
34,327,694
–
(365,871)
–
–
–
(9,810,659)
(9,810,659)
–
82,979
–
(P
=121,773)
–
=1,905,291,022
P
–
(P
=6,845,516)
–
=21,253,817
P
–
(P
= 15,003,756)
Other Equity
Reserve
Retained Earnings
Appropriated Unappropriated
=
P800,000,000
–
(1,649,448,394)
–
–
–
–
800,000,000
–
–
–
(322,336)
1,351,532,167
681,123,230
–
681,123,230
14,085,965
7,993,134,915
681,123,230
(1,488,680,189)
P(807,556,959)
(800,000,000)
–
–
800,000,000
(142,391,445)
–
–
(142,391,445)
(4,207,551)
–
–
(4,049,409)
–
=
P1,351,854,503
Total
(P
= 1,649,448,394)
=
P7,979,048,950
Equity
Attributable
to NonControlling
Interests
=
P142,037,319
183,957
142,221,276
(25,925,363)
(19,432,621)
(45,357,984)
–
–
3,354,426
14,269,922
8,135,356,191
655,197,867
(1,508,112,810)
(852,914,943)
–
(142,391,445)
(853,125)
–
–
–
=
P–
=
P2,690,263,952
=
P7,038,978,960
=
P89,191,035
=
P7,128,169,995
=648,667,134
P
=800,000,000
P
=668,670,934
P
=3,286,421,472
P
=189,795,480
P
=3,476,216,952
P
–
648,667,134
–
800,000,000
(515,761)
668,155,173
(10,341,603)
3,276,079,869
(436,687)
189,358,793
(10,778,290)
3,465,438,662
(2,367,194,841)
–
–
–
–
–
69,079,313
–
–
–
–
–
–
–
–
–
777,415,889
–
777,415,889
(94,024,046)
(14,849)
583,708,621
2,491,487,233
777,415,889
852,808,991
1,630,224,880
(94,024,046)
105,658,358
25,302,729
–
17,024,919
18,178,447
35,203,366
–
(105,658,358)
609,011,350
2,491,487,233
794,440,808
870,987,438
1,665,428,246
(94,024,046)
–
–
(P
=1,649,448,394)
–
=800,000,000
P
(1,985,254)
=142,221,276
P
(1,985,254)
=8,135,356,191
P
(P
= 1,653,497,803)
–
=1,351,532,167
P
–
=7,993,134,915
P
(11,026,683)
Total Equity
=
P8,121,086,269
(11,026,683)
*SGVFS008027*
-2-
Equity Attributable to Equity Holders of the Parent Company
Unrealized
Mark-to-Market
Gain (Loss) on
Cost of Shares
AvailableHeld by for-Sale Financial
a Subsidiary
Assets
Share in
Associates’
Unrealized
Mark-to-Market
Gain on
Availablefor-Sale
Financial
Assets
Cumulative
Actuarial
Gain
Share in
Associate’s
Cumulative
Actuarial
Gain
Other Equity
Reserve
Total
Equity
Attributable
to NonControlling
Interests
Total Equity
Capital Stock
Additional
Paid-in Capital
Restatement arising from business combination under
common control (see Note 3)
Issuance of shares
Subscription of the Parent Company's shares by a
subsidiary
Net income
Appropriation of retained earnings (Note 18)
Movement in equity adjustment
Transaction with non-controlling interest through:
Subscription of shares of a subsidiary
Redemption of treasury shares by a subsidiary
=153,591,106
P
=
P–
=
P–
=7,283,059
P
=166,823,516
P
=
P–
=
P–
=727,367,827
P
=–
P
=1,186,716,570
P
=2,241,782,078
P
=226,846,960
P
=2,468,629,038
P
–
153,591,106
397,908,894
–
–
77,592,234
–
–
–
–
7,283,059
–
–
166,823,516
–
–
–
–
–
–
–
–
727,367,827
–
–
–
–
554,152
1,187,270,722
–
554,152
2,242,336,230
475,501,128
23,399
226,870,359
–
577,551
2,469,206,589
475,501,128
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7,075,375)
(7,075,375)
–
–
–
–
–
872,969,307
872,969,307
–
–
–
(500,009,337)
287,028,095
856,068,090
1,143,096,185
(6,143,644)
–
(80,811,543)
–
4,430,622
36,134,490
40,565,112
–
–
–
(500,009,337)
291,458,717
892,202,580
1,183,661,297
(6,143,644)
–
(80,811,543)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,110,850
–
–
–
–
–
2,110,850
–
(2,110,850)
(3,965,828)
–
(3,965,828)
–
–
–
–
–
–
–
–
–
–
–
(72,000,000)
(72,000,000)
Balance at March 31, 2012, as restated
=551,500,000
P
=77,592,234
P
(P
=500,009,337)
=207,684
P
=1,039,792,823
P
=2,882,164
P
=648,667,134
P
=800,000,000
P
=668,155,173
P
=3,276,079,869
P
(500,009,337)
–
–
–
–
–
–
–
–
(12,708,006)
(12,708,006)
(P
=12,708,006)
–
–
2,882,164
2,882,164
–
–
–
–
–
–
–
–
–
(80,811,543)
Retained Earnings
Appropriated Unappropriated
–
–
–
–
–
800,000,000
–
–
287,028,095
–
287,028,095
(6,143,644)
(800,000,000)
–
=189,358,793
P
=3,465,438,662
P
See accompanying Notes to Consolidated Financial Statements
*SGVFS008027*
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2013
2012
2014
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Equity in net losses (earnings) of associates and joint ventures
(Note 12)
Depreciation and amortization (Notes 10, 11 and 15)
Loss on deemed sale and share swap of an associate
(Note 14)
Excess of fair values of net assets acquired over acquisition
costs (Note 3)
Interest income (Notes 19)
Interest expense (Note 19)
Pension expense (Note 24)
Provision for (reversal of) impairment losses on:
Investment in and advances to an associate
Goodwill
Loss (gain) on sale of:
Available-for-sale financial assets
Dividend income
Operating income before working capital changes
Decrease (increase) in:
Receivables
Inventories
Decrease in accounts payable and other current liabilities
Contributions to plan assets
Net cash generated from operations
Income and other taxes paid
Interest received
Net cash flows provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Property and equipment (Note 10)
Subsidiary, net of cash acquired
Intangible assets
Decrease (increase) in:
Goodwill, intangible and other noncurrent assets
Noncurrent receivables
P
=708,556,750
=837,393,712
P
=323,686,042
P
(232,818,520)
205,551,974
(428,251,940)
156,430,779
37,574,331
144,450,351
43,000,287
(32,681,078)
(12,199,579)
10,926,797
10,133,891
(719,873)
–
–
–
–
(34,723,888)
18,831,366
19,256,755
–
(16,198,233)
33,865,444
5,151,804
4,120,636
–
3,047,124
3,383,556
(706,578)
–
–
–
(510,329)
698,533,742
(795,160)
–
–
2,306,813
(440,507)
574,128,566
–
(4,679,557)
1,124,356
–
(2,835,783)
528,569,435
12,319,381
(2,949,649)
(4,452,498)
(103,970,320)
(20,244,897)
579,235,759
(134,479,338)
9,613,127
454,369,548
(39,846,971)
7,403,045
(14,759,440)
(27,126,618)
(12,970,779)
486,827,803
(37,928,948)
11,258,718
460,157,573
437,716,452
(7,732,531)
(11,392,828)
(21,432,295)
(7,733,288)
917,994,945
(24,562,000)
7,437,611
900,870,556
(1,049,885,679) (1,539,623,771)
–
(200,913,272)
–
(24,577,384)
–
(19,519,759)
–
(3,981,559)
–
–
(255,301,730)
–
–
(80,811,545)
(3,096,000)
(7,951,224)
(13,244,087)
(223,998,027)
(34,447,337)
21,089,801
(223,979,084)
(65,656,047)
24,346,108
–
(Forward)
*SGVFS008027*
-2Years Ended March 31
2013
2012
2014
Dividends received
Interest received
Proceeds from sale of:
Proceeds from deposit for future stock subscription of noncontrolling interests
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from availments of long-term debts
Dividends paid
Payments of:
Short-term loans
Long-term debts
Obligations under finance lease
Dividends to non-controlling interest
Interest
Proceeds from:
Issuance of capital stock
Issuance of subsidiary’s shares
Availments of short-term loans (Note 16)
Sale of treasury shares by a subsidiary
Acquisition of the Parent Company’s shares by STI ESG
Redemption of treasury shares by a subsidiary
Net cash flows provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
P
=8,117,279
2,812,228
P14,371,696
=
10,599,965
P4,787,881
=
6,237,344
1,798,746
–
–
–
1,967,660
–
–
3,500,000
–
48,013,237
2,335,480
–
39,475
(1,327,419,864)
–
(1,754,377,788)
–
(515,171,953)
280,000,000
(153,170,255)
–
(101,017,657)
–
(6,105,785)
(100,000,000)
(40,677,196)
(8,291,192)
(7,869,976)
(3,090,411)
(1,285,687,336)
–
(6,572,944)
–
(18,831,366)
(913,000,000)
–
(1,016,625)
(72,000,000)
(30,719,156)
–
–
–
–
–
–
(33,099,030)
2,475,977,202
608,807,586
539,000,000
15,713,797
–
–
2,227,389,282
475,501,128
–
746,000,000
–
(500,009,337)
(3,965,828)
(305,315,603)
(906,149,346)
933,169,067
80,383,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
1,489,451,909
556,282,842
475,899,842
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 6)
P
=583,302,563
P
=1,489,451,909
P
=556,282,842
See accompanying Notes to Consolidated Financial Statements..
*SGVFS008027*
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
a. General
STI Education Systems Holdings, Inc. (formerly JTH Davies Holdings, Inc., “STI Holdings”
or the “Parent Company”) and its subsidiaries (hereafter collectively referred to as the
“Group”) are all incorporated in the Philippines and registered with the Philippine Securities
and Exchange Commission (“SEC”). STI Holdings was originally established in 1928 as the
Philippine branch office of Theo H. Davies & Co., a Hawaiian corporation. It was
reincorporated as a Philippine corporation and registered with the SEC on June 28, 1946. STI
Holdings’ shares were listed on the Philippine Stock Exchange (“PSE”) on October 12, 1976.
On June 25, 1996, the SEC approved the extension of the Parent Company’s corporate life for
another 50 years. The primary purpose of the Parent Company is to invest in, purchase or
otherwise acquire and own, hold, use, sell, assign, transfer, lease, mortgage, pledge, exchange,
or otherwise dispose of real properties as well as personal and movable property of any kind
and description, including shares of stock, bonds, debentures, notes, evidence of indebtedness
and other securities or obligations of any corporation or corporations, association or
associations, domestic or foreign and to possess and exercise in respect thereof all the rights,
powers and privileges of ownership, including all voting powers of any stock so owned, but
not to act as dealer in securities and to invest in and manage any company or institution. STI
Holdings aims to focus on education and education-related activities and investments.
STI Holdings’ registered office address, which is also its principal place of business, is at 7/F,
iAcademy Building, 6764 Ayala Avenue, Makati City.
b. Change in ownership of STI Holdings
i) STI Education Services Group, Inc. (“STI ESG”) and Capital Managers and Advisors,
Inc. (“CMA”) owns 45.54% and 45.50%, respectively, of STI Holdings’ shares as of
March 31, 2012 (see Note 18).
On June 14, 2012 and August 10, 2012, the Board of Directors (“BOD”) and stockholders
of STI Holdings, respectively, approved the following: (i) change in its corporate name to
STI Education Systems Holdings, Inc., (ii) the share-for-share swap agreement (“Share
Swap”) with the shareholders of STI ESG (“STI ESG Stockholders”) and (iii) the
corresponding increase in its authorized capital stock from 1,103,000,000 shares with an
aggregate par value of P
=551.5 million to 10,000,000,000 shares with an aggregate par
value of =
P5,000.0 million (see Notes 3 and 18). The change in corporate name was
approved by the SEC on September 10, 2012 while the Share Swap agreement and
increase in the authorized capital stock were approved on September 28, 2012.
In view of the increase in its authorized capital stock and pursuant to the Share Swap, STI
Holdings issued 5,901,806,924 shares to STI ESG Stockholders in exchange for
907,970,294 STI ESG shares. As a result, immediately after the Share Swap, the STI
ESG Stockholders who joined the Share Swap owned approximately 84% interest in STI
Holdings while STI Holdings owned 96% of STI ESG (see Notes 3 and 18).
*SGVFS008027*
-2ii) On August 28, 2012, the BOD approved the offering and issuance by way of a follow-on
offering of up to a maximum 3,000,000,000 common shares (the “Offer”) at an offer price
to be determined based on a bookbuilding process and from discussion between STI
Holdings and the International Lead Manager and Domestic Lead Manager. The Offer
comprised of the following: (i) up to 2,627,000,000 common shares offered to the public
on a primary basis (“Primary Offering”); (ii) up to 105,209,527 common shares offered to
the public on a secondary basis by Korea Merchant Banking Corporation (“Secondary
Offering”); and (iii) over-allotment option to purchase up to 273,000,000 common shares
(“Over-allotment Option”), granted to UBS AG, in its role as Stabilizing Agent, on the
same terms and conditions as the Primary Offering and Secondary Offering. The offer
price was set at =
P0.90 per share on October 22, 2012. The Primary Offering and
Secondary Offering were completed on November 7, 2012 while the Over-allotment
Option was exercised on November 28, 2012 (see Note 18).
iii) In November and December 2012, STI Holdings subscribed to 2,100,000,000 STI ESG
shares at a consideration price equal to its par value of P
=2,100.0 million. In July 2013,
STI Holdings acquired additional 328,125 STI ESG shares. As a result, STI Holdings’
ownership interest in STI ESG is approximately 99% as of March 31, 2014 and 2013.
c. STI Education Services Group, Inc. and Subsidiaries (collectively referred to as “STI ESG”)
The Group has investments in several entities which own and operate STI ESG schools. STI
ESG is involved in establishing, maintaining, and operating educational institutions to provide
pre-elementary, elementary, secondary, and tertiary as well as post-graduate courses, postsecondary and lower tertiary non-degree programs. STI ESG also develops, adopts and/or
acquires, entirely or in part, such curricula or academic services as may be necessary in the
pursuance of its main activities, relating but not limited to information technology services,
information technology-enabled services, nursing, education, hotel and restaurant
management, engineering, business studies and care-giving. Other activities of STI ESG
include computer services, such as, but not limited to, programming, systems design and
analysis, feasibility studies, installation support, job processing, consultancy, and other related
activities.
d. West Negros University Corp. (“WNU”)
WNU owns and operates West Negros University in Bacolod City. It offers pre-elementary,
elementary, secondary and tertiary education and graduate courses. On October 1, 2013, the
Parent Company acquired 99.45% of the issued and outstanding common shares and 99.93%
of the issued and outstanding preferred shares of WNU. As a result, WNU became a
subsidiary of STI Holdings as of March 31, 2014 (see Note 3).
On July 9, 2014, WNU’s BOD approved WNU’s change of its corporate name to “STI West
Negros University.” The said amendment is to be submitted for approval of WNU’s
stockholders during its Annual Stockholders’ Meeting on July 25, 2014.
The accompanying consolidated financial statements were approved and authorized by the BOD
of STI Holdings on July 9, 2014.
*SGVFS008027*
-3-
2. Basis of Preparation, Basis of Consolidation, Changes to the Group’s Accounting Policies
and Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements have been prepared on a historical cost basis,
except for certain available-for-sale (“AFS”) financial assets which have been measured at fair
value. The consolidated financial statements are presented in Philippine peso, which is the Parent
Company’s functional and presentation currency, and all values are rounded to the nearest peso,
except when otherwise indicated.
Statement of Compliance
The accompanying consolidated financial statements of the Group have been prepared in
accordance with accounting principles generally accepted in the Philippines, which includes all
applicable Philippine Financial Reporting Standards (PFRS). PFRS also include Philippine
Accounting Standards (PAS) and Philippine Interpretations based on equivalent interpretations
from the International Financial Reporting Interpretations Committee (IFRIC) adopted by the
Philippine Financial Reporting Standards Council (FRSC), and the accounting standards set forth
in the Pre-Need Rule 31, As Amended: Accounting Standards for Pre-Need Plans and Pre-Need
Uniform Chart of Accounts (PNUCA) as required by the SEC for PhilPlans First, Inc. (PhilPlans).
PhilPlans is a wholly owned subsidiary of STI Investments, Inc. (“STI Investments”), an associate.
Consequently, the consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the Philippines.
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Parent Company
and its subsidiaries as at March 31, 2014 and 2013. Control is achieved when the Group is
exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee.
Specifically, the Parent Company controls an investee, if and only if, the Parent Company has:
§ Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee)
§ Exposure, or rights, to variable returns from its involvement with the investee, and
§ The ability to use its power over the investee to affect its returns
When the Parent Company has less than a majority of the voting or similar rights of an investee,
the Parent Company considers all relevant facts and circumstances in assessing whether it has
power over an investee, including:
§ The contractual arrangement with the other vote holders of the investee
§ Rights arising from other contractual arrangements
§ The Parent Company’s voting rights and potential voting rights
The consolidated financial statements include the accounts of STI College Kalookan, Inc.
(STI-Kalookan) and STI College of Novaliches, Inc. (STI-Novaliches), which are both non-stock
corporations wherein the Parent Company has control by virtue of management contracts.
The Parent Company re-assesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control. Consolidation of a
subsidiary begins when the Parent Company obtains control over the subsidiary and ceases when
the Parent Company loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the consolidated statement of
*SGVFS008027*
-4comprehensive income from the date the Parent Company gains control until the date the Parent
Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the
equity holders of the Parent Company and to the non-controlling interests, even if this results in
the non-controlling interests having a deficit balance. When necessary, adjustments are made to
the financial statements of subsidiaries to bring their accounting policies into line with the Group’s
accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows
relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. If the Parent Company loses control over a subsidiary, it:
§
§
§
§
§
§
§
Derecognizes the assets (including goodwill) and liabilities of the subsidiary;
Derecognizes the carrying amount of any non-controlling interest;
Derecognizes the unrealized other comprehensive income deferred in equity;
Recognizes the fair value of the consideration received;
Recognizes the fair value of any investment retained;
Recognizes any surplus or deficit in profit or loss; and
Reclassifies the Parent Company’s share of components previously recognized in other
comprehensive income to profit or loss or retained earnings, as appropriate.
As at March 31, 2014 and 2013, subsidiaries of STI Holdings include:
Subsidiary
STI ESG
WNU(a)
Information and Communications Technology
Academy, Inc. (iAcademy)
STI College Tuguegarao, Inc. (STI-Tuguegarao)
STI-Kalookan (b)
STI-Novaliches (b)
STI College of Batangas, Inc. (STI-Batangas)(c)
STI Dagupan, Inc. (STI-Dagupan)
STI College Taft, Inc. (STI-Taft)
De Los Santos - STI College
STI College Quezon Avenue, Inc. (STI-QA)(d)
(a)
Principal Activities
Educational Institution
Effective Percentage of Ownership
2013
2014
Direct Indirect Direct Indirect
–
99
–
99
–
–
–
99
–
–
–
–
–
–
–
–
100
100
100
100
100
77
75
52
52
–
–
–
–
–
–
–
–
100
100
100
100
–
77
75
52
52
Became a subsidiary of the Parent Company in October 2013
A subsidiary of STI ESG through a management contract
(c)
Became a subsidiary of STI ESG in June 2013
(d)
A wholly owned subsidiary of De Los Santos - STI College
(b)
On December 9, 2010, STI ESG’s stockholders approved the following mergers:
§
Phase 1: The merger of three (3) majority owned schools and fourteen (14) wholly owned
schools with STI ESG, with STI ESG as the surviving entity. The Phase 1 merger was
approved by the Commission on Higher Education (CHED) and the SEC on March 15, 2011
and May 6, 2011, respectively.
§
Phase 2: The merger of one (1) majority owned school and eight (8) wholly owned preoperating schools with STI ESG, with STI ESG as the surviving entity. The Phase 2 merger
was approved by the CHED and the SEC on July 18, 2011 and August 31, 2011, respectively.
*SGVFS008027*
-5As at July 9, 2014, STI ESG’s request for confirmatory ruling on the tax-free merger from the BIR
is still pending.
On September 25, 2013, STI ESG’s BOD approved the Phase 3 merger whereby STI-Taft and
STI-Dagupan will be merged with STI ESG, with STI ESG as the surviving entity. As at July 9,
2014, STI ESG has not filed for approval from the CHED and the SEC.
On the same date, STI ESG’s BOD approved an amendment to the Phase 1 and 2 mergers
whereby STI ESG would issue shares at par value, to the stockholders of the non-controlling
interests. As at July 9, 2014, the amendment is pending approval by the SEC. In 2014, STI ESG
issued additional shares at par value to the stockholders of one of the merged schools (see Note 3).
Accounting Policies of Subsidiaries. The financial statements of subsidiaries are prepared using
uniform accounting policies for like transactions and other events in similar circumstances.
The consolidated financial statements include the accounts of the Parent Company and its
subsidiaries as at March 31 of each year, except for the accounts of STI-Dagupan,
STI-Tuguegarao, STI-Kalookan and STI-Novaliches whose financial reporting date ends on
December 31. Adjustments are made for the effects of significant transactions or events that occur
between the financial reporting date of the above-mentioned subsidiaries and the financial
reporting date of the Group’s consolidated financial statements.
Non-Controlling Interests. Non-controlling interests represent the portion of profit or loss and net
assets in the subsidiaries not held by the Parent Company and are presented in the profit or loss
and within equity in the consolidated statement of financial position, separately from equity
attributable to equity holders of the Parent Company.
On transactions with non-controlling interests without loss of control, the difference between the
fair value of the consideration and the book value of the share in the net assets acquired or
disposed is treated as an equity transaction and is presented as part of “Other equity reserve”
within equity section in the consolidated statement of financial position.
Changes in Accounting Policies, Disclosures and Presentation
The accounting policies adopted are consistent with those of the previous financial year, except for
the adoption of the new and amended PFRS that became effective beginning on or after April 1,
2012. The changes introduced by such new standards and amendments are as follows:
§
PAS 19, Employee Benefits (Revised)
For defined benefit plans, the Revised PAS 19 requires all actuarial gains and losses to be
recognized in OCI and unvested past service costs previously recognized over the average
vesting period to be recognized immediately in profit or loss when incurred.
Prior to the adoption of the Revised PAS 19, the Group recognized actuarial gains and losses
as income or expense when the net cumulative unrecognized gains and losses for each
individual plan at the end of the previous period exceeded 10% of the higher of the defined
benefit obligation and the fair value of the plan assets and recognized unvested past service
costs as an expense on a straight-line basis over the average vesting period until the benefits
become vested. Upon adoption of the Revised PAS 19, the Group changed its accounting
policy to recognize all actuarial gains and losses in OCI and all past service costs in profit or
loss in the period they occur.
*SGVFS008027*
-6The Revised PAS 19 replaced the interest cost and expected return on plan assets with the
concept of net interest on defined benefit liability or asset which is calculated by multiplying
the net balance sheet defined benefit liability or asset by the discount rate used to measure the
employee benefit obligation, each as at the beginning of the annual period.
The Revised PAS 19 also amended the definition of short-term employee benefits and requires
employee benefits to be classified as short-term based on expected timing of settlement rather
than the employee’s entitlement to the benefits. In addition, the Revised PAS 19 modifies the
timing of recognition for termination benefits. The modification requires the termination
benefits to be recognized at the earlier of when the offer cannot be withdrawn or when the
related restructuring costs are recognized.
Changes to the definition of short-term employee benefits and timing of recognition for
termination benefits do not have any impact to the Group’s financial position and financial
performance.
The changes in accounting policies have been applied retrospectively. The effects of adoption
on the consolidated financial statements are as follows:
March 31,
2013
Increase (Decrease)
April 1,
2012
(P
=16,763,469)
(1,063,180)
(11,012,937)
18,014,444
(P
=8,250,819)
(2,502,305)
(25,023,046)
21,253,817
P
=2,036,863
1,423,906
14,239,059
(12,708,006)
(15,003,756)
(9,685,354)
(6,845,516)
(322,336)
2,882,164
(515,761)
(139,046)
183,957
(436,687)
March 31,
2014
Consolidated Statements of
Financial Position
Investments in and advances to associates
and joint ventures
Deferred tax asset
Pension liabilities
Cumulative actuarial gain
Share in associates’ cumulative actuarial
gain
Retained earnings
Equity attributable to non-controlling
interests
For the Years Ended March 31
2014
2013
Increase (Decrease)
Consolidated Statements of
Comprehensive Income
Pension expense
Equity in net earnings of associates and
joint ventures
Provision for deferred income tax
Net income
Other comprehensive income:
Share in associates’ remeasurement
gain (loss) on pension liability
Remeasurement gain (loss) on
pension liability
Income tax effect
=10,277,699
P
2012
(P
=622,103)
=164,541
P
(240,271)
(1,027,769)
(9,490,200)
(348,899)
62,210
210,994
(967,004)
(16,454)
(1,115,091)
(8,272,379)
(9,938,783)
3,003,867
(3,732,410)
411,355
38,640,001
(3,864,000)
(14,716,241)
1,471,624
*SGVFS008027*
-7The adoption did not have any significant impact on the consolidated statements of cash
flows.
§
Philippine Interpretations Committee (PIC) Q&A No. 2013-03, PAS 19, Accounting for
Employee Benefits under a Defined Contribution Plan subject to Requirements of RA No.
7641, The Philippine Retirement Law.
This PIC Q&A seeks to provide guidance in accounting for post-employment benefits for an
entity which has opted to provide a defined contribution plan as its only post-employment
benefit plan despite the minimum retirement benefits required to be provided to employees
under RA No. 7641. The benefits mandated under RA No. 7641 are considered as a minimum
benefit guarantee for qualified private sector employees in the Philippines. Hence, an entity’s
obligation for post-employment benefits is not limited to the amount it agrees to contribute to
the fund. Therefore, the entity’s retirement plan shall be accounted for as a defined benefit
plan. The relevant disclosure requirements of PAS 19 for a defined benefit plan should be
complied with. In addition, the accounting policy describing the accounting treatment for
such a plan should also be disclosed in the notes to financial statements. The defined
contribution liability shall be recognized, and if there is an excess of the projected defined
benefit obligation over the projected defined contribution obligation, the entity should apply
the projected unit credit method on such excess to determine the additional liability. The PIC
Q&A is effective for annual financial statements beginning on or after January 1, 2013 and
requires retrospective application.
Certain subsidiaries of the Group maintain a defined contribution plan that covers all regular
full time employees under which they pay fixed contributions based on the employees’
monthly salaries. These entities, however, are covered under RA 7641, which provides a
defined benefit minimum guarantee.
The Group obtained the services of an external actuary to compute the impact on the
consolidated financial statements upon adoption of the accounting interpretation and has
determined that it did not have a significant impact on the consolidated financial statements.
§
PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial
Liabilities (Amendments)
These amendments require an entity to disclose information about rights of set-off and related
arrangements (such as collateral agreements). The new disclosures are required for all
recognized financial instruments that are set off in accordance with PAS 32. These disclosures
also apply to recognized financial instruments that are subject to an enforceable master netting
arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance
with PAS 32. The amendments require entities to disclose, in a tabular format unless another
format is more appropriate, the following minimum quantitative information. This is presented
separately for financial assets and financial liabilities recognized at the end of the reporting
period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities;
b) The amounts that are set off in accordance with the criteria in PAS 32 when determining
the net amounts presented in the consolidated statement of financial position;
c) The net amounts presented in the consolidated statement of financial position;
d) The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in (b) above, including:
*SGVFS008027*
-8i. Amounts related to recognized financial instruments that do not meet some or all of
the offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments to PFRS 7 are to be retrospectively applied. The amendments have no
impact on the Group’s financial position or performance.
§
PFRS 10, Consolidated Financial Statements
PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements,
that addresses the accounting for consolidated financial statements. It also includes the issues
raised in SIC 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single
control model that applies to all entities including special purpose entities. The changes
introduced by PFRS 10 required management to exercise significant judgment to determine
which entities are controlled, and therefore, are required to be consolidated by a parent,
compared with the requirements that were in PAS 27.
A reassessment of control was performed by the Group on all its subsidiaries and associates in
accordance with the provisions of PFRS 10. Following the reassessment and based on the
new definition of control under PFRS 10, the Group determined that the adoption of this
standard does not change its relationship over its subsidiaries and associates, therefore, has no
impact on the Group’s financial position or performance.
§
PFRS 11, Joint Arrangements
PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities
- Non-Monetary Contributions by Venturers. PFRS 11 removes the option to account for
jointly controlled entities using proportionate consolidation. Instead, jointly controlled entities
that meet the definition of a joint venture must be accounted for using the equity method.
There is no impact on the Group’s financial position or performance since its investments in
joint ventures are accounted for under equity method in its consolidated financial statements.
§
PFRS 12, Disclosure of Involvement with Other Entities
PFRS 12 includes all of the disclosures related to consolidated financial statements that were
previously in PAS 27, as well as all the disclosures that were previously included in PAS 31
and PAS 28, Investments in Associates. These disclosures relate to an entity’s interests in
subsidiaries, joint arrangements, associates and structured entities. A number of new
disclosures are also required. The adoption of PFRS 12 will affect disclosures only and have
no impact on the Group’s financial position or performance.
§
PFRS 13, Fair Value Measurement
PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements.
PFRS 13 does not change when an entity is required to use fair value, but rather provides
guidance on how to measure fair value under PFRS when fair value is required or permitted.
This standard should be applied prospectively as of the beginning of the annual period in
which it is initially applied. Its disclosure requirements need not be applied in comparative
information provided for periods before initial application of PFRS 13. Additional disclosures
were provided in Notes 11 and 31.
*SGVFS008027*
-9§
PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive
Income or OCI (Amendments)
The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be
reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon
derecognition or settlement) will be presented separately from items that will never be
recycled. The amendments affected presentation only and had no impact on the Group’s
financial position or performance.
§
PAS 27, Separate Financial Statements (as revised in 2011)
As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27
is limited to accounting for subsidiaries, jointly controlled entities, and associates in the
separate financial statements. The adoption of the amended PAS 27 had no a significant
impact on the separate financial statements of the entities in the Group.
§
PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)
As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been
renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application
of the equity method to investments in joint ventures in addition to associates. The adoption
of the revised standard did not have a significant impact on the consolidated financial
statements.
§
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
This interpretation applies to waste removal (stripping) costs incurred in surface mining
activity, during the production phase of the mine. The interpretation addresses the accounting
for the benefit from the stripping activity. This new interpretation is not relevant to the Group.
§
PFRS 1, First-time Adoption of International Financial Reporting Standards – Government
Loans (Amendments)
The amendments to PFRS 1 require first-time adopters to apply the requirements of PAS 20,
Accounting for Government Grants and Disclosure of Government Assistance, prospectively
to government loans existing at the date of transition to PFRS. However, entities may choose
to apply the requirements of PAS 39, Financial Instruments: Recognition and Measurement,
and PAS 20 to government loans retrospectively if the information needed to do so had been
obtained at the time of initially accounting for those loans. These amendments are not
relevant to the Group.
Annual Improvements to PFRS (2009-2011 cycle). The Annual Improvements to PFRSs (20092011 cycle) contain non-urgent but necessary amendments to PFRSs. The Group adopted these
amendments for the current year.
§
PFRS 1, First-time Adoption of PFRS – Borrowing Costs - The amendment clarifies that, upon
adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous
generally accepted accounting principles, may carry forward, without any adjustment, the
amount previously capitalized in its opening statement of financial position at the date of
transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance
with PAS 23, Borrowing Costs. The amendment does not apply to the Group as it is not a
first-time adopter of PFRS.
*SGVFS008027*
- 10 §
PAS 1, Presentation of Financial Statements – Clarification of the requirements for
comparative information - These amendments clarify the requirements for comparative
information that are disclosed voluntarily and those that are mandatory due to retrospective
application of an accounting policy, or retrospective restatement or reclassification of items in
the financial statements. An entity must include comparative information in the related notes
to the financial statements when it voluntarily provides comparative information beyond the
minimum required comparative period. The additional comparative period does not need to
contain a complete set of financial statements. On the other hand, supporting notes for the
third statement of financial position (mandatory when there is a retrospective application of an
accounting policy, or retrospective restatement or reclassification of items in the financial
statements) are not required. As a result of this clarification, except for employee defined
benefit plan, the Group has not included comparative information in respect of the opening
statement of financial position as at April 1, 2013. The amendments affect disclosures only
and have no impact on the Group’s financial position or performance.
§
PAS 16, Property, Plant and Equipment – Classification of servicing equipment - The
amendment clarifies that spare parts, stand-by equipment and servicing equipment should be
recognized as property, plant and equipment when they meet the definition of property, plant
and equipment and should be recognized as inventory if otherwise. The amendment did not
have any impact on the Group’s financial position or performance.
§
PAS 32, Financial Instruments: Presentation – Tax effect of distribution to holders of equity
instruments - The amendment clarifies that income taxes relating to distributions to equity
holders and to transaction costs of an equity transaction are accounted for in accordance with
PAS 12, Income Taxes. The amendment did not have any significant impact on the Group’s
§
PAS 34, Interim Financial Reporting – Interim financial reporting and segment information
for total assets and liabilities - The amendment clarifies that the total assets and liabilities for
a particular reportable segment need to be disclosed only when the amounts are regularly
provided to the chief operating decision maker and there has been a material change from the
amount disclosed in the entity’s previous annual financial statements for that reportable
segment. The amendment had no significant impact on the consolidated financial statements.
New Accounting Standards, Interpretations and Amendments to Existing Standards
Effective Subsequent to March 31, 2014
The Group will adopt the following revised standards, interpretations and amendments to existing
standards enumerated below when these become effective. Except as otherwise indicated, the
Group does not expect the adoption of these revised standards, interpretations and amendments to
PFRS to have a significant impact on the consolidated financial statements.
Effective in 2014
§
PAS 36, Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets
(Amendments) - These amendments remove the unintended consequences of PFRS 13 on the
disclosures required under PAS 36, Impairment of Assets. In addition, these amendments
require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs)
for which impairment loss has been recognized or reversed during the period. These
amendments are effective retrospectively for annual periods beginning on or after
January 1, 2014 with earlier application permitted, provided PFRS 13 is also applied.
*SGVFS008027*
- 11 §
Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27) - These amendments
are effective for annual periods beginning on or after January 1, 2014. They provide an
exception to the consolidation requirement for entities that meet the definition of an
investment entity under PFRS 10. The exception to consolidation requires investment entities
to account for subsidiaries at fair value through profit or loss (FVPL).
§
Philippine Interpretation IFRIC 21, Levies - IFRIC 21 clarifies that an entity recognizes a
liability for a levy when the activity that triggers payment, as identified by the relevant
legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the
interpretation clarifies that no liability should be anticipated before the specified minimum
threshold is reached. IFRIC 21 is effective for annual periods beginning on or after
January 1, 2014.
§
PAS 39, Financial Instruments: Recognition and Measurement – Novation of Derivatives and
Continuation of Hedge Accounting (Amendments) - These amendments provide relief from
discontinuing hedge accounting when novation of a derivative designated as a hedging
instrument meets certain criteria. These amendments are effective for annual periods
beginning on or after January 1, 2014.
§
PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial
Liabilities (Amendments)
The amendments clarify the meaning of “currently has a legally enforceable right to set-off”
and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as
central clearing house systems) which apply gross settlement mechanisms that are not
simultaneous. The amendments affect presentation only and have no impact on the Group’s
Effective in 2015
§
PFRS 9, Financial Instruments: Classification and Measurement
PFRS 9, as issued, reflects the first phase on the replacement of PAS 39 and applies to the
classification and measurement of financial assets and liabilities as defined in PAS 39,
Financial Instruments: Recognition and Measurement. Work on impairment of financial
instruments and hedge accounting is still ongoing, with a view to replacing PAS 39 in its
entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition.
A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently
measured at amortized cost if it is held within a business model that has the objective to hold
the assets to collect the contractual cash flows and its contractual terms give rise, on specified
dates, to cash flows that are solely payments of principal and interest on the principal
outstanding. All other debt instruments are subsequently measured at fair value through profit
or loss. All equity financial assets are measured at fair value either through OCI or profit or
loss. Equity financial assets held for trading must be measured at fair value through profit or
loss. For FVO liabilities, the amount of change in the fair value of a liability that is
attributable to changes in credit risk must be presented in OCI. The remainder of the change
in fair value is presented in profit or loss, unless presentation of the fair value change in
respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in
profit or loss. All other PAS 39 classification and measurement requirements for financial
liabilities have been carried forward into PFRS 9, including the embedded derivative
separation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9
*SGVFS008027*
- 12 will have an effect on the classification and measurement of the Group’s financial assets, but
will potentially have no impact on the classification and measurement of financial liabilities.
§
Philippine Interpretation IFRIC 15, Agreements for the 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. The 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. The
Philippine SEC and the FRSC have deferred the effectivity of this interpretation until the final
Revenue standard is issued by the International Accounting Standards Board (IASB) and an
evaluation of the requirements of the final Revenue standard against the practices of the
Philippine real estate industry is completed. This interpretation is not relevant to the Group,
thus, will not have any impact on Group’s financial position or performance.
Annual Improvements to PFRSs (2010-2012 cycle). The Annual Improvements to PFRSs (20102012 cycle) contain non-urgent but necessary amendments to the following standards:
§
PFRS 2, Share-based Payment – Definition of Vesting Condition - The amendment revised the
definitions of vesting condition and market condition and added the definitions of
performance condition and service condition to clarify various issues. This amendment shall
be prospectively applied to share-based payment transactions for which the grant date is on or
after July 1, 2014.
§
PFRS 3, Business Combinations – Accounting for Contingent Consideration in a Business
Combination - The amendment clarifies that a contingent consideration that meets the
definition of a financial instrument should be classified as a financial liability or as equity in
accordance with PAS 32. Contingent consideration that is not classified as equity is
subsequently measured at fair value through profit or loss whether or not it falls within the
scope of PAS 39, Financial Instruments: Recognition and Measurement. The amendment
shall be prospectively applied to business combinations for which the acquisition date is on or
after July 1, 2014.
§
PFRS 8, Operating Segments – Aggregation of Operating Segments and Reconciliation of the
Total of the Reportable Segments’ Assets to the Entity’s Assets - The amendments require
entities to disclose the judgment made by management in aggregating two or more operating
segments. This disclosure should include a brief description of the operating segments that
have been aggregated in this way and the economic indicators that have been assessed in
determining that the aggregated operating segments share similar economic characteristics.
The amendments also clarify that an entity shall provide reconciliations of the total of the
reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the
chief operating decision maker. These amendments are effective for annual periods beginning
on or after July 1, 2014 and are applied retrospectively.
§
PFRS 13, Fair Value Measurement – Short-term Receivables and Payables - The amendment
clarifies that short-term receivables and payables with no stated interest rates can be held at
invoice amounts when the effect of discounting is immaterial.
*SGVFS008027*
- 13 §
PAS 16, Property, Plant and Equipment – Revaluation Method – Proportionate Restatement
of Accumulated Depreciation - The amendment clarifies that, upon revaluation of an item of
property, plant and equipment, the carrying amount of the asset shall be adjusted to the
revalued amount, and the asset shall be treated in one of the following ways:
– The gross carrying amount is adjusted in a manner that is consistent with the revaluation
of the carrying amount of the asset. The accumulated depreciation at the date of
revaluation is adjusted to equal the difference between the gross carrying amount and the
carrying amount of the asset after taking into account any accumulated impairment losses.
–
The accumulated depreciation is eliminated against the gross carrying amount of the asset.
The amendment is effective for annual periods beginning on or after July 1, 2014. The
amendment shall apply to all revaluations recognized in annual periods beginning on or after
the date of initial application of this amendment and in the immediately preceding annual
period.
§
PAS 24, Related Party Disclosures – Key Management Personnel - The amendments clarify
that an entity is a related party of the reporting entity if the said entity, or any member of a
group for which it is a part of, provides key management personnel services to the reporting
entity or to the parent company of the reporting entity. The amendments also clarify that a
reporting entity that obtains management personnel services from another entity (also referred
to as management entity) is not required to disclose the compensation paid or payable by the
management entity to its employees or directors. The reporting entity is required to disclose
the amounts incurred for the key management personnel services provided by a separate
management entity. The amendments are effective for annual periods beginning on or after
July 1, 2014 and are applied retrospectively.
§
PAS 38, Intangible Assets – Revaluation Method – Proportionate Restatement of Accumulated
Amortization - The amendments clarify that, upon revaluation of an intangible asset, the
carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be
treated in one of the following ways:
– The gross carrying amount is adjusted in a manner that is consistent with the revaluation
of the carrying amount of the asset. The accumulated amortization at the date of
revaluation is adjusted to equal the difference between the gross carrying amount and the
carrying amount of the asset after taking into account any accumulated impairment losses.
– The accumulated amortization is eliminated against the gross carrying amount of the asset.
The amendments also clarify that the amount of the adjustment of the accumulated
amortization should form part of the increase or decrease in the carrying amount accounted for
in accordance with the standard.
The amendments are effective for annual periods beginning on or after July 1, 2014. The
amendments shall apply to all revaluations recognized in annual periods beginning on or after
the date of initial application of this amendment and in the immediately preceding annual
period.
Annual Improvements to PFRSs (2011-2013 cycle). The Annual Improvements to PFRSs (20112013 cycle) contain non-urgent but necessary amendments to the following standards:
§
PFRS 1, First-time Adoption of Philippine Financial Reporting Standards – Meaning of
‘Effective PFRSs’ - The amendment clarifies that an entity may choose to apply either a
current standard or a new standard that is not yet mandatory, but that permits early
*SGVFS008027*
- 14 application, provided either standard is applied consistently throughout the periods presented
in the entity’s first PFRS financial statements.
§
PFRS 3, Business Combinations – Scope Exceptions for Joint Arrangements - The amendment
clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement
in the financial statements of the joint arrangement itself. The amendment is effective for
annual periods beginning on or after July 1, 2014 and is applied prospectively.
§
PFRS 13, Fair Value Measurement – Portfolio Exception - The amendment clarifies that the
portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and other
contracts. The amendment is effective for annual periods beginning on or after July 1, 2014
and is applied prospectively.
§
PAS 40, Investment Property - The amendment clarifies the interrelationship between PFRS 3
and PAS 40 when classifying property as investment property or owner-occupied property.
The amendment stated that judgment is needed when determining whether the acquisition of
investment property is the acquisition of an asset or a group of assets or a business
combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3.
This amendment is effective for annual periods beginning on or after July 1, 2014 and is
applied prospectively.
The Group has not early adopted the above standards. The Group continues to assess the impact
of the above new, amended and improved accounting standards and interpretations effective
subsequent to March 31, 2014 on its consolidated financial statements in the period of initial
application. Additional disclosures required by these amendments will be included in the
consolidated financial statements when these amendments are adopted.
Summary of Significant Accounting Policies
Business Combination Involving Entities under Common Control
Where there are business combinations in which all the combining entities within the Group are
ultimately controlled by the same ultimate parent before and after the business combination and
that the control is not transitory (“business combinations under common control”), the Group may
account such business combinations under the acquisition method of accounting or pooling of
interests method, if the transaction was deemed to have substance from the perspective of the
reporting entity. In determining whether the business combination has substance, factors such as
the underlying purpose of the business combination and the involvement of parties other than the
combining entities such as the noncontrolling interest, shall be considered.
In cases where the business combination has no substance, the Group shall account for the
transaction similar to a pooling of interests. The assets and liabilities of the acquired entities and
that of the Group are reflected at their carrying values. The difference in the amount recognized
and the fair value of the consideration given, is accounted for as an equity transaction, i.e., as
either a contribution or distribution of equity. Further, when a subsidiary is disposed in a common
control transaction, the difference in the amount recognized and the fair value of the consideration
received, is also accounted for as an equity transaction. The Group records the difference as
excess of consideration over carrying amount of disposed subsidiary and presents as separate
component of equity in the combined consolidated statement of financial position.
Comparatives shall be restated to include balances and transactions of the entities had been
acquired at the beginning of the earliest period presented as if the companies had always been
combined.
*SGVFS008027*
- 15 Business Combination and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition
is measured as the aggregate of the consideration transferred measured at acquisition date fair
value and the amount of any non-controlling interests in the acquiree. For each business
combination, the Group elects whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related
costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profit or
loss. It is then considered in the determination of goodwill. Any contingent consideration to be
transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent
consideration classified as an asset or liability that is a financial instrument and within the scope of
PAS 39 is measured at fair value with changes in fair value recognized either in either profit or
loss or as a change to OCI. If the contingent consideration is not within the scope of PAS 39, it is
measured in accordance with the appropriate PFRS. Contingent consideration that is classified as
equity is not re-measured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration
transferred and the amount recognized for non-controlling interests, and any previous interest
held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net
assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and all of the liabilities assumed and
reviews the procedures used to measure the amounts to be recognized at the acquisition date. If
the re-assessment still results in an excess of the fair value of net assets acquired over the
aggregate consideration transferred, then the gain is recognized in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit
from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units.
Where goodwill has been allocated to a cash-generating unit and part of the operation within that
unit is disposed of, the goodwill associated with the disposed operation is included in the carrying
amount of the operation when determining the gain or loss on disposal. Goodwill disposed in
these circumstances is measured based on the relative values of the disposed operation and the
portion of the cash-generating unit retained.
Current versus Noncurrent Classification
The Group presents assets and liabilities in the consolidated statement of financial position based
on current/non-current classification. An asset is current when:
§ It is expected to be realized or intended to be sold or consumed in the normal operating cycle
§ It is held primarily for the purpose of trading
§ It is expected to be realized within twelve months after the reporting period, or
§ It is cash or cash equivalent unless restricted from being exchanged or used to settle a liability
for at least twelve months after the reporting period
*SGVFS008027*
- 16 All other assets are classified as noncurrent. A liability is current when:
§ It is expected to be settled in the normal operating cycle
§ It is held primarily for the purpose of trading
§ It is due to be settled within twelve months after the reporting period, or
§ There is no unconditional right to defer the settlement of the liability for at least twelve
months after the reporting period
The Group classifies all other liabilities as noncurrent.
Deferred tax assets and liabilities are classified as noncurrent assets and liabilities, respectively.
Fair Value Measurement
The Group measures financial instruments such as AFS financial assets at fair value at each
reporting date. Also, fair values of financial instruments measured at amortized cost and
investment properties are disclosed in the notes to the consolidated financial statements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:
§ In the principal market for the asset or liability, or
§ In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their
economic best interest. A fair value measurement of a non-financial asset takes into account a
market participant's ability to generate economic benefits by using the asset in its highest and best
use or by selling it to another market participant that would use the asset in its highest and best
use.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
§
§
§
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable
For assets and liabilities that are recognized in the consolidated financial statements on a recurring
basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
*SGVFS008027*
- 17 Management determines the policies and procedures for both recurring fair value measurement
and non-recurring measurement.
External valuers are involved for valuation of significant assets, such as investment property.
Involvement of external valuers is decided upon annually. Selection criteria include market
knowledge, reputation, independence and whether professional standards are maintained.
Management decides, after discussions with the external valuers, which valuation techniques and
inputs to use for each case.
At each reporting date, the management analyzes the movements in the values of assets and
liabilities which are required to be re-measured or re-assessed as per accounting policies. For this
analysis, the management verifies the major inputs applied in the latest valuation by agreeing the
information in the valuation computation to contracts and other relevant documents.
Management, in conjunction with the Group’s external valuers, also compares each change in the
fair value of each asset and liability with relevant external sources to determine whether the
change is reasonable.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities
on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair
value hierarchy as explained above.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of up to
three months or less from date of acquisition and are subject to an insignificant risk of change in
value.
Financial Instruments - Initial Recognition and Subsequent Measurement
Date of Recognition. The Group recognizes a financial asset or a financial liability in the
consolidated statement of financial position 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, which is the date that the Group commits to purchase the asset. 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 market place.
Initial Recognition of Financial Instruments. Financial instruments 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).
Day 1 Difference. Where the transaction price in a non-active market is different from the fair
value from other observable current market transactions of the same instrument or based on a
valuation technique whose variables include only data from an observable market, the Group
recognizes the difference between the transaction price and fair value (a Day 1 difference) in the
profit or loss unless it qualifies for recognition as some other type of asset. In cases where use is
made of data which is not observable, the difference between the transaction price and model
value is only recognized in the profit or loss when the inputs become observable or when the
instrument is derecognized. For each transaction, the Group determines the appropriate method of
recognizing the Day 1 difference amount.
*SGVFS008027*
- 18 Classification of Financial Instruments. A financial instrument is classified as liability if it
provided for a contractual obligation to: (a) deliver cash or another financial asset to another
entity; or (b) exchange financial assets or financial liabilities with another entity under conditions
that are potentially unfavorable to the Group; or (c) satisfy the obligation other than by the
exchange of a fixed amount of cash or another financial asset for a fixed number of the Group’s
own shares. If the Group does not have the unconditional right to avoid delivering cash or another
financial asset to settle its contractual obligation, the obligation meets the definition of a financial
liability.
Financial assets are categorized as either financial assets at FVPL, held-to-maturity (HTM)
investments, loans and receivables or AFS financial assets. Financial liabilities, on the other hand,
are categorized as financial liabilities at FVPL and other financial liabilities. The Group
determines the classification at initial recognition and re-evaluates this designation at every
reporting date, where appropriate. The Group has no financial instruments at FVPL and HTM
investments.
a. Loans and Receivables
Loans and receivables are nonderivative financial assets with fixed or determinable payments
that are not quoted in an active market.
After initial measurement, loans and receivables are measured at amortized cost using the
effective interest rate method less allowance for impairment. Amortized cost is calculated by
taking into account any discount or premium on acquisition and fees and costs that are an
integral part of the effective interest rate. The amortization is included in the interest income
in profit or loss. Losses arising from impairment are recognized as provision for impairment
loss on receivables in profit or loss.
Loans and receivables are included in current assets when the Group expects to realize or
collect the assets within 12 months from the financial reporting date. Otherwise, these are
classified as noncurrent assets.
The Group’s cash and cash equivalents, receivables (including noncurrent receivables),
advances to associates and joint ventures (included under the “Investments in and advances to
associates and joint ventures” account) and deposits (included under the “Prepaid expenses
and other current assets” and “Goodwill, intangible and other noncurrent assets” accounts) are
classified in this category (see Note 31).
b. AFS Financial Assets
AFS financial assets are those nonderivative financial assets that are not classified as at FVPL,
loans and receivables or HTM investments. They are purchased and held indefinitely, and
maybe sold in response to liquidity requirements or changes in market conditions.
After initial measurement, AFS financial assets are subsequently measured at fair value with
unrealized gains or losses being recognized under “Unrealized mark-to-market gain (loss) on
available-for-sale financial assets” account in other comprehensive income until these are
derecognized. When the investment is disposed of, the cumulative gain or loss previously
recorded under “Unrealized mark-to-market gain on available-for-sale financial assets”
account under equity is recycled to profit or loss. Interest earned on the investments is
reported as interest income using the effective interest rate method. Dividends earned on
investments are recognized in profit or loss when the right to receive payment has been
*SGVFS008027*
- 19 established. AFS financial assets are classified as noncurrent assets unless the intention is to
dispose such assets within 12 months from financial reporting date.
The fair value of AFS financial assets consisting of any investments that are actively traded in
organized financial markets is determined by reference to quoted market bid prices at the close
of business on the financial reporting date.
The Group’s investments in club and ordinary shares are classified in this category (see Note
31).
Unlisted investments in shares of stock for which no quoted market prices and no other
reliable sources of their fair values are available, are carried at cost.
c. Other Financial Liabilities
Other financial liabilities at amortized cost pertain to issued financial instruments or their
components that are not classified or designated at FVPL and contain contractual obligations
to deliver cash or another financial asset to the holder as to settle the obligation other than by
the exchange of a fixed amount of cash or another financial asset for a fixed number of own
equity shares. The financial instruments are classified as current if they are expected to be
settled or disposed of within 12 months from financial reporting date. Otherwise, these are
classified as noncurrent.
These include liabilities arising from operations such as accounts payable and other current
liabilities (excluding unearned tuition and school fees, government and other statutory
liabilities), short-term loans, long-term debt and nontrade payable (see Note 31).
Impairment of Financial Assets
The Group assesses at each reporting date whether a financial asset or group of financial assets is
impaired. A financial asset or a group of financial assets is deemed to be impaired if there is
objective evidence of impairment as a result of one or more events that has occurred after the
initial recognition of the asset (an incurred loss event) and that loss event has an impact on the
estimated future cash flows of the financial asset or the group of financial assets that can be
reliably estimated. Objective evidence of impairment may include indications that the debtors or a
group of debtors is experiencing significant financial difficulty, default or delinquency in interest
or principal payments, the probability that they will enter bankruptcy or other financial
reorganization and where observable data indicate that there is a measurable decrease in the
estimated future cash flows, such as changes in arrears or economic conditions that correlate with
defaults.
Financial Assets Carried at Amortized Cost. The Group first assesses whether an objective
evidence of impairment exists individually for financial assets that are individually significant, 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.
If there is an objective evidence that an impairment loss has been incurred, the amount of the loss
is measured as the difference between the asset’s carrying amount and the present value of the
estimated future cash flows (excluding future credit losses that have not been incurred). The
*SGVFS008027*
- 20 carrying amount of the asset is reduced through use of an allowance account and the amount of
loss is charged to profit or loss. Interest income continues to be recognized based on the original
effective interest rate of the asset. Loans and receivables, together with the associated allowance
accounts, are written off when there is no realistic prospect of future recovery and all collateral, if
any, have been realized. If, in a subsequent year, the amount of the estimated impairment loss
decreases because of an event occurring after the impairment was recognized, the previously
recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is
later recovered, any amounts formerly charged are credited to profit or loss.
The present value of the estimated future cash flows is discounted at the financial asset’s original
effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate, adjusted for the original credit risk premium.
The calculation of the present value of the estimated future cash flows of a collateralized financial
asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling
the collateral, whether or not foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis
of such credit risk characteristics as industry, collateral type and past due status.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of historical loss for assets with credit risk characteristics similar to those in
the group. Historical loss 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 is based and to
remove the effects of conditions in the historical period that do not exist currently. Estimates of
changes in future cash flows reflect, and are directionally consistent with changes in related
observable data from period to period (such changes in unemployment rates, property prices,
commodity prices, payment status, or other factors that are indicative of incurred losses in the
Group and their magnitude). The methodology and assumptions used for estimating future cash
flows are reviewed regularly by the Group to reduce any difference between loss estimates and
actual loss experience.
Quoted AFS Financial Assets. In the case of equity investments classified as AFS financial assets,
an objective evidence of impairment would include a significant or prolonged decline in the fair
value of the investments below its cost. “Significant” is to be evaluated against the original cost
of the investment and “prolonged” against the period in which the fair value has been below its
original cost. When there is evidence of impairment, the cumulative loss which 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 other comprehensive income under “Unrealized mark-tomarket gain on available-for-sale financial assets” account, is removed from equity and recognized
in profit or loss. Impairment losses on equity investments are not reversed in profit or loss;
increases in fair value after impairment are recognized directly in other comprehensive income.
Unquoted AFS Financial Assets. If there is objective evidence that an impairment loss has been
incurred in an unquoted equity instrument that is not carried at fair value because its fair value
cannot be reliably measured, or on a derivative asset that is linked to and must be settled by
delivery of such an unquoted equity instrument, the amount of 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.
*SGVFS008027*
- 21 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 when:
a. the rights to receive cash flows from the asset have expired;
b. the Group 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
c. the Group has transferred its right 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.
When the Group has transferred its right to receive cash flows from an asset 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 Group’s continuing involvement in the
asset.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability
is discharged or cancelled or has expired.
When 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 of Financial Instruments
Financial assets and liabilities are offset and the net amount is reported in the consolidated
statement of financial position if, and only if, there is a currently enforceable legal right to offset
the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and
settle the liability simultaneously. This is not generally the case with master netting agreements,
and the related assets and liabilities are presented at gross amounts in the consolidated statement
of financial position.
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined using the
weighted average method. Net realizable value of educational materials is the selling price in the
ordinary course of business, less estimated costs necessary to make the sale. Net realizable value
of promotional and school materials and supplies is the current replacement cost.
Prepaid Expenses
Prepaid expenses are carried at cost and are amortized on a straight-line basis over the period of
expected usage, which is equal to or less than 12 months or within the normal operating cycle.
Input Value-added Taxes (VAT)
Input VAT represents VAT imposed on the Group by its suppliers for the acquisition of goods and
services required under Philippine taxation laws and regulations. The portion of excess input
VAT over output VAT is presented as part of “Prepaid taxes” under the “Prepaid expenses and
*SGVFS008027*
- 22 other current assets” account in the consolidated statement of financial position. Input VAT is
stated at its estimated net realizable value (NRV).
Creditable Withholding Taxes (CWT)
CWT represents the amount of tax withheld by counterparties from the Group. These are
recognized upon collection and are utilized as tax credits against income tax due as allowed by the
Philippine taxation laws and regulations. CWT is presented as part of “Prepaid taxes” under the
“Prepaid expenses and other current assets” account in the consolidated statement of financial
position. CWT is stated at its estimated NRV.
Property and Equipment
Property and equipment, except land, are stated at cost less accumulated depreciation,
amortization and any impairment in value, excluding the costs of day-to-day servicing. Such cost
includes the cost of replacing part of such property and equipment when that cost is incurred and
the recognition criteria are met. Land is stated at cost less any impairment in value.
An item of property 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 the carrying amount of
the asset) is included in profit or loss in the year the asset is derecognized.
Depreciation and amortization are computed using the straight-line method over the following
estimated useful lives:
Buildings
Office and school equipment
Office furniture and fixtures
Leasehold improvements
Transportation equipment
Computer equipment and peripherals
Library holdings
20–25 years
5 years
5 years
5 years or terms of the lease agreement,
whichever is shorter
5 years or terms of the lease agreement,
whichever is shorter
3 years
3–5 years
The estimated useful lives and the depreciation and amortization method are reviewed periodically
to ensure that the periods and depreciation and amortization method are consistent with the
expected pattern of economic benefits from items of property and equipment.
Fully depreciated assets are retained in the accounts until they are no longer in use and no further
depreciation and amortization is charged to current operations.
Construction in progress represents structures under construction and is stated at cost less any
impairment in value. This includes cost of construction and other direct costs, including any
interest on borrowed funds during the construction period. Construction in progress is not
depreciated until the relevant assets are completed and become available for operational use.
Investment Properties
Investment properties include land and buildings held by the Group for capital appreciation and
rental purposes. Buildings are carried at cost less accumulated depreciation and any impairment in
value, while land is carried at cost less any impairment in value. The carrying amount includes the
cost of constructing a significant portion of an existing investment property if the recognition
criteria are met; and excludes the costs of day-to-day servicing of an investment property.
*SGVFS008027*
- 23 Depreciation of buildings is computed on a straight-line basis over 20–25 years. The asset’s
useful life and method of depreciation are reviewed and adjusted, if appropriate, at each financial
year-end.
Investment properties are derecognized when either they have 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 profit or loss 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 or commencement of an operating lease to another
party. Transfers are made from investment property when there is a change in use, evidenced by
commencement of owner-occupation or commencement of development with a view to sell.
For a transfer from investment property to owner-occupied property or inventories, the cost of
property for subsequent accounting is its carrying value at the date of change in use. If the
property occupied by the Group as an owner-occupied property becomes an investment property,
the Group accounts for such property in accordance with the policy stated under property and
equipment up to the date of change in use.
Investments in Associates and Joint Ventures
An associate is an entity over which the Group has significant influence. Significant influence is
the power to participate in the financial and operating policy decisions of the investee, but is not
control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually
agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those
necessary to determine control over subsidiaries. The Group’s investments in its associate and
joint venture are accounted for using the equity method. Under the equity method, the investment
in an associate or a joint venture is initially recognized at cost. The carrying amount of the
investment is adjusted to recognize changes in the Group’s share of net assets of the associate or
joint venture since the acquisition date. Goodwill relating to the associate or joint venture is
included in the carrying amount of the investment and is neither amortized nor individually tested
for impairment.
The consolidated statement of comprehensive income reflects the Group’s share of the results of
operations of the associate or joint venture. Any change in OCI of those investees is presented as
part of the Group’s OCI. In addition, when there has been a change recognized directly in the
equity of the associate or joint venture, the Group recognizes its share of any changes, when
applicable, in the consolidated statement of changes in equity. Unrealized gains and losses
resulting from transactions between the Group and the associate or joint venture are eliminated to
the extent of the interest in the associate or joint venture.
The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on
the face of the consolidated statement of comprehensive income outside operating profit and
represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate
or joint venture.
*SGVFS008027*
- 24 The financial statements of the associate or joint venture are prepared for the same reporting
period as the Group. When necessary, adjustments are made to bring the accounting policies in
line with those of the Group.
The financial reporting dates of the associates, joint ventures and the Parent Company are
identical, except for the accounts of STI College Marikina, Inc. (STI-Marikina) and Synergia
Human Capital Solutions, Inc. (Synergia) whose financial reporting date ends in December, and
the associates’ and joint ventures’ accounting policies conform to those used by the Group for like
transactions and events in similar circumstances. Adjustments are made for the Group’s share in
the effects of significant transactions or events that occur between the financial reporting date of
the above-mentioned associates and joint ventures and the financial reporting date of the Group’s
consolidated financial statements.
After application of the equity method, the Group determines whether it is necessary to recognize
an impairment loss on its investment in its associate or joint venture. At each reporting date, the
Group determines whether there is objective evidence that the investment in the associate or joint
venture is impaired. If there is such evidence, the Group calculates the amount of impairment as
the difference between the recoverable amount of the associate or joint venture and its carrying
value, then recognizes the loss as ‘Share of profit of an associate and a joint venture’ in the
consolidated statement of comprehensive income.
Upon loss of significant influence over the associate or joint control over the joint venture, the
Group measures and recognizes any retained investment at its fair value. Any difference between
the carrying amount of the associate or joint venture upon loss of significant influence or joint
control and the fair value of the retained investment and proceeds from disposal is recognized in
profit or loss.
The following are the associates of STI ESG (which are all incorporated in the Philippines) and
STI ESG’s effective interest in the following entities as at March 31, 2014 and 2013:
Associate
Accent/STI Banawe, Inc. (STI-Accent)
(see Note 11)(a)
STI College Alabang, Inc. (STI-Alabang)
Synergia(a)
STI-Marikina
STI Investments
De Los Santos General Hospital, Inc.
(De Los Santos General Hospital) (b)
Global Resource for Outsourced Workers,
Inc. (GROW)
De Los Santos - STI Megaclinic, Inc.
(De Los Santos - STI Megaclinic) (b)(c)
(a)
(b)
(c)
Principal Activities
Hospital
Management Consulting
Services
Holding Company
Hospital
Effective Percentage of Ownership
2013
2014
Direct Indirect Direct Indirect
49
40
–
–
49
40
–
–
30
24
20
–
–
–
30
24
20
–
–
–
5
5
20
13
17
–
17
–
–
9
–
30
Recruitment Agency
Health and Wellness
Clinic
Dormant entities
Through De Los Santos - STI College; subsequently diluted and ceased to be an associate in 2014 (see Note 13)
Through De Los Santos General Hospital
The Group has interests in Philippine Healthcare Educators, Inc. (PHEI) and STI-PHNS
Outsourcing Corporation (STI-PHNS), both jointly-controlled entities.
*SGVFS008027*
- 25 Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less any accumulated amortization in the case of
intangible assets with finite lives, and any accumulated impairment losses.
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets
with finite lives are amortized over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be impaired. The amortization period
and the amortization method for an intangible asset with a finite useful life are reviewed at least at
each financial year-end. 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 are treated as changes in accounting estimates.
The amortization expense on intangible assets with finite lives is recognized in the consolidated
statement of comprehensive income in the expense category consistent with the function of the
intangible asset.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment
annually, either individually or at the cash generating unit level. The assessment of indefinite life
is reviewed annually to determine whether the indefinite life continues to be supportable. If not,
the change in useful life from indefinite to finite is made on a prospective basis.
The Group has assessed the intangible assets as having a finite useful life, which is the shorter of
its contractual term or economic life. Amortization is on a straight-line basis over the estimated
useful lives of 3 years.
Gains or losses arising from derecognition of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognized in
profit or loss when the asset is derecognized.
Impairment of Nonfinancial Assets
The carrying values of investments in associates and joint ventures, property and equipment,
investment properties, land and intangible assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not be recoverable. When an
indicator of impairment exists or when an annual impairment testing for an asset is required, the
Group makes a formal estimate of recoverable amount. Recoverable amount is the higher of an
asset’s (or cash-generating 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, in which case the recoverable amount is assessed as
part of the cash generating unit to which it belongs. Where the carrying amount of an asset (or
cash generating unit) exceeds its recoverable amount, the asset (or cash generating unit) 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 assessments of the time value of money and the risks specific to the asset
(or cash generating unit). In determining fair value less costs to sell, an appropriate valuation
model is used. These calculations are corroborated by valuation multiples, quoted share prices for
publicly traded securities or other available fair value indicators.
Impairment losses are recognized in the consolidated statement of comprehensive income in those
expense categories consistent with the function of the impaired asset, except for assets previously
revalued where the revaluation was taken to equity. In this case, the impairment is also
recognized in equity up to the amount of any previous revaluation.
*SGVFS008027*
- 26 For nonfinancial 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 and amortization, had no impairment loss been recognized for the asset in prior years.
Such reversal is recognized in profit or loss unless the asset is carried at a revalued amount, in
which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation
and amortization expense is adjusted in future years to allocate the asset’s revised carrying
amount, less any residual value, on a systematic basis over its remaining life.
Goodwill. Goodwill is reviewed for impairment, annually or more frequently if events or changes
in circumstances indicate that the carrying value may be impaired. Impairment is determined for
goodwill by assessing the recoverable amount of the cash-generating units, to which goodwill
relates. Where the recoverable amount of the cash-generating unit (or group of cash-generating
units) is less than the carrying amount of the cash-generating unit (or group of cash generating
units) to which the goodwill has been allocated, an impairment loss is recognized in the
consolidated statement of comprehensive income. Impairment losses relating to goodwill cannot
be reversed for subsequent increases in its recoverable amount in future periods. The Group
performs its annual impairment test of goodwill as at March 31 of each year.
Borrowing Costs
Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or
production of a qualifying asset. Qualifying assets are assets that necessarily take a substantial
period of time to get ready for its intended use or sale. To the extent that funds are borrowed
specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible
for capitalization on that asset shall be determined as the actual borrowing costs incurred on that
borrowing during the year less any investment income on the temporary investment of those
borrowings. To the extent that funds are borrowed generally and used for the purpose of obtaining
a qualifying asset, the amount of borrowing costs eligible for capitalization shall be determined by
applying a capitalizable rate to the expenditures on that asset. The capitalization rate shall be the
weighted average of the borrowing costs applicable to our borrowings that are outstanding during
the year, other than borrowings made specifically for the purpose of obtaining a qualifying asset.
The amount of borrowing costs capitalized during the year shall not exceed the amount of
borrowing costs incurred during that year.
Capitalization of borrowing costs commences when the activities necessary to prepare the asset for
intended use are in progress and expenditures and borrowing costs are being incurred. Borrowing
costs are capitalized until the asset is available for their intended use. If the resulting carrying
amount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing
costs include interest charges and other costs incurred in connection with the borrowing of funds,
as well as exchange differences arising from foreign currency borrowings used to finance these
projects, to the extent that they are regarded as an adjustment to interest costs.
All other borrowing costs are expensed as incurred in the year in which they occur.
Provisions
Provisions are recognized when the Group 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
*SGVFS008027*
- 27 obligation. When the Group expects a provision to be reimbursed, such as under an insurance
contract, the reimbursement is recognized as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is presented in profit or loss, net of any
reimbursement. If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flow at a pre-tax rate that reflects current market assessments
of the time value of money and, where appropriate, the risks specific to the liability. When
discounting is used, the increase in the provision due to the passage of time is recognized as
interest expense.
Capital Stock and Additional Paid-in Capital
Common stock is measured at par value for all shares issued. Incremental costs incurred directly
attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of
tax. Proceeds and/or fair value of consideration received in excess of par value are recognized as
additional paid-in capital.
Cost of Shares Held by a Subsidiary
Cost of shares held by a subsidiary is accounted for similar to treasury shares which are recorded
at cost. Own equity instruments which are reacquired are deducted from equity. No gain or loss
is recognized in profit or loss on the purchase, sale, issuance or the cancellation of the Group’s
own equity instruments.
Retained Earnings and Dividend on Common Stock of the Parent Company
The amount included in retained earnings includes profit attributable to the Parent Company’s
equity holders and reduced by dividends on capital stocks. Dividends on capital stocks are
recognized as liability and deducted from equity when approved by the shareholders of the Parent
Company and its subsidiaries. Dividends for the year that are approved after the financial
reporting date are dealt with as an event after the financial reporting period.
Earnings Per Share (EPS) Attributable to the Equity Holders of the Parent Company
EPS is computed by dividing income attributed to equity holders of the Parent Company for the
year by the weighted average number of shares issued and outstanding after giving retroactive
effect to any stock split and stock dividend declaration, if any.
Diluted EPS is calculated by dividing the net income attributable to equity holders of the Parent
Company by the weighted average number of common shares outstanding during the year adjusted
for the effects of any dilutive convertible common shares.
Basic and diluted EPS for all periods presented are also adjusted for the effects of business
combination accounted for using the pooling of interests method, thus, the Parent Company’s
shares issued for the Share Swap were presumed to be issued at the beginning of the earliest
period presented, i.e. April 1, 2012.
Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the amount of the revenue can be measured reliably. The Group assesses whether it is
acting as a principal or an agent in every revenue arrangements. It is acting as a principal when it
has the primary responsibility for providing the goods or services. The Group also acts as a
principal when it has the discretion in establishing the prices and bears inventory and credit risk.
Revenue is measured at the fair value of the consideration received, excluding discounts, rebates
and value-added tax (VAT).
*SGVFS008027*
- 28 The following specific recognition criteria must also be met before revenue is recognized:
Tuition and Other School Fees. Revenue from tuition and other school fees is recognized as
income over the corresponding school term to which they pertain. Fees received pertaining to the
school year commencing after the financial reporting date are recorded as unearned tuition and
other school fees shown under “Accounts payable and other current liabilities” account in the
consolidated statement of financial position.
Educational Services. Revenue is recognized as services are rendered.
Royalty Fees. Revenue from royalty fees is recognized on an accrual basis in accordance with the
terms of the licensing agreements.
Management Fees. Revenue is recognized when services are rendered (included as part of “Other
revenues” account in the consolidated statement of comprehensive income).
Sale of Educational Materials and Supplies. Revenue is recognized at the time of sale when
significant risks and rewards of ownership have been transferred.
Interest Income. Interest income is recognized as the interest accrues considering the effective
yield on the asset.
Rental Income. Rental income is recognized on a straight-line basis over the term of the lease
agreement.
Dividend Income. Revenue is recognized when the Group’s right to receive the payment is
established.
Costs and Expenses
Costs and expenses are decreases in economic benefits during the accounting period in the form of
outflows or decrease of assets or incurrence of liabilities that result in decreases in equity, other
than those relating to distributions to equity participants. Costs and expenses are recognized in
profit or loss in the year these are incurred.
Pension Costs
The Group has the following pension plans (Plan) covering substantially all of its regular and
permanent employees:
STI ESG
Type of Plan
Funded and unfunded, noncontributory defined
benefit plan
Indirect Subsidiaries (except De Los Santos STI College and STI-QA)
Unfunded, noncontributory defined benefit plan
De Los Santos - STI College and STI-QA
Funded, noncontributory defined contribution plan
Defined Benefit Plan. The net defined benefit liability or asset is the aggregate of the present
value of the defined benefit obligation at the end of the reporting period reduced by the fair value
of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset
ceiling. The asset ceiling is the present value of any economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan.
*SGVFS008027*
- 29 The cost of providing benefits under the defined benefit plans is actuarially determined using the
projected unit credit method.
Defined benefit costs comprise the following:
- Service cost
- Net interest on the net defined benefit liability or asset
- Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on nonroutine settlements are recognized as expense in profit or loss. Past service costs are recognized
when plan amendment or curtailment occurs. These amounts are calculated periodically by
independent qualified actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the net
defined benefit liability or asset that arises from the passage of time which is determined by
applying the discount rate based on government bonds to the net defined benefit liability or asset.
Net interest on the net defined benefit liability or asset is recognized as expense or income in
profit or loss.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in
the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized
immediately in other comprehensive income in the period in which they arise. Remeasurements
are not reclassified to profit or loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance
policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly to
the Group. Fair value of plan assets is based on market price information. When no market price
is available, the fair value of plan assets is estimated by discounting expected future cash flows
using a discount rate that reflects both the risk associated with the plan assets and the maturity or
expected disposal date of those assets (or, if they have no maturity, the expected period until the
settlement of the related obligations).
The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined
benefit obligation is recognized as a separate asset at fair value when and only when
reimbursement is virtually certain.
Defined Contribution Plan. De Los Santos - STI College and STI-QA are members of the
Catholic Educational Association of the Philippines Retirement Plan (CEAP). CEAP is a funded,
defined contribution plan covering De Los Santos - STI College’s and STI-QA’s qualified
employees. Pension costs consist of future service costs and past service costs. Future service
costs are determined in accordance with PAS 19 while past service cost is computed based on a
certain percentage of an employee’s average monthly salary for the 12-month period, immediately
preceding the date of acceptance of the Group in the CEAP Plan, multiplied by the number of
months of the employees past service amortized over 10 years.
De Los Santos - STI College and STI-QA, however, are covered under RA 7641, The Philippine
Retirement Law, which provides for its qualified employees a defined benefit (DB) minimum
guarantee. The DB minimum guarantee is equivalent to a certain percentage of the monthly salary
payable to an employee at normal retirement age with the required credited years of service based
on the provisions of RA 7641.
*SGVFS008027*
- 30 Accordingly, De Los Santos - STI College and STI-QA accounts for its retirement obligation
under the higher of the DB obligation relating to the minimum guarantee and the obligation arising
from the defined contribution (DC) plan. For the DB minimum guarantee plan, the liability is
determined based on the present value of the excess of the projected DB obligation over the
projected DC obligation at the end of the reporting period. The DB obligation is calculated
annually by a qualified independent actuary using the projected unit credit method. De Los Santos
– STI College and STI-QA determines the net interest expense (income) on the net DB liability
(asset) for the period by applying the discount rate used to measure the DB obligation at the
beginning of the annual period to the then net DB liability (asset), taking into account any changes
in the net DB liability (asset) during the period as a result of contributions and benefit payments.
Net interest expense and other expenses related to the DB plan are recognized in profit or loss.
The DC liability, on the other hand, is measured at the fair value of the DC assets upon which the
DC benefits depend, with an adjustment for margin on asset returns, if any, where this is reflected
in the DC benefits. Remeasurements of the net DB liability, which comprise actuarial gains and
losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any,
excluding interest), are recognized immediately in other comprehensive income.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit
that relates to past service or the gain or loss on curtailment is recognized immediately in profit or
loss. De Los Santos - STI College and STI-QA recognizes gains or losses on the settlement of a
DB plan when the settlement occurs.
Leases
The determination whether an arrangement is, or contains, a lease is based on the substance of the
arrangement at the inception date of whether the fulfillment of the arrangement is dependent on
the use of a specific asset or the arrangement conveys a right to use the asset.
Group as a Lessee. Finance leases, which transfer to the Group substantially all the risks and
benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at
the fair value of the leased property or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against profit or loss.
Capitalized leased assets are depreciated over the useful life of the asset. However, if there is no
reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is
depreciated over the shorter of the estimated useful life of the asset and the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the assets
are classified as operating leases. Operating lease payments are recognized as expense in profit or
loss on a straight-line basis over the lease term.
Group as a Lessor. Leases where the Group retains substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating
an operating lease are added to the carrying amount of the leased asset and recognized over the
lease term on the same basis as rental income.
*SGVFS008027*
- 31 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 taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantially enacted at the
financial reporting date.
Deferred Tax. Deferred tax is provided using the liability method on temporary differences at the
financial reporting 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:
§
when 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 income nor taxable income or loss;
§
in respect of taxable temporary differences associated with investments in subsidiaries and
associates and interests in joint ventures, when 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.
Deferred tax assets are recognized for all deductible temporary differences and carryforward
benefit of net operating loss carryover (NOLCO), unused tax credits from excess minimum
corporate income tax (MCIT) over regular corporate income tax (RCIT), and to the extent that it is
probable that taxable income will be available against which the deductible temporary differences
and carryforward benefits NOLCO and MCIT can be utilized, except:
§
when 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 income nor taxable income or
loss;
§
in respect of deductible temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, 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 income will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each financial reporting date and
reduced to the extent that it is no longer probable that sufficient future 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 financial reporting date and are recognized to the extent that it has
become probable that future taxable income will allow the deferred tax assets to be recovered.
Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to
apply in the year when the asset is realized or the liability is settled, based on tax rates and tax
laws that have been enacted or substantially enacted at the financial reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.
Deferred tax items are recognized in correlation to the underlying transactions either in other
comprehensive income or directly in equity.
*SGVFS008027*
- 32 Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to
offset current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
Value-Added Tax (VAT). Revenue, expenses and assets are recognized net of the amount of VAT,
except:
§
when the VAT incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the VAT is recognized as part of the cost of acquisition of the
asset or as part of the expense item as applicable; or
§
receivables and payables that are stated with the amount of VAT included.
The net amount of VAT recoverable from, or payable to, the taxation authority is included as part
of “Prepaid expenses and other current assets” or “Accounts payable and other current liabilities”
accounts in the consolidated statement of financial position.
Operating Segment
For management purposes, the Group is organized into business units based on the geographical
location of the students and assets. Financial information about operating segments are presented
in Note 4.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are
disclosed in the notes to consolidated financial statements unless the possibility of an outflow of
resources embodying economic benefits is remote. A contingent asset is not recognized in the
consolidated financial statements but disclosed in the notes to consolidated financial statements
when an inflow of economic benefits is probable.
Events after the Reporting Period
Post year-end events that provide additional information about the Group’s financial position at
the financial reporting 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
consolidated financial statements when material.
3. Business Combinations
a. Acquisition of WNU
As discussed in Note 1, on October 1, 2013, STI Holdings acquired 99.45% of the issued and
outstanding common shares and 99.93% of the issued and outstanding preferred shares of
WNU for a total purchase price of P
=400.0 million, including contingent consideration. The
said purchase price was reduced to P
=397.0 million, including contingent consideration of
P
=151.5 million as of March 31, 2014.
In November 2013, the BOD approved the reclassification of the preferred shares into
common shares, awaiting the SEC approval for WNU’s increase in its authorized capital
stock. As at July 9, 2014, the SEC approval on WNU’s application is still pending.
*SGVFS008027*
- 33 The acquisition of WNU is accounted for as a business combination using acquisition method.
The Parent Company elected not to account for the noncontrolling interests in WNU as it is
considered not material to the Group.
The fair values of the identifiable assets and liabilities of WNU at acquisition date and the
corresponding carrying amounts immediately before the acquisition were as follows:
Cash and cash equivalents
Trade and other receivables
Inventories
Investment property
Deferred tax asset
Other noncurrent assets
Trade and other payables
Short-term loan
Deferred tax liability
Other current liabilities
Loans payable
Other noncurrent liabilities
Net assets acquired
Excess of fair values of net assets acquired over acquisition cost from a
business combination
Consideration*
Fair Value
Recognized on
Acquisition
=7,703,105
P
40,960,059
143,715
677,019
750,813,061
48,972,000
7,299,317
660,870
(104,300,607)
(7,026,780)
(128,354,737)
(999,322)
(140,601,746)
(46,243,536)
429,702,418
(32,681,078)
=397,021,340
P
*Includes contingent consideration amounting to =
P 151.5 million with the corresponding liability presented as “Nontrade
payable” in the consolidated statement of financial position as of March 31, 2014.
b.
Business Combination Involving Entities under Common Control
As discussed in Note 1, as a result of the Share Swap, the original shareholders of STI ESG
owned approximately 84% of STI Holdings while STI Holdings owned approximately 96% of
STI ESG (including its 3% shareholding in STI ESG prior to Share Swap) immediately after
the Share Swap.
Management of the Group assessed that this transaction is a business combination involving
entities under common control since STI Holdings and STI ESG are under common control of
a shareholder (the “Controlling Shareholder”). Business combinations involving entities
under common control are excluded from the scope of PFRS 3, Business Combinations.
Management has elected to adopt the pooling of interests method when preparing the
consolidated financial information in accordance with the guidance provided by the Philippine
Interpretations Committee on its Q&A No. 2011-02 “PFRS 3.2 - Common Control Business
Combinations”.
*SGVFS008027*
- 34 Under the pooling of interests method:
§
The assets and liabilities of the combining entities are reflected at their carrying amounts;
§
No adjustments are made to reflect fair values, or recognize any new assets or liabilities at
the date of the combination. The only adjustments would be to harmonize accounting
policies between the combining entities;
§
No ‘new’ goodwill is recognized as a result of the combination;
§
Any difference between the consideration transferred and the net assets acquired is
reflected within equity under “Other equity reserve”;
§
The income statement in the year of acquisition reflects the results of the combining
entities for the full year, irrespective of when the combination took place; and
§
Comparatives are presented as if the entities had always been combined only for the
period that the entities were under common control.
Common control transactions are viewed from the perspective of the ultimate parent or the
Controlling Shareholder. Since STI Holdings and STI ESG were not under common control
from the start, a predecessor entity should be identified. In this case, despite the legal form of
the transaction (i.e. STI Holdings acquires STI ESG common shares through Share Swap), the
predecessor entity is STI ESG since it was controlled by the Controlling Shareholder prior to
STI Holdings. The Controlling Shareholder only acquired STI Holdings in March 2010.
In the parent company financial statements, STI Holdings used the cost method of accounting
for its investment in STI ESG. Thus, at initial recognition of its investment in STI ESG, the
Parent Company measured its investment using the fair value of the shares it has given up in
exchange for the STI ESG shares (i.e. quoted price of STI Holdings shares as of September
28, 2012). The difference between the quoted price and par value of the shares was
recognized as additional paid-in capital (“APIC”) in the parent company statement of financial
position. In the application of pooling of interests method in the consolidated financial
statements, the acquisition-date carrying values of STI Holdings and STI ESG are the amounts
used since the entities are combined at historical cost. Thus, the APIC created in the parent
company financial statements is not reflected in the consolidated financial statements since
effectively, the capital stock issued pursuant to the Share Swap are carried at cost under the
pooling of interests method.
c. Movement in Non-controlling Interests
In July 2013, the Parent Company acquired additional 328,125 STI ESG shares from various
shareholders further increasing its ownership interest in STI ESG by 0.01% immediately after
the acquisition.
In 2014, STI ESG issued additional shares at par value to the stockholders of one of the
merged schools, which resulted to dilution of the Parent Company’s interest in STI ESG by
0.06%.
For the year ended March 31, 2014, the Parent Company recognized a net increase in the noncontrolling interests amounting to =
P3.4 million and reattributed the non-controlling interest’s
share in other comprehensive income to the equity holders of the Parent Company amounting
*SGVFS008027*
- 35 to =
P158,142 with the difference, amounting to =
P4.1 million, charged to “Other equity reserve”
account (see Note 18).
In November 2012, the Parent Company subscribed to 1,020,000,000 STI ESG shares at =
P1.00
per share. In December 2012, the Parent Company advanced =
P1,080.0 million to STI ESG for
future subscription of STI ESG shares, while waiting for the SEC’s approval of the increase in
authorized capital stock. On March 8, 2013, STI ESG issued 1,080,000,000 shares to STI
Holdings upon SEC’s approval of its application. As a result, STI Holdings’ ownership
interest in STI ESG increased to approximately 99% as of March 31, 2013.
For the year ended March 31, 2013, the Parent Company recognized a reduction in the noncontrolling interests amounting to =
P105.7 million and reattributed the non-controlling
interest’s share in other comprehensive income to the equity holders of the Parent Company
amounting to P
=36.6 million with the difference, amounting to =
P69.1 million, charged to
“Other equity reserve” account (see Note 18).
d. Acquisition of STI-Batangas
On June 30, 2013, the stockholders of STI-Batangas and STI ESG executed a deed of sale for
the transfer of 100.00% of the outstanding shares of STI-Batangas to STI ESG with an
acquisition cost amounting to =
P4.0 million. Effective that date, STI ESG gained control over
the financial and reporting policies of STI-Batangas.
STI-Batangas is a franchisee of STI ESG and is engaged in the operation of educational
institutions offering tertiary formal education, post-secondary certificate courses and shortterm courses. STI-Batangas was acquired to expand the Group’s controlled network of
schools and be able to improve its operations.
The purchase price consideration has been allocated, provisionally, to the assets and liabilities
based on the fair values at the date of acquisition resulting to goodwill of =
P2.6 million.
The carrying values of the financial assets and liabilities and other assets recognized at the
date of acquisition approximate their fair values due to the short-term nature of the
transactions.
4. Segment Information
For management purposes, the Group is organized into business units based on the geographical
location of the students and assets, and has five reportable segments as follows:
a.
b.
c.
d.
e.
Metro Manila
Northern Luzon
Southern Luzon
Visayas
Mindanao
Management monitors operating results of its business segments separately for the purpose of
making decisions about resource allocation and performance assessment. Segment performance is
evaluated based on operating profit or loss and is measured consistently with profit and loss in the
consolidated financial statements.
*SGVFS008027*
- 36 On consolidated basis, the Group’s performance is evaluated based on net income for the year and
EBITDA defined as earnings before provision for income tax, interest expense, interest income,
depreciation and amortization, equity in net earnings/losses of associates and nonrecurring
gains/losses (excess of fair values of net assets acquired over acquisition cost and loss on deemed
sale and share swap of an associate).
The following table shows the reconciliation of the consolidated net income to consolidated
EBITDA for the years ended March 31, 2014, 2013 and 2012:
Consolidated net income
Equity in net losses (earnings) of
associates and joint ventures
Depreciation and amortization
Provision for income tax
Loss on deemed sale and share swap
of an associate
Excess of fair values of net assets
acquired over acquisition cost
from a business combination
Interest income
Interest expense
Consolidated EBITDA
2014
P
=655,197,867
2013
=794,440,808
P
2012
=291,458,717
P
(232,818,520)
205,551,974
53,358,883
(428,251,940)
156,430,779
42,952,904
37,574,331
144,450,351
32,227,325
43,000,287
(32,681,078)
(12,199,579)
10,926,797
P
=690,336,631
–
–
(34,723,888)
18,831,366
=549,680,029
P
–
–
(16,198,233)
33,865,444
=523,377,935
P
*SGVFS008027*
- 37 The following tables present revenue and income information regarding geographical segments for the years ended March 31, 2014, 2013 and 2012:
March 31, 2014
Revenues
External revenue
Intersegment revenue
Total Revenues
Results
Income before other income and income tax
Equity in net earnings of associates and joint ventures
Interest income
Interest expense
Other income
Net Income
Metro Manila
Northern Luzon
Southern Luzon
Visayas
Mindanao
Total
P
= 1,326,510,858
265,360,474
P
= 1,591,871,332
P
= 98,553,335
–
P
= 98,553,335
P
= 291,013,140
–
P
= 291,013,140
P
= 122,597,660
–
P
= 122,597,660
P
= 78,972,283
–
P
= 78,972,283
P
= 1,917,647,276
265,360,474
P
= 2,183,007,750
P
= 275,282,351
–
11,723,181
(5,272,839)
317,046,248
(44,428,429)
P
= 554,350,512
P
= 22,893,182
–
113,239
865,014
188,599
–
P
= 24,060,034
P
= 82,463,620
–
185,071
(117)
144,353
94,764
P
= 82,887,691
P
= 21,582,488
–
149,380
(6,518,855)
1,310,978
(1,280,365)
P
= 15,243,626
P
= 18,024,519
–
28,708
414,327
–
P
= 18,467,554
P
= 420,246,160
–
12,199,579
(10,926,797)
319,104,505
(45,614,030)
P
= 695,009,417
Eliminations/
Adjustments
=
P–
(265,360,474)
(P
=265,360,474)
P
= 52,529,050
232,818,520
–
–
(317,414,267)
(7,744,853)
(P
=39,811,550)
EBITDA
Consolidated
P
= 1,917,647,276
–
P
= 1,917,647,276
472,775,210
232,818,520
12,199,579
(10,926,797)
1,690,238
(53,358,883)
P
= 655,197,867
P
= 690,336,631
March 31, 2013
Revenues
External revenue
Total Revenues
Results
Equity in net earnings of associates and joint ventures
Interest income
Interest expense
Other income
Net Income
EBITDA
Metro Manila
Northern Luzon
Southern Luzon
Visayas
Mindanao
Total
P
=1,208,089,762
188,858,531
P
=1,396,948,293
=
P83,916,512
–
=
P83,916,512
=
P260,328,160
–
=
P260,328,160
=
P44,593,451
–
=
P44,593,451
=
P73,010,240
–
=
P73,010,240
P
=1,669,938,125
188,858,531
P
=1,858,796,656
=
P18,229,373
–
186,445
(13,729)
–
–
=
P18,402,089
=
P76,496,819
–
99,869
–
59,269
–
=
P76,655,957
P
=8,726,225
–
27,165
–
–
–
P
=8,753,390
=
P187,741,026
–
34,373,420
(18,814,558)
161,316,030
(27,878,099)
=
P336,737,819
P
=8,218,233
–
36,989
(3,079)
–
–
P
=8,252,143
=
P299,411,676
–
34,723,888
(18,831,366)
161,375,299
(27,878,099)
=
P448,801,398
Eliminations/
Adjustments
=
P–
(188,858,531)
(P
=188,858,531)
=
P90,298,030
428,251,940
–
–
(157,835,755)
(15,074,805)
=
P345,639,410
Consolidated
P
=1,669,938,125
–
P
=1,669,938,125
=
P389,709,706
428,251,940
34,723,888
(18,831,366)
3,539,544
(42,952,904)
=
P794,440,808
=
P549,680,029
*SGVFS008027*
- 38 March 31, 2012
(As restated - see Note 2)
Revenues
External revenue
Total Revenues
Results
Equity in net losses of associates and joint ventures
Interest income
Interest expense
Other income
Benefit from (provision for) income tax
Net Income
Metro Manila
Northern Luzon
Southern Luzon
Visayas
Mindanao
Total
=
P 1,123,478,215
208,864,945
P
=1,332,343,160
=
P98,414,257
–
=
P98,414,257
=
P224,546,316
–
=
P224,546,316
=
P45,417,519
–
=
P45,417,519
=
P84,930,758
–
=
P84,930,758
P
=1,576,787,065
208,864,945
P
=1,785,652,010
P
=5,871,809
–
38,661
–
–
46,229
P
=5,956,699
P
= 13,006,153
–
58,851
(28,953)
–
146,944
=
P13,182,995
=
P99,177,135
–
26,527,234
(37,610,943)
121,968,535
(30,378,684)
=
P179,683,277
=
P27,249,774
–
200,924
(1,243,365)
–
28,303
=
P26,235,636
=
P45,422,923
–
405,493
(33,000)
–
3,471
=
P45,798,887
=
P190,727,794
–
27,231,163
(38,916,261)
121,968,535
(30,153,737)
=
P270,857,494
Eliminations/
Adjustments
=
P–
(208,864,945)
(P
=208,862,902)
=
P176,403,295
(37,574,331)
(11,032,930)
5,050,817
(110,172,040)
(2,073,588)
=
P20,601,223
Consolidated
P
=1,576,787,065
–
P
=1,576,787,065
=
P367,131,089
(37,574,331)
16,198,233
(33,865,444)
11,796,495
(32,227,325)
=
P291,458,717
=
P523,377,935
EBITDA
The following tables present certain assets and liabilities information regarding geographical segments as of March 31, 2014 and 2013:
March 31, 2014
Assets and Liabilities
Segment assets(a)
Goodwill
Deferred tax assets
Total Assets
Segment liabilities(b)
Loans payable
Pension liabilities
Total Liabilities
Metro Manila
Northern Luzon
Southern Luzon
Visayas
Mindanao
P
= 5,202,405,725
16,734,825,149
–
22,677,630
P
= 21,959,908,504
P
= 53,145,292
–
–
259,189
P
= 53,404,481
P
= 228,706,052
12,500,000
–
1,313,080
P
= 242,519,132
P
= 443,971,443
–
–
7,347,603
P
= 451,319,046
P
= 88,531,959
–
–
1,506,475
P
= 90,038,434
P
= 348,157,859
180,000,000
14,885,926
18,866,097
P
= 561,909,882
P
= 6,787,713
–
2,852,352
–
P
= 9,640,065
(P
=31,315,814)
–
14,595,697
–
(P
=16,720,117)
168,937,809
–
38,843,393
–
P
= 207,781,202
P
= 6,956,942
–
4,713,387
–
P
= 11,670,329
Other Segment Information
Capital expenditure Property and equipment
Noncash expenses other than depreciation and amortization
(a)
(b)
Total
Eliminations/
Adjustments
P
= 6,016,760,471
P
= 514,343,507
16,747,325,149
(15,215,273,562)
–
202,843,745
–
33,103,977
P
= 22,797,189,597 (P
=14,498,086,310)
499,524,509
180,000,000
75,890,755
18,866,097
P
= 774,281,361
411,667,418
–
(15,015,487)
–
P
= 396,651,931
Consolidated
P
= 6,531,103,978
1,532,051,587
202,843,745
33,103,977
P
= 8,299,103,287
911,191,927
180,000,000
60,875,268
18,866,097
P
= 1,170,933,292
P
= 1,185,736,216
205,551,974
74,057,903
Segment assets exclude goodwill, investments in and advances to associates and joint ventures and deferred tax assets.
Segment liabilities exclude short-term loans, pension liabilities and obligations under finance lease.
*SGVFS008027*
- 39 March 31, 2013
Assets and Liabilities
Segment assets(a)
Goodwill
Deferred tax assets
Total Assets
Segment liabilities(b)
Pension liabilities
Total Liabilities
Northern Luzon
Southern Luzon
Visayas
Mindanao
Total
=
P20,721,112,617
–
871,217,782
6,808,554
=
P21,599,138,953
=
P53,378,214
–
–
259,189
=
P53,637,403
=
P254,742,544
–
–
1,313,080
=
P256,055,624
=
P51,950,808
–
–
124,751
=
P52,075,559
=
P85,465,639
–
–
–
=
P85,465,639
=
P21,166,649,822
–
871,217,782
8,505,574
=
P22,046,373,178
(P
=15,769,230,815)
200,258,253
2,025,850,775
–
(P
=13,543,121,787)
P
=5,397,419,007
200,258,253
2,897,068,557
8,505,574
P
=8,503,251,391
=
P327,910,280
10,958,661
19,759,058
=
P358,627,999
=
P25,442,403
1,464,070
–
=
P26,906,473
=
P66,682,255
6,822,139
–
=
P73,504,394
P
=3,174,829
799,207
–
P
=3,974,036
=
P20,537,146
2,376,031
–
=
P22,913,177
=
P443,746,913
22,420,108
19,759,058
=
P485,926,079
(P
=118,030,879)
–
–
(P
=118,030,879)
=
P325,716,034
22,420,108
19,759,058
=
P367,895,200
Other Segment Information
Capital expenditure Property and equipment
Noncash expenses other than depreciation and amortization
(a)
(b)
Eliminations/
Adjustments
Metro Manila
Consolidated
P
=1,634,537,504
156,430,779
58,779,699
Segment assets exclude goodwill, investments in and advances to associates and joint ventures and deferred tax assets.
Segment liabilities exclude short-term loans, pension liabilities and obligations under finance lease.
*SGVFS008027*
- 40 5. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements requires management to make judgments,
estimates and assumptions that affect the amounts reported in the consolidated financial
statements and related notes. The estimates used are based upon management’s evaluation of
relevant facts and circumstances as at the date of the consolidated financial statements, giving due
consideration to materiality. Actual results could differ from such estimates.
The Group believes the following represents a summary of these significant judgments, estimates
and assumptions and related impact and associated risks in its consolidated financial statements.
Judgments
In the process of applying the Group’s accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effect on the
amounts recognized in the consolidated financial statements.
Operating Lease Commitments - Group as Lessee. The Group has entered into various operating
lease agreements and has determined, based on evaluation of the terms and conditions of the
arrangements, that it has not acquired significant risks and rewards of ownership of the leased
properties because the lease agreements do not transfer to the Group the ownership over the leased
assets at the end of the lease term and do not provide with a bargain purchase option over the
leased assets and accounts for these arrangements as operating leases.
Rental expense amounted to =
P136.6 million, =
P143.3 million and =
P145.2 million in 2014, 2013 and
2012, respectively (see Notes 20, 22 and 25).
Operating Lease Commitments - Group as Lessor. The Group has entered into lease of various
investment properties and has determined, that it retains all the significant risks and rewards of
ownership of the leased properties because the lease agreements do not transfer ownership of the
leased assets to the lessee at the end of the lease term and do not give the lessee a bargain purchase
option over the leased assets and accounts for these agreements as operating leases.
Rental income amounted to P
=10.8 million, P
=4.6 million and P
=5.4 million in 2014, 2013 and 2012,
respectively (see Notes 11, 25 and 27).
Finance Lease Commitments - Group as Lessee. The Group has entered into finance lease
agreements covering its computer equipment and peripherals and transportation equipment and
has determined, that it bears substantially all the risks and benefits incidental to ownership of the
said properties which are on finance lease agreements.
The carrying value of the obligations under finance lease amounted to P
=18.9 million and
P
=19.8 million as at March 31, 2014 and 2013, respectively. Interest incurred amounted to
=
P1.3 million, =
P1.5 million and =
P1.3 million in 2014, 2013 and 2012, respectively (see Notes 19
and 25).
Transfers of Investment Properties. The Group has made transfers to investment properties after
determining that 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 also made from investment properties when there is a change in use, evidenced by
commencement of owner-occupation or commencement of development with a view to sale.
These transfers are recorded using the carrying amount of the investment properties at the date of
change in use.
*SGVFS008027*
- 41 There were no transfers to (from) investment properties in 2014 and 2013. Transfers to (from)
investment properties amounted to P
=24.9 million and (P
=16.3 million) in 2012.
Determination of Control Arising from a Management Contract. The Group has existing
management contracts with STI-Kalookan and STI-Novaliches. Management has concluded that the
Group in substance has the control over the financial and operating policies and has the means to
obtain majority of the benefits of STI-Kalookan and STI-Novaliches, both non-stock corporations,
through the management contract. Thus, management has assessed that it has control over
STI-Kalookan and STI-Novaliches and accordingly, consolidates the two entities effective from the
date control was obtained.
Classification of Interests in Joint Ventures. Under PFRS 11, the Group classified its interest in joint
arrangements as either joint operations or joint ventures depending on its rights to the assets and
obligations for the liabilities of the arrangements. When making this assessment, management
considers the structure of the arrangements, the legal form of any separate vehicles, the contractual
terms of the arrangements and other facts and circumstances. Management re-evaluated its
involvement in its joint arrangements and assessed that it has joint control over PHEI and STI‑PHNS
and accounted for such entities as joint ventures (see Note 13).
Contingencies. The Group is currently a defendant to a number of cases involving claims and
disputes mainly related to labor. The Group’s estimate of the probable costs for the resolution of
these claims has been developed in consultation with outside legal counsels handling defense in
these matters and is based upon an analysis of potential results. Management and its legal
counsels believe that the Group has substantial legal and factual bases for its position and are of
the opinion that losses arising from these legal actions, if any, will not have a material adverse
impact on the consolidated financial statements. It is possible, however, that future results of
operations could be materially affected by changes in the estimates or in the effectiveness of
strategies relating to these proceedings (see Note 29).
Estimates and Assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the
financial reporting date that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below.
Fair Value of Financial Instruments. The Group discloses for each class of financial instruments
the fair value of that class of assets and liabilities in a way that permits it to be compared with the
corresponding carrying amount in the consolidated statements of financial position, which requires
the use of accounting judgment and estimates. Significant components of fair value measurement
are determined using verifiable objective evidence (i.e., interest rates, volatility rates), and timing
and amount of changes in fair value would differ with the valuation methodology used.
Estimating Allowance for Impairment Loss on Financial Assets. The Group reviews its
receivables and advances to associates and joint ventures and other related parties at each
reporting date to assess whether an allowance for doubtful accounts should be recorded in the
consolidated statement of financial position. In particular, judgment by management is required in
the estimation of the amount and timing of future cash flows when determining the level of
allowance required. Such estimates are based on assumptions about a number of factors and
actual results may differ, resulting in future changes to the allowance.
*SGVFS008027*
- 42 In addition to specific allowance against individually significant receivables and advances, the
Group also makes a collective impairment allowance against exposures which, although not
specifically identified as requiring a specific allowance, have a greater risk of default than when
originally granted. This collective allowance is based on any deterioration in the internal rating of
the receivables and advances since it was granted or acquired. These internal ratings take into
consideration factors such as any deterioration in industry, as well as identified structural
weaknesses or deterioration in cash flows.
Total receivables (including noncurrent receivables), net of allowance for doubtful accounts
amounted to =
P714.8 million as at March 31, 2014 and 2013, respectively.
Provision for impairment loss on receivables (net of reversals) recognized amounted to P
=57.6
million, =
P34.5 million and =
P41.0 million in 2014, 2013 and 2012, respectively (see Notes 7 and
22).
Advances to associates and joint ventures, net of allowance for impairment loss, amounted to
P
=21.2 million and =
P45.5 million as at March 31, 2014 and 2013, respectively. Provision for
(reversal of ) impairment in value of advances recognized amounted to (P
=0.7 million), =
P4.1
million and =
P3.0 million in 2014, 2013 and 2012, respectively (see Notes 12 and 22).
Estimating Allowance for Inventory Obsolescence. The allowance for obsolescence relating to
inventories consists of provision based on the aging of inventories and other factors that may
affect recoverability of these assets. The allowance is established by charges to income in the
form of excess of cost over net realizable value of inventories.
Inventories at net realizable value amounted to =
P37.8 million and =
P34.7 million as at March 31,
2014 and 2013, respectively. Provision for inventory obsolescence in the form of excess of cost
over net realizable value of inventories amounted to =
P2.4 million, =
P0.2 million and =
P0.7 million in
2014, 2013 and 2012, respectively (see Notes 8 and 22).
Impairment of AFS Financial Assets. The Group treats AFS financial assets 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 Group treats “significant” generally as 20.00% or more of
the original cost of investment, and “prolonged,” greater than six months. In addition, the Group
evaluates other factors, including normal volatility in share price for quoted equities and the future
cash flows and the discount factors for unquoted equities.
No impairment loss for AFS financial assets was recognized in profit or loss in 2014, 2013 and
2012. The carrying values of AFS financial assets amounted to =
P50.6 million, P
=4.7 million and
P
=5.0 million as at March 31, 2014 and 2013 and April 1, 2012, respectively (see Note 14).
Estimating Useful Lives of Nonfinancial Assets. Management determines the estimated useful
lives and the related depreciation and amortization charges for its property and equipment,
investment properties, excluding land, and intangible assets based on the period over which the
property and equipment, investment properties and intangible assets are expected to provide
economic benefits. Management’s estimation of the useful lives of property and equipment,
investment properties and intangible assets is based on a collective assessment of industry
practice, internal technical evaluation, and experience with similar assets while for intangible
assets with a finite life, estimated useful life is based on the contractual term of the intangible
assets. These estimations are reviewed periodically and could change significantly due to physical
wear and tear, technical or commercial obsolescence and legal or other limits on the use of the
assets. Management will increase the depreciation and amortization charges where useful lives
*SGVFS008027*
- 43 are less than previously estimated. A reduction in the estimated useful lives of property and
equipment, investment properties and intangible assets would increase recorded expenses and
decrease noncurrent assets.
There were no changes in the estimated useful lives of the Group’s property and equipment,
investment properties and intangible assets in 2014, 2013 and 2012.
Impairment of Nonfinancial Assets. An impairment review is performed whenever events or changes
in circumstances indicate that the carrying amount of a nonfinancial asset may not be recoverable or
that the previously recognized impairment loss may no longer exist or may have decreased. The
factors that the Group considers important which could trigger an impairment review include the
following:
§
significant underperformance relative to expected historical or projected future operating results;
§
significant changes in the manner of use of the acquired assets or the strategy for overall business;
§
significant negative industry or economic trends;
§
the dividend exceeds the total comprehensive income of the associate in the period the dividend is
declared; or
§
the carrying amount of the investment in an associate in the parent company financial statements
exceeds the carrying amount in the consolidated financial statements of the investee’s net assets,
including associated goodwill.
At each financial reporting date, the Group assesses whether there are any indicators of impairment.
Only if indicators of impairment are present will the Group perform the impairment testing.
The Group recognizes an impairment loss whenever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is computed using the value in use approach.
Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash
generating unit to which the asset belongs.
While it is believed that the assumptions used in the estimation of fair values reflected in the
consolidated financial statements are appropriate and reasonable, significant changes in these
assumptions may materially affect the assessment of recoverable value and any resulting impairment
loss would have a material adverse impact on the results of operations.
Nonfinancial assets that are subjected to impairment testing when impairment indicators are present
are as follows:
Property and equipment (see Note 10)
Investment properties (see Note 11)
Investments in associates and joint ventures (see Note 12)
Condominium deposit (see Note 15)
Intangible assets (see Note 15)
Advances to suppliers (see Note 15)
Land (see Note 15)
March 31,
March 31,
2013
2014
P2,635,275,971
4,421,253,356 =
39,325,291
40,197,895
2,851,546,573
1,510,875,712
–
397,262,833
7,711,712
29,898,142
5,314,902
15,786,333
387,862,833
–
No impairment loss was recognized in 2014, 2013 and 2012.
*SGVFS008027*
- 44 Goodwill. Acquisition method requires extensive use of accounting estimates and judgments to
allocate the purchase price to the fair market values of the acquiree’s identifiable assets, liabilities
and contingent liabilities at the acquisition date. It also requires the acquirer to recognize any
goodwill as the excess of the acquisition cost over the fair value of the acquiree’s identifiable
assets, liabilities and contingent liabilities. The Group’s business acquisitions have resulted in
goodwill which is subject to an annual impairment testing. This requires an estimation of the
value in use of the cash-generating units to which the goodwill is allocated. Estimating the value
in use requires the Group to make an estimate of the expected future cash flows from the
cash-generating unit and also to choose a suitable discount rate in order to calculate the present
value of those cash flows.
The recoverable amounts of cash generating units have been determined based on value in use
calculations using cash flow projections covering a five-year period based on long-range plans
approved by management.
Management used an appropriate discount rate for cash flows equal to the prevailing rates of
return for a Group having substantially the same risks and characteristics. Management used the
weighted average cost of capital wherein the source of the costs of equity and debt financing are
weighted. The weighted average cost of capital is the overall required return on the Group. A
discount rate of 12.00% was used as at March 31, 2014 and 2013 and April 1, 2012. The Group’s
growth rates in extrapolating its cash flows beyond the period covered by its recent budgets ranged
from 8.00% to 10.00%.
Other assumptions used in the calculations for impairment testing of goodwill are projection rates
of new students, retention rates of old students, tuition fee increase rates and inflation rates.
Current and historical transactions have been used as indicators of future transactions.
Management believes that any reasonable change in any of the above key assumptions on which
the recoverable amount is based on would not cause the carrying value of the goodwill to
materially exceed its recoverable amount.
No provision for impairment loss was recognized in 2014 and 2013. Impairment loss recognized
in 2012 amounted to P
=3.4 million. Goodwill, net of allowance for impairment loss, amounted to
P
=202.8 million and =
P200.3 million as at March 31, 2014 and 2013, respectively (see Notes 15
and 22).
Realizability of Deferred Tax Assets. Deferred tax assets are recognized for all deductible
temporary differences and carryforward benefits of NOLCO and MCIT to the extent that it is
probable that taxable profit will be available against which the deductible temporary differences
and carryforward benefits of NOLCO and MCIT can be utilized. Significant management
judgment is required to determine the amount of deferred tax assets that can be recognized, based
upon the likely timing and level of future taxable profits together with future tax planning
strategies.
Deductible temporary differences and unused NOLCO and MCIT for which no deferred tax assets
were recognized by the Group amounted to P
P111.5 million as at March 31,
2014 and 2013, respectively. Deferred tax assets recognized amounted to =
P33.1 million and
P
=8.6 million as at March 31, 2014 and 2013, respectively (see Note 26).
Present Value of Pension Liabilities. The cost of the defined benefit pension plan as well as the
present value of the pension obligation are determined using actuarial valuations. The actuarial
valuation involves making various assumptions. These include the determination of the discount
*SGVFS008027*
- 45 rates, future salary increases, mortality rates and future pension increases. Due to the complexity
of the valuation, the underlying assumptions and its long-term nature, defined benefit obligations
are highly sensitive to changes in these assumptions. All assumptions are reviewed at each
reporting date.
In determining the appropriate discount rate, management considers the interest rates of
government bonds that are denominated in the currency in which the benefits will be paid, with
extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
Future salary increases and pension increases are based on expected future inflation rates for the
specific country.
Pension liabilities recognized amounted to P
=60.9 million and =
P22.4 million as at March 31, 2014
and 2013, respectively (see Note 24).
6. Cash and Cash Equivalents
This account consists of the following:
Cash on hand and in banks
Cash equivalents
March 31,
2014
P
=397,988,727
185,313,836
P
=583,302,563
March 31,
2013
=209,549,974
P
1,279,901,935
=1,489,451,909
P
Cash in banks earn interest at their respective bank deposit rates. Cash equivalents are short-term
investments which are made for varying periods of up to three months, depending on the
immediate cash requirements of the Group, and earn interest at their respective short-term
investment rates.
Interest earned from cash in banks and cash equivalents amounted to P
=11.0 million, =
P19.0 million
and =
P9.8 million for the years ended March 31, 2014, 2013 and 2012, respectively (see Note 19).
7. Receivables
This account consists of:
Tuition and other school fees
Educational services
Advances to officers and employees (see Note 27)
Current portion of advances to associates, joint
ventures and other related parties (see Note 27)
Rent and other related receivables (see Note 27)
Others
Less allowance for doubtful accounts
March 31,
2014
P
=276,546,802
56,155,911
25,024,703
March 31,
2013
=159,127,235
P
48,276,130
22,592,828
12,356,218
7,575,384
25,321,407
402,980,425
105,629,684
P
=297,350,741
11,419,489
12,970,554
54,202,769
308,589,005
57,815,801
=250,773,204
P
*SGVFS008027*
- 46 The terms and conditions of the above receivables are as follows:
a. Tuition and other school fees receivables are noninterest-bearing and are normally collected
on or before the date of major examinations.
b. Educational services receivables pertain to receivables from franchisees arising from
educational services, royalty fees and other charges. These receivables are generally
noninterest-bearing and are normally collected within 40 days. Interest is charged on past-due
accounts.
Interest earned from past due accounts amounted to P
=0.3 million, =
P0.4 million and =
P31,951
for the years ended March 31, 2014, 2013 and 2012, respectively (see Note 19).
c. For terms and conditions relating to advances to associates, joint ventures and other related
parties, refer to Note 27.
d. Advances to officers and employees are normally liquidated within one month.
e. Rent and other related receivables are normally collected within the next financial year.
f.
Other receivables include receivable from CEAP and other miscellaneous receivables, and are
expected to be collected within the next financial year.
The movements in the allowance for doubtful accounts as a result of individual and collective
assessments are as follows:
March 31, 2014
Balance at beginning of year
Effect of business combination (see
Note 3)
Provisions (see Note 22)
Reclassification to advances to
(see Note 12)
Write-off
Balance at end of year
Tuition
and Other
School Fees
=46,191,864
P
Educational
Services
=–
P
Others
=11,623,937
P
Total
=57,815,801
P
33,711,471
57,648,376
–
–
1,510,778
–
35,222,249
57,648,376
–
–
=–
P
(8,500,000)
–
=4,634,715
P
–
(36,556,742)
=100,994,969
P
(8,500,000)
(36,556,742)
=105,629,684
P
March 31, 2013
Write-off
Tuition
and Other
School Fees
=41,435,131
P
34,534,038
(29,777,305)
=46,191,864
P
Educational
Services
=–
P
–
–
=–
P
Others
=11,623,937
P
–
–
=11,623,937
P
Total
P53,059,068
=
34,534,038
(29,777,305)
=57,815,801
P
As at March 31, 2014 and 2013, allowance for doubtful accounts amounting to =
P4.6 million and
=
P11.6 million, respectively, relates to individually significant accounts that were assessed as
impaired. The remaining balance of =
P46.2 million as at March 31, 2014 and
2013, respectively, relates to accounts that were collectively assessed as impaired.
*SGVFS008027*
- 47 -
8. Inventories
At net realizable value:
Educational materials
Promotional materials
School materials and supplies
March 31,
2014
March 31,
2013
P
=31,440,575
5,539,944
852,948
P
=37,833,467
=29,618,188
P
4,494,601
627,314
=34,740,103
P
The cost of inventories carried at net realizable value amounted to P
=48.0 million and =
P42.7 million
as at March 31, 2014 and 2013, respectively. Provision for inventory obsolescence in the form of
excess of cost over net realizable value of inventories amounted to P
=2.4 million, P
=0.2 million and
=
P0.7 million in 2014, 2013 and 2012, respectively (see Note 22).
Inventories charged to cost of educational materials and supplies sold for the years ended
March 31, 2014, 2013 and 2012 amounted to P
=53.3 million, P
=49.5 million and =
P39.5 million,
respectively (see Note 21).
9. Prepaid Expenses and Other Current Assets
Prepaid taxes
Prepaid rent (see Note 25)
Excess contributions to CEAP (see Note 24)
Deposits
Prepaid license and insurance
Others
March 31,
2014
P
=85,698,938
10,609,722
3,233,030
1,831,769
589,772
5,038,144
P
=107,001,375
March 31,
2013
=18,426,069
P
7,260,566
3,645,974
1,379,769
1,767,813
4,987,602
=37,467,793
P
Prepaid taxes represent excess creditable withholding tax which may be applied against future
income tax, and other internal revenue taxes, which mainly arose from the acquisition of office
condominium units from TechZone (see Notes 15 and 27).
Prepaid rent represents advance rent paid for the lease of land and building, which shall be applied
to the monthly rental in accordance with the lease agreements (see Note 25).
Excess contributions to CEAP pertains to contributions made by De Los Santos - STI College to
CEAP which are already considered forfeited pension benefits of those employees who can no
longer avail their pension benefits or when De Los Santos - STI College has already advanced the
benefits of qualified employees (see Note 24). These will be recognized as expense depending on
the required future contributions to the fund.
Prepaid license represents software license costs which are amortized over one year.
Deposits pertain to security deposits made for warehouse and office space rentals, which expire
within one year, to be applied against future lease payments in accordance with the respective
lease agreements (see Note 25).
*SGVFS008027*
- 48 10. Property and Equipment
The rollforward analysis of this account follows:
March 31, 2014
Cost, Net of Accumulated Depreciation and
Amortization
Additions
Effect of business combination (see Note 3)
Reclassifications
Disposal
(see Notes 20 and 22)
At March 31, 2014:
Cost
Accumulated depreciation and amortization
Net carrying amount
Office
and School
Equipment
Office
Furniture
and Fixtures
Leasehold
Improvements
Transportation
Equipment
(see Note 25)
Computer
Equipment
and
Peripherals
Library
Holdings
Construction
In Progress
Land
Buildings
P
= 1,296,723,152
60,098,428
494,887,999
48,972,001
–
P
= 696,730,272
147,410,908
248,256,609
921,159,367
–
P
= 61,520,527
76,706,514
4,906,441
(5,599)
(69,857)
P
= 31,012,008
40,061,020
509,284
5,599
(17,314)
P
= 93,491,471
20,098,796
64,163
3,332,693
(10,128)
P
= 22,238,184
13,402,650
–
–
(994,104)
P
= 28,880,111
27,651,209
1,886,415
–
–
P
= 30,004,141
226,895
1,902,490
(118,473)
(765)
P
= 374,676,105
800,079,796
–
(924,373,587)
–
P
= 2,635,275,971
1,185,736,216
752,413,401
48,972,001
(1,092,168)
–
P
= 1,900,681,580
(75,428,552)
P
= 1,938,128,604
(32,842,432)
P
= 110,215,594
(16,267,375)
P
= 55,303,222
(35,815,307)
P
= 81,161,688
(9,615,292)
P
= 25,031,438
(22,091,737)
P
= 36,325,998
(7,991,370)
P
= 24,022,918
–
P
= 250,382,314
(200,052,065)
P
= 4,421,253,356
P
= 1,900,681,580
–
P
= 1,900,681,580
P
= 2,355,082,628
416,954,024
P
= 1,938,128,604
P
= 357,709,729
247,494,135
P
= 110,215,594
P
= 165,672,192
110,368,970
P
= 55,303,222
P
= 346,890,623
265,728,935
P
= 81,161,688
P
= 68,986,903
43,955,465
P
= 25,031,438
Total
P
= 369,693,500
333,367,502
P
= 36,325,998
P
= 165,972,882
141,949,964
P
= 24,022,918
P
= 250,382,314
–
P
= 250,382,314
P
= 5,981,072,351
1,559,818,995
P
= 4,421,253,356
Computer
Equipment
and
Peripherals
Library
Holdings
Construction
In Progress
Total
=
P35,817,767
17,829,902
=
P15,802,480
20,660,316
=
P132,120,932
374,676,105
P
=1,544,229,394
1,634,537,504
–
–
–
–
–
–
March 31, 2013
Land
Buildings
Office
and School
Equipment
=
P648,949,537
1,035,636,448
=
P489,952,915
113,903,997
=
P84,054,171
5,571,344
=
P26,551,149
16,164,912
=
P90,149,525
36,937,557
–
132,120,932
–
–
–
–
–
–
–
–
–
–
Cost, Net of Accumulated Depreciation and
Amortization
Additions
Reclassification to other noncurrent assets
(see Note 15)
Reclassifications
Disposal
–
P
=1,296,723,152
(39,247,572)
=
P696,730,272
At March 31, 2013:
Cost
Accumulated depreciation and amortization
Net carrying amount
P
=1,296,723,152
–
P
=1,296,723,152
=
P927,986,992
231,256,720
=
P696,730,272
(387,862,833)
–
–
(28,104,988)
=
P61,520,527
=
P262,656,033
201,135,506
=
P61,520,527
Office
Furniture
and Fixtures
Leasehold
Improvements
(11,704,053)
=
P31,012,008
=
P122,600,237
91,588,229
=
P31,012,008
(33,595,611)
=
P93,491,471
=
P337,876,133
244,384,662
=
P93,491,471
Transportation
Equipment
(see Note 25)
=
P20,830,918
13,156,923
–
–
(1,172,501)
(10,577,156)
=
P22,238,184
=
P65,416,128
43,177,944
=
P22,238,184
(24,767,558)
=
P28,880,111
=
P308,398,041
279,517,930
=
P28,880,111
–
(132,120,932)
–
(387,862,833)
–
(1,172,501)
(6,458,655)
=
P30,004,141
–
=
P374,676,105
(154,455,593)
P
=2,635,275,971
=
P82,171,080
52,166,939
=
P30,004,141
=
P374,676,105
–
=
P374,676,105
P
=3,778,503,901
1,143,227,930
P
=2,635,275,971
*SGVFS008027*
- 49 Additions
Acquisitions. In 2014, the Group acquired land and a building located in Batangan, Batangas
amounting to P
=122.5 million. These properties will be the new site of STI-Batangas.
In 2013, the Group acquired land located in Cainta, Rizal, Las Piñas City, Quezon City, Valencia
and Caloocan City, aggregating to =
P1,035.6 million. These properties will be the new sites of the
schools of the Group in the area mentioned.
Property and Equipment under Construction. As at March 31, 2014, the construction in-progress
account includes costs incurred for the construction of the school buildings and improvements
located in Batangas, Calamba, Quezon City and Lucena. The related construction contracts
amounted to =
P1,248.8 million, inclusive of materials, cost of labor and overhead and all other
costs necessary for the proper execution of the works in the next fiscal year.
As at March 31, 2013, the construction in progress account includes costs incurred for the
construction of the school buildings and improvements located in Cainta, Rizal and Caloocan City.
The related construction contracts amounted to P
=1,057.2 million, inclusive of materials, cost of
labor and overhead and all other costs necessary for the proper execution of the works in the next
two years. These were completed and reclassified as part of the “Buildings” account in 2014.
Capitalized Borrowing Costs. Total borrowing costs capitalized as part of property and equipment
amounted to nil and =
P19.7 million as at March 31, 2014 and 2013, respectively. Average interest
capitalization rate is at 3.3% in 2013 which is the effective rate of the general borrowing.
Finance Leases
Certain transportation equipments were acquired under finance lease agreements. The net book
value of this equipment amounted to =
P16.4 million and =
P15.9 million as at March 31, 2014 and
2013, respectively (see Note 25).
Collaterals
As at March 31, 2014, property and equipment with a carrying value amounting to
=
P27.9 million are pledged as security to the short-term loan of the Group (see Note 16), while
transportation equipment, which were acquired under finance lease, are pledged as security for the
related finance lease liabilities as at March 31, 2014 and 2013.
11. Investment Properties
The rollforward analysis of this account follows:
Cost:
Additions
Accumulated depreciation:
Depreciation (see Note 22)
Net book value
Land
March 31, 2014
Condominium
units
Total
P
=23,986,424
–
23,986,424
P
=32,758,893
3,981,559
36,740,452
P
=56,745,317
3,981,559
60,726,876
–
–
–
P
=23,986,424
17,420,026
3,108,955
20,528,981
P
=16,211,471
17,420,026
3,108,955
20,528,981
P
=40,197,895
*SGVFS008027*
- 50 -
Land
Cost:
Disposal
Accumulated depreciation:
Depreciation (see Note 22)
Disposal
Net book value
March 31, 2013
Condominium
units
Total
P
=28,521,424
(4,535,000)
23,986,424
P
=36,723,893
(3,965,000)
32,758,893
P
=65,245,317
(8,500,000)
56,745,317
–
–
–
–
P
=23,986,424
18,138,027
1,975,186
(2,693,187)
17,420,026
P
=15,338,867
18,138,027
1,975,186
(2,693,187)
17,420,026
P
=39,325,291
Land
Level 3 fair value of land had been derived using the sales comparison approach. The sales
comparison approach is a comparative approach to value that considers the sales of similar or
substitute properties and related market data and establishes a value estimate by process involving
comparison. Listings and offerings may also be considered. Sales prices of comparable land in
close proximity (external factor) are adjusted for differences in key attributes (internal factors)
such as location and size.
The following table shows the valuation technique used in measuring the fair value of the land, as
well as the significant unobservable inputs used:
Fair value at March 31, 2014
Valuation technique
Unobservable input
Relationship of unobservable inputs to
fair value
P37,070,000
=
Sales comparison approach
Net price per square meter
The higher the price per square
meter, the higher the fair value
The highest and best use of the land is commercial utility.
Condominium Units
Level 3 fair values of buildings have also been derived using the sales comparison approach.
The following table shows the valuation technique used in measuring the fair value of the
building, as well as the significant unobservable inputs used:
Fair value at March 31, 2014
Valuation technique
Unobservable input
Relationship of unobservable inputs to
fair value
P86,435,200
=
Sales comparison approach
Net price per square meter
The higher the price per square
meter, the higher the fair value
The highest and best use of the condominium units is commercial utility (commercial/office
condominium building).
Collateral
As at March 31, 2014, investment properties with a carrying value amounting to =
P13.9 million are
pledged as security to the short-term loans of the Group (see Note 16).
Rental income earned from investment properties amounted to P
=10.8 million, =
P4.6 million and
P
=5.4 million in 2014, 2013 and 2012, respectively (see Notes 25 and 27). Direct operating
*SGVFS008027*
- 51 expenses, including repairs and maintenance, arising from investment properties amounted to
=
P0.4 million, =
P0.7 million and =
P0.3 million in 2014, 2013 and 2012, respectively.
12. Investments in and Advances to Associates and Joint Ventures
The details and movements in this account follow:
March 31,
2013
(As restated see Note 2)
April 1,
2012
P
=249,252,600
–
(76,000,000)
173,252,600
=207,664,874
P
41,587,726
–
249,252,600
=208,375,212
P
–
(710,338)
207,664,874
680,371,081
261,722,342
303,031,267
March 31,
2014
Investments in associates and joint
ventures:
Acquisition cost:
Conversion of advances
Disposal
Accumulated equity in net earnings:
Balance at beginning of year,
as previously reported
Effect of adoption of PAS 19R
(see Note 2)
Balance at beginning of year, as
restated
Equity in net earnings (losses)
Disposal
Dividends received
Reclassification (see Note 14)
Share in associates’ other
comprehensive income:
Balance at beginning of year, as
previously reported
Effect of adoption of PAS 19R
(see Note 2)
Balance at beginning of year,
as restated
Unrealized MTM gain (loss)
Remeasurement gain (loss) on
pension liability
(Notes 3 and 18)
Advances (see Note 27)
Less allowance for impairment loss
(1,315,903)
679,055,178
232,818,520
–
–
6,893,184
918,766,882
(967,004)
260,755,338
428,251,940
–
(9,952,100)
–
679,055,178
–
303,031,267
(37,574,331)
(2,749,498)
(1,952,100)
–
260,755,338
1,083,699,331
173,867,841
(6,934,916)
3,003,867
–
1,923,238,795
(1,496,110,186)
1,086,703,198
846,474,380
173,867,841
909,831,490
1,930,173,711
(8,272,379)
418,856,230
1,510,875,712
36,123,762
14,947,887
21,175,875
P
=1,532,051,587
(9,938,783)
1,923,238,795
2,851,546,573
52,689,744
7,167,760
45,521,984
=2,897,068,557
P
3,003,867
1,086,703,198
1,555,123,410
38,400,724
3,047,124
35,353,600
=1,590,477,010
P
*SGVFS008027*
- 52 The detailed carrying values of the Group’s investments in and advances to associates and joint
ventures are as follows:
2014
Advances
Total
=1,500,471,108
P
14,326,499
10,597,308
(20,166,002)
1,650,967
46,969
P–
=
–
–
35,923,762
–
–
=1,500,471,108
P
14,326,499
10,597,308
15,757,760
1,650,967
46,969
3,948,863
1,510,875,712
200,000
36,123,762
4,148,863
1,546,999,474
–
7,167,760
7,167,760
Investments
Associates:
STI Investments
STI-Alabang
GROW
STI-Accent
STI-Marikina
Synergia
Joint ventures:
PHEI (see Note 13)
Allowance for impairment loss
Reclassification from
receivables (see Note 7)
Reversal (see Note 22)
–
–
–
=1,510,875,712
P
8,500,000
(719,873)
14,947,887
=21,175,875
P
2013
Investments
Advances
Associates:
STI Investments
De Los Santos - General Hospital
STI-Accent
De Los Santos - STI Megaclinic
STI-Alabang
GROW
STI-Marikina
Synergia
Joint ventures:
PHEI
STI-PHNS
Allowance for impairment loss
8,500,000
(719,873)
14,947,887
=1,532,051,587
P
Total
=2,759,989,922
P
59,440,352
(20,166,002)
18,352,722
14,326,499
10,529,778
1,042,897
46,969
P–
=
–
27,333,762
24,396,410
216,000
143,572
–
–
=2,759,989,922
P
59,440,352
7,167,760
42,749,132
14,542,499
10,673,350
1,042,897
46,969
6,999,009
984,427
2,851,546,573
600,000
–
52,689,744
7,599,009
984,427
2,904,236,317
–
–
–
=2,851,546,573
P
3,047,124
4,120,636
7,167,760
=45,521,984
P
3,047,124
4,120,636
7,167,760
=2,897,068,557
P
Information about and major transactions of significant indirect associates are discussed below:
STI Investments. STI Investments is a holding company that holds investments in PhilPlans,
PhilHealth Care, Inc. (PhilCare) and Banclife Insurance Co., Inc. (Banclife). PhilPlans is a
leading pre-need company, providing innovative pension, education and life plans while PhilCare
provides a multi-service healthcare program that makes available to its clients a comprehensive
healthcare benefits package that provides quality healthcare services at a cost-efficient price.
Banclife is engaged in life insurance business in the Philippines. In October 2013, PhilPlans
acquired 65% of Rosehills Memorial Management Philippines, Inc. (RMMI). RMMI is presently
*SGVFS008027*
- 53 engaged in the operation and management of a memorial park, memorial and internet services and
sale of memorial products. In 2013, STI Investments acquired 70% equity interest in Philippine
Life Financial Assurance Corporation (PhilLife, formerly AsianLife and General Assurance
Corporation). PhilLife is engaged in the business of life insurance and, in particular, to grant or
effect assurances of all kinds of the payments of money by way of single payment or by several
payments, or by way of immediate or deferred annuities upon the death of or upon attaining a
given age by any person or persons.
Condensed financial information for STI Investments is as follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Total equity
Less equity attributable to equity holders of noncontrolling interests
Equity attributable to equity holders of the parent
company
Proportion of the Group’s ownership
Carrying amount of the investment
Revenues
Net income
Total comprehensive income
Less total comprehensive income attributable to
equity holders of non-controlling interests
Total comprehensive income attributable to equity
holders of the parent company
Proportion of the Group’s ownership
Share in total comprehensive income
2014
P
=17,648,121,501
27,722,263,499
37,547,030,692
82,847,336
7,740,506,972
2013
P4,817,840,974
=
46,402,910,790
36,917,889,979
344,253,638
13,958,608,147
238,151,432
158,658,537
7,502,355,540 13,799,949,610
20%
20%
P
=
2,759,989,922
P
=1,500,471,108
=8,393,171,350
P
=7,161,375,046 P
2,220,567,110
1,252,149,077
(7,524,711,486) 4,182,128,852
(6,272,562,409) 6,402,695,962
25,031,656
27,840,525
(6,297,594,065) 6,374,855,437
20%
20%
P1,274,971,087
(P
=1,259,518,813) =
De Los Santos - General Hospital. De Los Santos General Hospital is primarily engaged in the
operation, managing and maintenance of hospitals, clinics, medical and chemical laboratories.
De Los Santos - STI Megaclinic. De Los Santos - STI Megaclinic was organized primarily to
establish, maintain, adopt and engage in the business of offering, providing and promoting
medical services to the general public through accessible, economical and private clinics, health
and treatment centers, together with the professional management of the services rendered by
licensed and competent physicians, surgeons, medical specialists within the said clinics, health and
treatment centers.
As a result of the Share Swap transaction discussed in Note 14, the Group’s investments in De Los
Santos - General Hospital and De Los Santos - STI Megaclinic were diluted and reclassified to
AFS financial assets.
STI-Accent. STI-Accent is engaged in providing medical and other related services. In 2012, the
contract of usufruct between STI-Accent and Dr. Fe Del Mundo Medical Center Foundation Phil.,
Inc. to operate the hospital and its related healthcare service businesses for an initial term of
*SGVFS008027*
- 54 twenty years starting July 2007 was rescinded. Thus, the Group ceased the recognition of its share
in the losses of STI-Accent. In 2013, the Group recognized its previously unrecognized equity in
losses of STI-Accent amounting to =
P6.2 million as at March 31, 2012. As at March 31, 2014 and
2013, the Group provided allowance for impairment loss on its investments in STI-Accent and
related advances amounting to =
P14.9 million and =
P7.2 million, respectively.
Interest income earned from the Group’s advances to its associates and joint ventures amounted to
=
P0.9 million, =
P2.6 million and =
P2.0 million in 2014, 2013 and 2012, respectively (see Notes 19
and 27).
The Group’s share in the net earnings (losses) of its associates, which are individually immaterial,
amounted to =
P0.1 million, (P
=7.5 million) and P
=0.1 million in 2014, 2013 and 2012, respectively.
For terms and conditions relating to advances to associates and joint ventures, refer to Note 27.
The associates had no contingent liabilities and capital commitments as at March 31, 2014 and
2013.
13. Interests in Joint Ventures
PHEI
On March 19, 2004, STI ESG, together with University of Makati (UMak) and another
shareholder, incorporated PHEI. STI ESG and UMak each owns 40.00% of the equity of PHEI
with the balance owned by the other shareholder. PHEI is envisioned as the College of Nursing of
UMak. The following are certain key terms under the Joint Venture Agreement (JVA) dated
May 2, 2003 signed by STI ESG and UMak:
a. STI ESG shall be primarily responsible for the design of the curriculum for the Bachelors
Degree in Nursing (BSN) and Masters Degree in Nursing Informatics, with such curriculum
duly approved by the University Council of UMak;
b. UMak will allow the use of its premises as a campus of BSN while the premises of iAcademy
will be the campus of the post graduate degree; and
c. STI ESG will recruit the nursing faculty while UMak will provide the faculty for basic courses
that are non-technical in nature.
STI-PHNS
On September 16, 2005, GROW and PHNS International Holdings, Inc., a company incorporated
in Dallas, Texas, USA, entered into a JVA. Under the JVA, the parties have agreed to incorporate
a joint venture company in the Philippines and set certain terms with regards to capitalization,
organization, conduct of business and the extent of their participation in the management of affairs
of the joint venture company for the primary purpose of engaging, directly or indirectly, in the
business of medical transcription and other related business in the Philippines. In relation to the
incorporation of a joint venture company, the parties incorporated STI-PHNS. The parties each
have a 50.00% ownership of the outstanding capital stock of STI-PHNS.
*SGVFS008027*
- 55 A Deed of Assignment between GROW and STI ESG was executed on May 5, 2006 to transfer all
the rights of GROW in the JVA to the latter.
STI-PHNS has already ceased operations in 2014.
The Group’s share in the net earnings of its joint ventures amounted to P
=4.0 million, =
P3.3 million
and =
P12.0 million in 2014, 2013 and 2012, respectively. The unrecognized share in the net losses
of the joint ventures amounted to P
=4.1 million and nil as at March 31, 2014 and 2013,
respectively.
For terms and conditions relating to advances to associates and joint ventures, refer to Note 27.
The joint ventures had no contingent liabilities or capital commitments as at March 31, 2014 and
2013.
14. Available-for-Sale Financial Assets
Quoted equity shares - at fair value
Unquoted equity shares - at cost
March 31,
2014
P
=3,757,345
46,842,595
P
=50,599,940
March 31,
2013
=3,716,495
P
946,983
=4,663,478
P
a. Quoted Equity Shares
The quoted equity shares above are traded in the PSE. These are carried at fair value with
cumulative changes in fair values presented as a separate component in equity under the
“Unrealized mark-to-market gain (loss) on available-for-sale financial assets” account in the
consolidated statements of financial position. The fair values of these shares are based on the
quoted market price as at financial reporting date.
The rollforward analysis of the “Unrealized mark-to-market gain (loss) on available-for-sale
financial assets”, gross of non-controlling interests, follows:
Unrealized MTM loss on AFS financial assets
Balance at end of year (see Note 18)
March 31,
2014
(P
=131,189)
(409,190)
(P
=540,379)
March 31,
2013
=192,971
P
(324,160)
(P
=131,189)
Dividend income earned from AFS financial assets amounted to =
P0.5 million, P
=0.4 million
and =
P2.8 million in 2014, 2013 and 2012, respectively.
*SGVFS008027*
- 56 b. Unquoted Equity Shares
Unquoted equity shares pertain to unlisted shares of stocks which the Group will continue to
carry as part of its investment. The fair value if these unquoted equity shares is not reasonably
determinable due to the unpredictable nature of future cash flows and the lack of suitable
method of arriving at a reliable fair value, hence, these are carried at cost less impairment, if
any.
c. Share Swap Transactions with Metro Pacific Investments Corporation (MPIC)
On December 21, 2012, De Los Santos - STI College, De Los Santos General Hospital, STI
ESG, the Delos Santos family (a shareholder in De Los Santos - STI College, De Los Santos
General Hospital and De Los Santos - STI Megaclinic) and MPIC entered into an investment
agreement, wherein MPIC shall invest in De Los Santos General Hospital by subscribing to
401,942 new common shares or equivalent to 51% equity interest in General Hospital, subject
to certain terms and conditions. The terms and conditions include De Los Santos - STI
College’s sale of its 42% ownership in De Los Santos - STI Megaclinic to De Los Santos
General Hospital, in exchange for De Los Santos - STI College’s additional subscription of
29,399 new common shares or equivalent to 4% equity interest in De Los Santos General
Hospital.
On February 6, 2013, STI ESG executed a Deed of Assignment with De Los Santos General
Hospital wherein the latter would open for subscription to STI ESG 40,000 common shares
with an aggregate par value of =
P4.0 million. On the same date, De Los Santos - STI College
also executed a Deed of Assignment with the De Los General Hospital wherein the latter
would likewise open for subscription to De Los Santos - STI College 50,000 common shares
with an aggregate par value of P
=5.0 million.
On June 3, 2013, STI ESG executed a deed of pledge on all of its De Los Santos General
Hospital shares in favor of Neptune Stroika Holdings, Inc., a wholly owned subsidiary of
MPIC, to cover the indemnity obligations of ESG enumerated in its investment agreement
with MPIC. The completion of MPIC’s subscription transpired in June 2013, following the
fulfillment of the conditions specified in the agreement. As a result, De Los Santos - STI
Megaclinic and De Los Santos General Hospital ceased to be associates of the Group effective
June 2013. Consequently, the Group’s effective percentage ownership in De Los Santos
General Hospital was diluted and such was reclassified to AFS financial assets. The Group
then recognized a loss arising from the dilution amounting to =
P43.0 million presented as “Loss
on deemed sale and share swap of an associate” in the consolidated statement of
comprehensive income.
On August 15, 2013, STI Investments purchased 40,051 shares of De Los Santos - STI
Megaclinic representing 6.06% of the total outstanding capital stock of the latter from De Los
Santos General Hospital. The Group, through De Los Santos – STI College also made an
additional investment to De Los Santos General Hospital amounting to P
=11.8 million. Out of
the total amount, =
P5.8 million remain unpaid as at March 31, 2014, which was included as part
of “Other payables” under the “Accounts payable and other current liabilities” account.
*SGVFS008027*
- 57 -
15. Goodwill, Intangible and Other Noncurrent Assets
Condominium deposit
Goodwill
Deposits (see Note 25)
Intangible assets
Deposit for future purchase of net assets
Advances to suppliers
Land (see Note 10)
Others
March 31,
2014
P
=397,262,833
202,843,745
38,755,552
29,898,142
20,000,000
15,786,333
–
27,882,846
P
=732,429,451
March 31,
2013
=–
P
200,258,253
31,962,268
7,711,712
–
5,314,902
387,862,833
8,890,608
=642,000,576
P
Land and Condominium Deposit
On March 21, 2013, STI ESG’s BOD approved the transfer of a parcel of land to TechZone
Philippines, Inc. (TechZone), an entity under common control with the Group (see Note 27), in
exchange for condominium units to be developed by TechZone.
In April 2013, STI ESG and TechZone, entered into a real estate mortgage for TechZone’s loan
amounting to P
=800.0 million. STI ESG’s land was used as collateral for TechZone’s loan, the
proceeds of which were used by TechZone to develop the property.
In August 2013, the Deed of Absolute Sale for the sale of the land was executed between STI ESG
and TechZone in accordance with the BOD approval. Title to the land has now been transferred in
favor of TechZone and consequently, the amount was reclassified, including other directly
attributable costs, as “Condominium deposit.” Development of the condominium project is
likewise ongoing.
Goodwill
The rollforward analyses of this account follow:
Additions due to business combinations (see Note 3)
March 31,
2014
P
=200,258,253
2,585,492
P
=202,843,745
March 31,
2013
=200,258,253
P
–
=200,258,253
P
Goodwill acquired through business combinations have been allocated to the following entities
which are considered as separate CGUs:
STI-Kalookan
STI-Novaliches
STI-Taft
STI-Tuguegarao (see Note 3)
STI-Dagupan (see Note 3)
March 31,
2014
P
=64,147,877
21,803,322
19,030,844
13,638,360
6,835,818
March 31,
2013
=64,147,877
P
21,803,322
19,030,844
13,638,360
6,835,818
(Forward)
*SGVFS008027*
- 58 -
STI-Batangas
Merged entities:
STI-Cubao
STI-Global City
STI-Edsa Crossing
STI-Ortigas-Cainta
STI-Meycauayan
STI-Makati
STI-Las Piñas
STI-Kalibo
STI-Naga
March 31,
2014
P
=2,585,492
March 31,
2013
=–
P
28,327,670
11,360,085
11,213,342
7,476,448
5,460,587
3,261,786
2,922,530
2,474,216
2,305,368
P
=202,843,745
28,327,670
11,360,085
11,213,342
7,476,448
5,460,587
3,261,786
2,922,530
2,474,216
2,305,368
=200,258,253
P
Deposits
This account includes security deposits made for utility companies and warehouse and
office space rentals to be applied against future lease payments in accordance with the respective
lease agreements.
Intangible Assets
Intangible assets represent STI ESG’s new accounting software, which was implemented and
started to be amortized in June 2013. In 2014, the Group is in the process of implementing its new
school management software.
The rollforward analyses of this account follow:
Additions
Reclassification
Amortization (see Note 22)
March 31,
2014
P
=7,711,712
24,577,384
–
(2,390,954)
P
=29,898,142
March 31,
2013
=7,521,312
P
–
190,400
–
=7,711,712
P
Cost
Accumulated amortization
Net carrying amount
2014
P
=32,289,096
2,390,954
P
=29,898,142
2013
=7,711,712
P
–
=7,711,712
P
Deposit for Future Purchase of Net Assets
On February 21, 2014, WNU’s BOD approved the acquisition of net assets of Bacolod
Educational Service and Technology Center, Inc. (formerly STI College Bacolod, Inc.), which is
owned by a franchisee of STI ESG. In March 2014, WNU made an initial deposit for the purchase
amounting to P
=20 million. In May 2014, the sale was consummated and the deed of absolute sale
was executed with agreed total purchase price of P
=24 million.
Advances to Suppliers
Advances to suppliers pertain to advance payments made in relation to the acquisition of property
and equipment. These will be reclassified to the “Property and equipment” account when the
goods are received or the services are rendered.
*SGVFS008027*
- 59 -
16. Short-term Loans and Long-term Debt
Short-term Loans
In 2014, STI ESG availed of short-term loans from Security Bank Corporation (Security Bank)
amounting to =
P280.0 million with an interest rate of 3.75% and maturing on September 2014. The
proceeds from these short-term loans will be used for working capital purposes. STI ESG settled
P
=100.0 million in November 2013. Outstanding short-term loan as of March 31, 2014 amounted
to =
P180.0 million.
STI ESG availed of unsecured, interest-bearing loans from Metropolitan Bank and Trust Company
(Metrobank), Security Bank, Bank of the Philippine Islands (BPI), UnionBank of the Philippines
and Classic Finance, Inc. (an entity under common control) aggregating to =
P539.0 million. These
loans bear interest rates ranging from 5.00% to 6.00%. The proceeds from these loan availments
and proceeds from issuances of STI ESG shares were used for the payment of its outstanding
loans, acquisition of various properties and construction of new school buildings. These loans
were fully settled in December 2012.
The loan agreements provide certain restrictions and requirements with respect to, among others,
change in majority ownership and management, merger or consolidation with other corporation
resulting to loss of control over the overall resulting entity and sale, lease, transfer or otherwise
disposal of all or substantially all of its assets. The Group has complied with the notice
requirement under the loan agreements with the creditor banks.
As discussed in Notes 10 and 11, as at March 31, 2014, property and equipment and investment
properties with a carrying value amounting toP
=27.9 million and P
=13.9 million are pledged as
security to the short-term loans of the Group.
Long-term Debt
As at March 31, 2014, long-term debt consists of:
Bank loans - China Banking Corporation (Chinabank)
Loan from WNU’s former stockholders
Mortgage payable
Less current portion
=88,811,174
P
19,485,271
109,755
108,406,200
49,940,706
=58,465,494
P
The loan from Chinabank is secured by certain land of the Group and WNU’s former owners.
These loans have maturities of 5 years or less with interest rates ranging from 4.75% to 13.60% in
2014.
The loan agreements provide certain restrictions and requirements with respect to, among others,
change in majority ownership and management, merger or consolidation with other corporation
resulting to loss of control over the overall resulting entity and sale, lease, transfer or otherwise
disposal of all or substantially all of its assets. As at March 31, 2014, WNU has complied with
these covenants. WNU has also complied with the notice requirement under the loan agreements
with the creditor banks.
As at July 9, 2014, the loan from WNU’s former stockholders were already paid in full.
*SGVFS008027*
- 60 Corporate Notes Facility
On March 20, 2014, STI ESG entered into a Corporate Notes Facility Agreement (Credit Facility
Agreement) with China Banking Corp. (Chinabank) granting STI ESG a credit facility amounting
to =
P3.0 billion with a term of either 5 or 7 years. The net proceeds from the issuance of the notes
shall be used for capital expenditures and other general corporate purposes.
The interest rate shall either be floating or fixed and the term can either be 5 or 7 years depending
on the election made by STI ESG on the first drawdown date. The interest rate is benchmarked on
the Philippine Dealing System Treasury - Fixing (PDST-F) rate plus a margin of 2% or 2.5% per
annum, depending on the term, but in no case be lower than the Bangko Sentral ng Pilipinas
overnight rate plus a margin of 0.75% per annum.
The Credit Facility Agreement provides certain restrictions and requirements with respect to,
among others, change in majority ownership and management, merger or consolidation with other
corporation resulting to loss of control over the overall resulting entity and sale, lease, transfer or
otherwise disposal of all or substantially all of its assets. As at March 31, 2014, STI ESG has
complied with these covenants. STI ESG has also complied with the notice requirement under the
loan agreements with the creditor banks. The Credit Facility Agreement also contains, among
others, covenants regarding incurring additional debt and declaration of dividends, to the extent
that such will result in a breach of the required debt-to-equity and debt service coverage ratios. As
at March 31, 2014, STI ESG has complied with the above covenants. STI ESG has also complied
with the notice requirement under the loan agreements with the other creditor banks.
As of March 31, 2014, STI ESG has not drawn on the credit facility.
Interest
Interest incurred from short-term loans amounted to =
P3.1 million, =
P17.3 million and P
=32.5 million
in 2014, 2013 and 2012, respectively (see Note 19).
17. Accounts Payable and Other Current Liabilities
Accounts payable
Accrued expenses:
Rent
School-related expenses
Salaries, wages and benefits
Advertising and promotion
Contracted services
Utilities
Others
Dividends payable (see Note 18)
Unearned tuition and other school fees
Withholding taxes payable
Others
March 31,
2014
P
=310,531,279
March 31,
2013
=174,408,815
P
29,850,740
22,151,354
13,257,284
13,277,589
28,036,409
3,766,903
7,873,563
12,745,604
9,621,664
11,504,184
54,813,919
P
=517,430,492
47,913,702
18,514,400
9,283,290
7,131,086
4,259,353
4,187,980
12,189,508
11,840,316
5,342,406
8,115,060
17,499,905
=320,685,821
P
*SGVFS008027*
- 61 The terms and conditions of the above liabilities are as follows:
a. Accounts payable are noninterest-bearing and are normally settled within a 30 to 60-day term.
b. Accrued expenses and withholding taxes payable are expected to be settled within the next
financial year.
c. Unearned tuition and other school fees are amortized over the related school term.
d. Other payables primarily include costs related to the demolition of the existing building on a
recently purchased property and equipment and nontrade payables related to purchase of
certain property. These are expected to be settled within the next financial year.
e. For terms and conditions with related parties, refer to Note 27.
18. Equity
Common Stock and Additional Paid-in Capital
Details and movement in common stock follow:
March 31, 2014
Shares
Amount
March 31, 2013
Shares
Amount
Common Stock - P
=0.50 par value
per share
Authorized
=5,000,000,000
10,000,000,000 P
=5,000,000,000 10,000,000,000 P
Issued and outstanding:
Issuances (see Note 1)
9,904,806,924 P
=4,952,403,462
–
–
9,904,806,924 P
=4,952,403,462
1,103,000,000 P
=551,500,000
8,801,806,924 4,400,903,462
9,904,806,924 =
P4,952,403,462
In December 2011, the Parent Company issued 397,908,895 and 397,908,894 of its unissued
common shares to STI ESG and CMA, respectively, via a private placement for an aggregate
subscription amount of =
P477.5 million. Documentary stamp taxes paid relative to the issuances of
shares amounting to P
=2.0 million is presented as deduction from additional paid-in capital.
The 795,817,789 private placement shares were approved for listing with the PSE on September
28, 2012 subject to the fulfillment of certain conditions. On May 10, 2013, the SEC granted the
Parent Company’s request for exemptive relief from the requirements of the mandatory tender
offer relative to the private placement transaction. On June 27, 2013, the PSE advised the Parent
Company to submit duly executed lock-up agreements to facilitate the listing of private placement
shares. The lock-up agreements were executed on August 5, 2013 and were submitted to the PSE
on August 7, 2013. The lock-up period expired on February 18, 2014.
On September 28, 2012, the Parent Company issued 5,901,806,924 shares to STI ESG
stockholders in exchange for 907,970,294 STI ESG shares pursuant to the Share Swap transaction
resulting to recognition of common stock of P
=2,950.9 million, decrease in other equity reserve of
=
P2,367.2 million and increase in non-controlling interests of =
P25.3 million (see Notes 1 and 3).
*SGVFS008027*
- 62 On November 7, 2012, the Parent Company issued 2,627,000,000 new shares relative to the
Primary Offering at =
P0.90 per share following its listing in the PSE. The transaction resulted to
increases in common stock and APIC of P
=1,313.5 million and =
P1,050.8 million, respectively.
On November 28, 2012, the Parent Company issued the 273,000,000 Over-allotment Option
shares to UBS AG (see Note 1) resulting to recognition of common stock and APIC of
=
P109.2 million, respectively.
Transaction costs incurred in connection with the issuance of shares, charged against APIC,
amounted to =
P118.5 million.
Set out below is the Parent Company’s track record of registration of its securities:
Date of Approval
December 4, 2007*
November 25, 2011**
September 28, 2012***
November 7, 2012
November 28, 2012
Number of Shares
Authorized
Issued
1,103,000,000
307,182,211
1,103,000,000
795,817,789
10,000,000,000
5,901,806,924
10,000,000,000
2,627,000,000
10,000,000,000
273,000,000
Issue/
Offer Price
=0.50
P
0.60
2.22
0.90
0.90
*** Date when the registration statement covering such securities was rendered effective by the SEC.
*** Date when the Parent Company filed SEC form 10-1(k) (Notice of Exempt Transaction) with the SEC in accordance with the Securities Regulation Code and its
Implementing Rules and Regulations
*** Date when the SEC approved the increase in authorized capital stock.
As of March 31, 2014 and 2013, the Parent Company has a total number of shareholders on record
of 1,245 and 1,243, respectively.
Cost of Shares Held by a Subsidiary
This account includes 502,308,895 STI Holdings shares owned by STI ESG as of March 31, 2014
and 2013 amounting to =
P500.0 million which is treated as treasury shares in the consolidated
statements of financial position. Dividends related to these shares, amounting to P
=7.6 million and
=
P5.0 million, were offset against the dividends declared in 2014 and 2013, as shown in the
consolidated statement of changes in equity.
Other Comprehensive Income (Loss)
March 31, 2014
(Notes 3 and 14)
Share in associates’ unrealized MTM gain on AFS
financial assets (Notes 3 and 12)
Share in associates’ cumulative actuarial loss
Attributable to
Equity Holders
of the Parent
Company
Non-controlling
interests
Total
(P
=525,048)
(P
= 15,331)
(P
= 540,379)
428,253,571
18,014,452
(15,003,756)
P
=430,739,219
5,809,954
195,877
(203,540)
P
=5,786,960
434,063,525
18,210,329
(15,207,296)
P
=436,526,179
*SGVFS008027*
- 63 March 31, 2013
Attributable to
Equity Holders
of the Parent
Non-controlling
Company
interests
(Notes 3 and 14)
financial assets (Notes 3 and 12)
Share in associates’ cumulative actuarial loss
Total
=
P (121,773)
P
= (9,416)
P
=(131,189)
1,905,291,022
21,253,817
(6,845,516)
P
=1,919,577,550
24,882,689
277,567
(89,400)
P
=25,061,440
1,930,173,711
21,531,384
(6,934,916)
=
P1,944,638,990
April 1, 2012
Attributable to
Equity Holders
Non-controlling
of the Parent
Company
interests
Unrealized MTM gain (loss) on AFS financial
assets (Note 14)
Cumulative actuarial loss
Share in associates’ cumulative actuarial gain
Total
P
=207,684
P
= (14,713)
P
=192,971
1,039,792,823
(12,708,006)
2,882,164
P
=1,030,174,665
43,906,508
(536,611)
121,703
P
=43,476,887
1,083,699,331
(13,244,617)
3,003,867
=
P1,073,651,552
Other Equity Reserve
i. Equity adjustment resulting from the Share Swap transaction (see Notes 1 and 3).
The table below summarizes the impact at acquisition date of the Share Swap:
Issuance of STI Holdings shares at par
Recognition of non-controlling interests (NCI)
Elimination of STI ESG common shares
Elimination of STI ESG additional paid in capital
Elimination of retained earnings of STI Holdings
prior to being under common control
Elimination of other comprehensive income of STI
Holdings prior to being under common control
Transfer from STI ESG’s retained earnings to NCI
relative to amount attributed to minority
shareholders
Transfer from STI ESG’s other comprehensive
income to NCI relative to amount attributed to
minority shareholders
Elimination of investment of STI Holdings to STI
ESG prior to the Share Swap
Reclassification of STI ESG’s investment in STI
Holdings and elimination of STI ESG’s share in
net income of STI Holdings
Stock issue cost relative to the Share Swap
Accounts affected
Capital stock
Capital stock
Retained earnings
Amount
P
=2,950,903,462
173,954,704
(980,000,000)
(379,937,290)
(24,004,083)
Other comprehensive income
119,472
Retained earnings
(74,108,762)
Other comprehensive income
(44,748,649)
Investments in and advances to
Cost of shares held by a subsidiary
Retained earnings
80,811,545
501,153,708
(500,009,337)
(1,144,371)
15,510,031
P
=1,718,500,430
*SGVFS008027*
- 64 ii. Parent Company’s equity adjustment for the excess of acquisition cost over the carrying
value of non-controlling interests in STI ESG, after reattribution of non-controlling
interests’ share in other comprehensive income to the equity holders of the Parent
Company, amounting to P
=65.0 million =
P69.1 million as of March 31, 2014 and 2013,
Retained Earnings
Consolidated retained earnings represent STI ESG’s retained earnings, net of amount attributable
to NCI, and STI Holdings’ accumulated earnings, net of dividends declared from April 1, 2010,
after the Controlling Shareholder’s acquisition of STI Holdings (see Note 3).
Consolidated retained earnings include undeclared retained earnings of subsidiaries and associates
amounting to P
=2,511.1 million and =
P1,443.0 million as at March 31, 2014 and 2013, respectively.
The Parent Company’s retained earnings available for dividend declaration, computed based on
the guidelines provided in the SEC Memorandum Circular No. 11, amounted to P
=106.4 million
and =
STI ESG’s BOD approved the appropriation amounting to =
P800.0 million out of its
unappropriated retained earnings balance on December 7, 2011 for the Group’s future expansion
of nine schools within the next two years. On August 29, 2013, STI ESG’s BOD approved the
reversal of the amount to unappropriated retained earnings.
On September 4, 2013, cash dividends amounting to P
=0.015144 per share or the aggregate amount
of P
=150.0 million were declared by the Parent Company’s BOD in favor of all stockholders on
record as at September 18, 2013, payable on October 14, 2013.
On December 5, 2012, cash dividends amounting to P
=0.01 per share or the aggregate amount of
=
P99.0 million were declared by the Parent Company’s BOD in favor of all stockholders on record
as of December 19, 2012, payable on December 28, 2012.
On October 13, 2011, cash dividends amounting to P
=0.02 per share or the aggregate amount of
=
P6.1 million were declared by the Parent Company’s BOD in favor of all stockholders on record
as of November 11, 2011, payable on December 8, 2011.
As of March 31, 2014 and 2013, long outstanding unclaimed dividends amounting to
=
P11.8 million pertains to dividend declarations from 1998 to 2006.
Dividends Declared by Noncontrolling Interest
Dividends declared by subsidiaries to non-controlling interest owners amounted to P
=11.0 million,
=
P2.0 million and =
P72.0 million for the year ended March 31, 2014, 2013 and 2012, respectively.
*SGVFS008027*
- 65 -
19. Interest Income and Interest Expense
Interest income is derived from the following sources:
Cash and cash equivalents (see Note 6)
Advances to associates and joint ventures
(see Note 27)
Past due accounts receivables (see Note 7)
Noncurrent receivables (see Note 27)
Restructured receivables
Accretion of discount on refundable deposits
(see Note 15)
2014
=10,997,206
P
2013
=18,975,999
P
2012
=9,750,825
P
925,114
277,259
–
–
2,608,782
412,772
12,726,335
–
2,020,625
31,951
3,725,489
560,995
–
=12,199,579
P
–
=34,723,888
P
108,348
=16,198,233
P
2014
P6,518,855
=
3,090,411
1,317,531
=10,926,797
P
2013
=–
P
17,320,345
1,511,021
=18,831,366
P
2012
=–
P
32,533,323
1,332,121
=33,865,444
P
2014
2013
2012
P
=238,054,539
92,718,562
87,691,656
P
=190,101,113
101,543,377
95,083,498
P
=192,126,640
91,731,260
97,054,973
110,553,121
6,444,628
17,557,479
=553,019,985
P
87,088,146
1,525,885
10,068,037
=485,410,056
P
79,229,573
3,205,510
18,508,740
=481,856,696
P
2013
P25,659,453
=
13,076,515
9,105,552
1,648,119
=49,489,639
P
2012
P18,467,803
=
11,384,345
8,675,101
1,009,953
=39,537,202
P
Interest expenses are incurred from the following sources:
Long-term debts (see Note 16)
Short-term loans (see Note 16)
Obligations under finance lease (see Note 25)
20. Cost of Educational Services
Faculty salaries and benefits
Cost of student activities
Rental (see Note 25)
(see Note 10)
Courseware development
Others
21. Cost of Educational Materials and Supplies Sold
Educational materials
Promotional materials
School materials and supplies
Others
2014
P32,565,707
=
11,837,412
7,557,627
1,380,934
=53,341,680
P
*SGVFS008027*
- 66 -
22. General and Administrative Expenses
2014
Salaries, wages and benefits
(see Notes 23, 24 and 27)
Light and water
Taxes and licenses
Rental (see Note 25)
Professional fees
Provision for (reversal of) impairment loss on:
Receivables (see Note 7)
Investments in and advances to associates
and joint ventures (see Note 12)
Goodwill (see Note 15)
Outside services
Advertising and promotions
Transportation
Meetings and conferences
Entertainment, amusement and recreation
Office supplies
Repairs and maintenance
Communication
Purchased services and utilities
Insurance
Excess of cost over net realizable value of
inventories (see Note 8)
Others
2013
2012
P
=242,730,816
99,131,497
P
=224,270,503
93,622,687
P
=215,934,947
87,728,365
94,998,853
34,939,382
48,869,422
48,854,457
69,342,633
68,800,958
48,232,708
39,097,439
65,220,778
28,325,491
48,161,313
34,396,335
57,648,376
34,534,038
40,994,410
(719,873)
–
58,037,324
23,092,713
25,204,879
15,874,352
14,997,531
13,029,334
11,786,754
9,812,693
6,049,955
5,450,574
4,120,636
–
34,263,759
21,168,920
21,158,560
13,438,035
12,078,133
10,235,845
9,430,056
7,565,325
6,099,640
4,515,053
3,047,124
3,383,556
27,277,269
18,466,455
21,079,158
14,129,561
9,980,928
8,637,864
9,745,033
7,410,537
7,438,820
4,234,335
246,168
23,107,628
=745,328,724
P
679,052
31,990,747
=688,262,078
P
2,420,456
26,300,906
=838,510,401
P
Share Swap and follow-on offering expenses in 2013, included as part of “General and
administrative expenses”, amounted to P
=50.4 million.
23. Personnel Costs
Salaries and wages
Pension expense (see Note 24)
Other employee benefits (see Note 27)
2014
=414,814,263
P
10,133,891
55,837,201
=480,785,355
P
2013
2012
=344,045,511
P
=348,679,602
P
19,256,756
5,151,804
51,069,349
54,230,181
=414,371,616
P
=408,061,587
P
*SGVFS008027*
- 67 -
24. Pension Liabilities
Defined Benefit Plans
The Group (except De Los Santos - STI College and STI-QA) has separate, noncontributory,
defined benefit retirement plans covering substantially all of its faculty and regular employees.
The benefits are based on the faculties’ and employees’ salaries and length of service.
Under the existing regulatory framework, RA No. 7641 requires a provision for retirement pay to
qualified private sector employees in the absence of any retirement plan in the entity, provided
however that the employee’s retirement benefits under any collective bargaining and other
agreements shall not be less than those provided under the law. The law does not require
minimum funding of the plan.
Retirement benefits are payable in the event of termination of employment due to: (i) early,
normal, or late retirement; (ii) physical disability; (iii) voluntary resignation; or (iv) involuntary
separation from service. For plan members retiring under normal, early or late terms, retirement
benefit is equal to a percentage of final monthly salary for every year of credited service.
In case of involuntary separation from service, benefit is determined in accordance with the
Termination Pay provision under the Philippine Labor Code or similar legislation on involuntary
termination.
The funds are administered by a trustee bank under the supervision of the Board of Trustees of the
plan. The Board of Trustees is responsible for investment of the assets. It defines the investment
strategy as often as necessary, at least annually, especially in the case of significant market
developments or changes to the structure of the plan participants. When defining the investment
strategy, it takes account of the plans’ objectives, benefit obligations and risk capacity. The
investment strategy is defined in the form of a long-term target structure (Investment policy). The
Board of Trustees delegates the implementation of the Investment policy in accordance with the
investment strategy as well as various principles and objectives to an Investment Committee,
which also consists of members of the Board of Trustees, a Director and the Chief Finance Officer
(CFO). The CFO oversees the entire investment process.
The following tables summarize the components of the Group’s net pension costs recognized in
profit or loss and amounts recognized in the consolidated statements of financial position:
2014
Pension expense (recognized under the “Salaries,
wages and benefits” account):
Current service cost
Net interest cost
Pension liabilities (recognized in the consolidated
statements of financial position):
Present value of defined benefit obligations
Fair value of plan assets
2013
P
=10,382,377
(627,573)
P
=9,754,804
=10,972,534
P
934,297
=11,906,831
P
P
=137,381,189
(76,505,921)
P
=60,875,268
=107,466,613
P
(85,046,505)
=22,420,108
P
*SGVFS008027*
- 68 -
2014
2013
Changes in the present value of defined benefit
obligations:
Current service cost
Interest cost
Benefits paid
Actuarial loss (gain) on obligations
107,466,613
46,399,488
10,382,377
2,031,669
(7,590,094)
(21,308,864)
P
=137,381,189
84,147,605
–
10,972,534
4,592,186
(20,928,160)
28,682,448
=107,466,613
P
Changes in the fair value of plan assets:
Contributions
Return on plan assets
Benefits paid
Actuarial gain (loss) on plan assets
P
=85,046,505
1,565,732
19,865,810
2,659,242
(7,590,094)
(25,041,274)
P
=76,505,921
=29,373,472
P
–
5,620,855
3,657,889
(20,928,160)
67,322,449
=85,046,505
P
(P
=20,850,191)
P
=71,192,302
Actual return (loss) on plan assets
The principal assumptions used in determining pension liabilities are shown below:
Discount rate
Future salary increases
April 1, 2013
3.04–7.90%
5.00–8.00%
April 1, 2012
3.00–8.00%
5.00–8.00%
April 1, 2011
5.00–11.00%
6.00–8.00%
The maximum economic benefit available is a combination of expected refunds from the plan and
reductions in future contributions.
The major categories of the Group’s total plan assets as a percentage of the fair value of the total
plan assets are as follows:
Cash
Investment in debt securities
Investments in equity securities
2014
30%
5%
65%
100%
2013
14%
4%
82%
100%
The plan assets of the Group are maintained by Union Bank of the Philippines, United Coconut
Planters Bank and Rizal Commercial Banking Corporation.
*SGVFS008027*
- 69 Details of STI ESG’s net assets available for plan benefits and their related market values are as
follows:
Cash
Short-term fixed income
Investments in government securities
Investments in equity securities
Others
2014
P
=10,858,828
14,736,492
4,716,657
46,178,969
14,975
P
=76,505,921
2013
=–
P
12,329,338
3,043,165
69,674,002
–
=85,046,505
P
Short-term Fixed Income. Short-term fixed income investment includes time deposits and special
savings deposits.
Medium and Long-term Fixed Income. Investments in medium and long-term fixed income which
include Philippine peso-denominated bonds, such as government securities whose maturities range
from 1 to 25 years with interest rates ranging from 2.75% to 6.38%.
Investments in Government Securities. Investments in government securities include treasury bills
and fixed-term treasury notes with maturities ranging from one to thirteen years and bear interest
rates ranging from 5.9% to 9.0%. These securities are fully guaranteed by government of the
Republic of the Philippines.
The overall expected rate of return on plan assets is determined based on the market prices
prevailing on that date, applicable to the period over which the obligation is expected to be settled.
The plan may expose the Group to a concentration of equity market risk since the Group’s plan
assets are primarily composed of investments in listed equity securities.
The management performed an Asset-Liability Matching Study (ALM) annually. The overall
investment policy and strategy of the Group’s defined benefit plans is guided by the objective of
achieving an investment return which, together with contributions, ensures that there will be
sufficient assets to pay pension benefits as they fall due while also mitigating the various risk of
the plans. The Group’s current strategic investment strategy consists of 65% of equity
instruments, 5% of debt instruments and 30% cash.
The average duration of the defined benefit obligation at the end of the period is 22 years.
Shown below is the maturity analysis of the undiscounted benefit payments:
Less than one year
More than one year to five years
More than five years to 10 years
More than 10 years to 15 years
More than 15 years to 20 years
Amount
=20,324,738
P
24,330,827
49,580,356
105,040,687
144,729,170
The expected contribution of the Group in 2015 is =
P10.9 million.
*SGVFS008027*
- 70 The sensitivity analysis below has been determined based on reasonably possible changes of each
significant assumption on the defined benefit obligation (DBO) as of the end of the reporting
period, assuming all other assumptions were held constant:
Discount rates
Future salary increases
Employee turnover
Increase Present Value of
(decrease)
DBO
1.00%
(P
=15,030,045)
(1.00%)
15,233,234
1.00%
15,233,234
(1.00%)
(15,030,045)
10.00%
(2,123,774)
(10.00%)
2,123,774
Defined Contribution Plans
De Los Santos - STI College and STI-QA have funded, noncontributory defined contribution plan
(De Los Santos Plan) covering all regular and permanent employees and is a participating
employer in CEAP Retirement Plan. The De Los Santos Plan has a defined contribution format
wherein the obligation is limited to specified contributions to the De Los Santos Plan and the
employee’s contribution is optional.
De Los Santos - STI College and STI-QA’s contributions consist of future service cost and past
service cost. Future service cost is equal to 4.00% of employee’s monthly salary from the date an
employee becomes a member in CEAP. Past service cost is equal to 5.00% of the employees’
average monthly salary for a 12 month period, immediately preceding the date of De Los Santos STI College and STI-QA’s participation in CEAP, multiplied by the number of years of past
service amortized over 10 years. Future service refers to the periods of covered employment on or
after the date of De Los Santos - STI College and STI-QA’s participation in CEAP. Past service
refers to the continuous service of an employee from the date employee met the requirements for
membership in the retirement plan to the date of acceptance of De Los Santos - STI College and
STI-QA as a Participating Employer in CEAP Retirement Plan. In addition, De Los Santos - STI
College and STI-QA give the employee an option to make a personal contribution to the fund at an
amount not to exceed 4.00% of his monthly salary. De Los Santos - STI College and STI-QA
then provide an additional contribution of 1.00% of the employee’s contribution based on the
latter’s years of tenure. Although the De Los Santos Plan has a defined contribution format, the
Group regularly monitors compliance with RA 7641. As at March 31, 2014 and 2013, the Group
is in compliance with the requirements of RA 7641.
As at March 31, 2014 and 2013, De Los Santos -STI College and STI-QA have excess
contributions to CEAP amounting to =
P3.2 million and =
P3.6 million, respectively (see Note 9).
These excess contributions are classified as prepaid expense and will be offset against De Los
Santos -STI College and STI-QA’s future required contributions to CEAP.
In 2012, De Los Santos - STI College offered an early retirement program to its employees even
when the required tenure of ten years or retirement age of sixty has not been reached. As a result,
several employees availed of the early retirement program and De Los Santos - STI College
recognized the payments as part of pension expense amounting to =
P1.6 million in 2012.
Pension expense recognized by De Los Santos - STI College and STI-QA in 2014, 2013 and 2012,
shown as part of “Cost of educational services” and “General and administrative expenses”
accounts, amounted to P
=0.4 million, P
=7.3 million and P
=2.8 million, respectively.
*SGVFS008027*
- 71 Total pension expense recognized in profit or loss follows:
Defined benefit plans
Defined contribution plans
2014
=9,754,804
P
379,087
=10,133,891
P
2013
2012
=11,906,831
P
=2,391,707
P
7,349,924
2,760,097
=19,256,755
P
=5,151,804
P
25. Leases
a. Finance Lease
The Group acquired various transportation equipment under various finance lease
arrangements. These are included as part of transportation equipment under the “Property and
equipment” account in the consolidated statements of financial position.
Future annual minimum lease payments under the lease agreements, together with the present
value of the minimum lease payments as at financial reporting date follow:
Within one year
After one year but not more than five years
Total minimum lease payments
Less amount representing interest
Present value of lease payments
Less current portion of obligations under
finance lease
Noncurrent portion of obligations under
finance lease
2014
P8,617,060
=
14,466,643
23,083,703
4,217,606
18,866,097
2013
P8,216,385
=
14,205,559
22,421,944
2,662,886
19,759,058
2012
P8,521,931
=
16,273,590
24,795,521
6,097,919
18,697,602
7,435,444
6,419,251
9,741,235
P
=11,430,653
P
=13,339,807
P
=8,956,367
Interest incurred from finance lease amounted to =
P1.3 million, =
P1.5 million and =
P1.3 million
in 2014, 2013 and 2012, respectively (see Note 19).
b. Operating Lease
As Lessor
The Group entered into several lease agreements, as lessors, on their buildings under operating
lease agreements with varying terms and periods. All leases are subject to annual repricing
based on a pre-agreed rate. Total rental income amounted to =
P10.8 million, =
P4.6 million and
P
=5.4 million in 2014, 2013 and 2012, respectively (see Notes 11 and 27).
Future minimum rental receivable for the remaining lease terms as at financial reporting date
follow:
Within one year
Total
2014
P3,888,786
=
2,714,374
=6,603,160
P
2013
P1,195,760
=
4,248,000
=5,443,760
P
2012
P467,692
=
18,303,132
=18,770,824
P
As Lessee
The Group lease land and building spaces, where the corporate office, schools, and warehouse
are located, under operating lease agreements with varying terms and periods. The lease rates
*SGVFS008027*
- 72 are subject to annual repricing based on a pre-agreed rate. Total rental expense charged to
operations amounted to P
=136.6 million, P
P145.2 million for the years ended
March 31, 2014 and 2013 and April 1, 2012, respectively (see Notes 20 and 22).
Certain subsidiaries also paid its lessors refundable deposits equivalent to several months of
rental payments as security for its observance and faithful compliance with the terms and
conditions of the agreement (see Notes 9 and 15).
Future minimum rental payables under the lease agreements as at financial reporting date
follow:
Within one year
After five years and onwards
Total
2014
P184,313,624
=
435,951,409
345,719,361
=965,984,394
P
2013
P99,988,542
=
291,361,404
133,723,061
=525,073,007
P
2012
P54,895,288
=
97,999,009
141,389,342
=294,283,639
P
26. Income Tax
Except for STI-UWI, all domestic subsidiaries qualifying as private educational institutions are
subject to tax under RA No. 8424, “An Act Amending the National Internal Revenue Code, as
amended, and For Other Purposes” which was passed into law effective January 1, 1998. Title II
Chapter IV - Tax on Corporation - Sec 27(B) of the said Act 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 DepEd, or CHED, or TESDA, as the
case may be, in accordance with the existing laws and regulations and shall pay a tax of ten
percent (10.00%) on its taxable income.
The components of recognized deferred tax assets and liabilities are as follows:
March 31,
2014
Net deferred tax assets:
Gain on constructive sale of land held for swap
Allowance for doubtful accounts
Pension liabilities
Excess of:
Cost over net realizable value of inventories
Rental under operating lease computed on a
straight-line basis
Others
Accrued rent
Deferred tax liability Excess of fair values over carrying values of net
assets acquired in business combination
March 31,
2013
P
=17,213,717
7,453,869
5,812,161
=–
P
4,251,262
2,230,932
1,025,741
783,695
734,310
853,351
10,828
33,103,977
–
33,103,977
879,814
482,108
–
8,627,811
(122,237)
8,505,574
127,967,442
(P
=94,863,465)
–
=8,505,574
P
*SGVFS008027*
- 73 Certain deferred tax assets of subsidiaries were not recognized as at March 31, 2014 and 2013 as it
is not probable that future taxable profits will be sufficient against which these can be utilized.
The following are the deductible temporary differences and unused NOLCO and MCIT for which
no deferred tax assets were recognized:
NOLCO
Allowance for doubtful accounts
Pension liabilities
Acquisition-related expenses
MCIT
Excess of:
Cost over net realizable value
of inventories
Rental under operating lease computed
on a straight-line basis
Unrealized foreign exchange losses
Provision for impairment loss
Others
2014
P80,683,803
=
31,090,994
2,753,658
4,773,584
1,088,154
740,309
2013
P76,012,347
=
30,019,589
1,947,714
–
521,326
454,137
2012
P52,067,934
=
12,902,776
3,537,685
–
–
112,243
194,274
194,274
194,274
–
145,604
–
273,900
=121,744,280
P
1,356,488
2,541
–
1,034,481
=111,542,897
P
2,325,252
2,849
1,709,044
2,078,213
=74,930,270
P
As at March 31, 2014, the Group also did not recognize any deferred tax assets on the provision
for impairment losses on investment in and advances to an associate and goodwill aggregating to
=
P4.1 and =
P1.0 million, respectively, because management does not expect to generate enough
capital gains against which these capital losses can be offset.
The details of the Group’s NOLCO, which can be claimed as deduction from future taxable
income, are as follows:
Year Incurred
December 31, 2010
March 31, 2011
December 31, 2011
March 31, 2012
December 31, 2012
March 31, 2013
December 31, 2013
March 31, 2014
Expiry Dates
December 31, 2013
March 31, 2014
December 31, 2014
March 31, 2015
December 31, 2015
March 31, 2016
December 31, 2016
March 31, 2017
Beginning
P
=13,987,456
10,001,279
2,613,791
17,323,404
3,747,181
28,339,236
–
–
P
=76,012,347
Addition
P
=–
–
–
–
–
–
1,382,082
27,278,109
P
=28,660,191
Applied/
Expired
=
P13,987,456
10,001,279
–
–
–
–
–
–
P
=23,988,735
End
=
P–
–
2,613,791
17,323,404
3,747,181
28,339,236
1,382,082
27,278,109
P
=80,683,803
The details of the Group’s excess MCIT over RCIT, which can be claimed as deduction from
future tax payable, are as follows:
Year Incurred
March 31, 2011
March 31, 2012
March 31, 2013
March 31, 2014
Expiry Date
March 31, 2014
March 31, 2015
March 31, 2016
March 31, 2017
Beginning
=18,628
P
56,782
378,727
–
=454,137
P
Addition
(Applied/
Expired)
(P
=18,628)
–
–
304,800
=286,172
P
End
=–
P
56,782
378,727
304,800
=740,309
P
*SGVFS008027*
- 74 The reconciliation of the provision for income tax on income before income tax computed at the
effect of the applicable statutory income tax rate to the provision for income tax as shown in the
consolidated statements of comprehensive income is summarized as follows:
2013
2012
2014
Provision for income tax at statutory
income tax rate
Income tax effects of:
Equity in net losses (earnings) of
Nondeductible expenses
Loss on deemed sale of an investment in
an associate
Excess of fair values of net assets
acquired over acquisition costs
Gain on sale of investment in associate
Others
Difference in 10% and 30% tax rate
P
=212,567,025
(69,845,555)
17,906,494
P
=251,218,114
P
=97,105,813
(128,475,582)
8,069,513
11,272,299
7,585,677
–
12,900,087
(9,804,323)
–
(4,131,908)
(106,232,937)
=53,358,883
P
–
–
(2,710,785)
(85,148,356)
=42,952,904
P
–
–
(1,512,015)
(17,601,237)
(64,623,212)
=32,227,325
P
Others pertain to the income tax effects of income subject to final tax, change in unrecognized
deferred tax assets, expired NOLCO and MCIT and other items.
27. Related Party Transactions
Parties are considered to be related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial and operating decisions. This
includes: (a) enterprises or individuals owning, directly or indirectly through one or more
intermediaries, control or are controlled by, or under common control; (b) associates; and
(c) enterprises or individuals owning, directly or indirectly, an interest in the voting power of the
company that gives them significant influence over the company, key management personnel,
including directors and officers of the Group and close members of the family of any such
enterprise or individual.
The following are the Group’s transactions with its related parties:
Category
Associates
STI Investments
Advances for working
capital requirements
GROW
Advances for various
expenses
Rental and related charges
Amount/Volume
March 31,
March 31,
March 31,
2014
2013
2012
Outstanding
Balance
Receivable
(Payable)
March 31,
March 31,
2014
2013 Terms
=
P–
=
P–
P
=5,946,690
=
P–
3,933,836
–
–
4,077,408
2,834,199
43,936
–
5,259,339
Conditions
=
P– 30 days upon receipt of billings;
Noninterest-bearing
143,572 30 days upon receipt of billings
but no intention to collect
within one year; Noninterestbearing
8,093,538 30 days upon receipt of billings
Unsecured;
no impairment
Unsecured;
no impairment
Unsecured;
no impairment
(Forward)
*SGVFS008027*
- 75 -
Category
Amount/Volume
March 31,
March 31,
March 31,
2014
2013
2012
De Los Santos - STI
Megaclinic
P
= 31,061,257
expenses and working
capital
Interest income
STI-Alabang
expenses and working
capital
STI-Accent
expenses and other
charges
Others
expenses
Joint Venture
PHEI
Management fees
Affiliates
Philippine Women’s
University (PWU)*
Principal
Interest
UNLAD*
Principal
Interest
Outstanding
Balance
Receivable
(Payable)
March 31,
March 31,
2014
2013 Terms
Conditions
=
P–
=
P–
2,608,782
2,020,625
216,000
–
–
–
8,590,000
10,365,820
3,047,124
35,923,762
4,596,630
–
–
4,596,630
– 30 days upon receipt of billings;
Noninterest-bearing
600,000
3,025,815
3,475,103
200,000
600,000 30 days upon receipt of billings;
Noninterest-bearing
Unsecured;
no impairment
26,470,915 223,529,085 250,000,000 250,000,000 To be settled by way of
assignment of investments in
shares
9,189,946
3,725,489 12,651,546 12,651,546
Secured;
no impairment
–
–
– 198,000,000
P34,743,437 Payable in 5 years; bears 6.50%
P
= 3,682,180 =
interest
Unsecured;
no impairment
–
Noninterest-bearing
27,333,762 30 days upon receipt of billings
– 198,000,000 198,000,000 To be settled by way of equity
conversion
Unsecured;
no impairment
Unsecured;
with
impairment
Unsecured; no
impairment
Secured;
no impairment
–
3,536,389
–
3,327,389
CMA**
Rentals and related
charges
–
–
–
58,830
Noninterest-bearing
Unsecured;
no impairment
Comm & Sense, Inc**.
Rentals and related
charges
134,590
138,466
57,764
282,197
Noninterest-bearing
Unsecured;
no impairment
Phil First Condominium, Inc. **
Rentals and related
12,447,228
charges
80,704
–
Noninterest-bearing
Unsecured;
no impairment
16,729
–
–
168,922
Noninterest-bearing
Unsecured;
no impairment
Employee benefits
–
6,716,054
3,484,752
–
(407,670) 30 days upon receipt of billings;
Noninterest-bearing
Unsecured
PhilCare**
Rentals and related
charges
49,959
1,314,992
902,776
309,844
Noninterest-bearing
Unsecured; no
impairment
Employee benefits
4,808
7,278,847
4,350,433
–
PhilPlans**
Rentals and related
charges
–
593,863
967,511
113,521
Noninterest-bearing
Unsecured; no
impairment
163,985
359,863
243,975
15,926
Unsecured;
no impairment
–
142,660
113,600
–
Noninterest-bearing
–
Phil First Insurance Co.,
Inc. **
Rentals and related
charges
Banclife**
Rentals and related
charges
Employee benefits
(1,023,915)
3,327,389
–
(Forward)
*SGVFS008027*
- 76 -
Category
Ventures Securities**
Rentals and related
charges
Classic Finance**
Availment of short-term
loan
Interest expense
Officers and employees
expenses
Amount/Volume
March 31,
March 31,
March 31,
2014
2013
2012
Outstanding
Balance
Receivable
(Payable)
March 31,
March 31,
2014
2013 Terms
Conditions
=
P–
=
P–
P
= 36,465
– 160,000,000
–
–
– 1 year; interest-bearing
–
2,442,736
–
–
–
7,269,928
38,694,691
36,492,764
=
P–
=
P36,465 30 days upon receipt of billings;
Noninterest-bearing
Unsecured
22,592,828 Liquidated within one month;
Noninterest-bearing
=558,282,346
P
= 542,704,747P
25,024,703
Unsecured; no
impairment
Unsecured;
no impairment
*Entities under common management
**Entities under common control
Outstanding receivables, before any allowance for impairment, and payables arising from these
transactions are summarized below:
Noncurrent receivables
Advances to associates and joint ventures (see Note 12)
Advances to officers and employees (see Note 7)
Current portion of advances to associates, joint ventures and other
related parties (see Note 7)
Rent and other related receivables (see Note 7)
Accounts payable (see Note 17)
March 31,
2014
P
=463,978,935
36,123,762
25,024,703
March 31,
2013
P
=463,978,935
52,689,744
22,592,828
12,356,218
6,245,044
(1,023,915)
P
=542,704,747
11,419,489
8,009,020
(407,670)
P
=558,282,346
Other information on major transactions with related parties follows:
a.
Agreements with Philippine Women’s University (“PWU”), UNLAD Resources Development
Corporation (“UNLAD”) and an unrelated individual (“Individual”)
In November 2011, the Parent Company acceded to a joint venture agreement and a
shareholders’ agreement by and amongst PWU, UNLAD, an Individual and Mr. Eusebio H.
Tanco, STI Holdings’ BOD Chairman, for the formation of a strategic arrangement with
regard to the efficient management and operation of PWU.
PWU is a private non-stock, non-profit educational institution, which provides basic,
secondary and tertiary education to its students while UNLAD is a real estate company
controlled by the Benitez Family and has some assets which are used to support the
educational thrust of PWU.
Pursuant to the Agreement, the Parent Company acquired PWU’s debt (the “Receivable from
PWU”) from PWU’s creditor bank, together with all of the bank’s rights to the underlying
collateral and security, for the amount of =
P223.5 million, on a without recourse basis, in
November 2011. Likewise in accordance with the Agreement, the Parent Company is obliged
to extend: (a) a direct loan to PWU in the amount of =
P26.5 million (the “Loan to PWU”) and
(b) a loan to UNLAD in the amount of =
P198.0 million (the “Loan to UNLAD”). The
Receivable from PWU and the Loan to PWU aggregating to =
P250.0 million shall be secured
by the PWU Indiana Property and PWU Taft Property while the Loan to UNLAD shall be
secured by the PWU Quezon City Property, UNLAD Davao Property and UNLAD Quezon
City Property.
*SGVFS008027*
- 77 The Receivable from PWU and Loan to PWU, inclusive of 5% interest per annum, shall be
accrued and paid by way of the assignment by PWU of its shares in UNLAD (which PWU
will acquire through a Property-for-Share Swap Transaction). Likewise, the Loan to UNLAD,
inclusive of 5% interest per annum, shall be paid by way of conversion of said loan into equity
in UNLAD to enable the Parent Company to acquire, together with the shares assigned by
PWU to the Parent Company as payment for the Receivable from PWU and Loan to PWU, a
total of forty percent (40%) equity in UNLAD.
On May 17, 2012, the Individual, who’s a party to the Agreement with the Parent Company,
PWU and UNLAD, assigned his rights, title and interest in the Agreement to Attenborough
Holdings Corporation (“AHC”). AHC thereby assumed the Individual’s obligation to grant a
loan to UNLAD in the principal amount of P
=224.0 million (the “AHC Loan to UNLAD”).
Pursuant to the agreement, the Parent Company and AHC (collectively referred to as the
“Lenders”) agreed to lend UNLAD a principal amount of P
=422.0 million consisting of the
Parent Company’s loan to UNLAD (“Loan to UNLAD”) and the AHC Loan to UNLAD.
Accordingly, on June 8, 2012, the Parent Company entered into an Omnibus Agreement with
UNLAD and AHC (“Omnibus Agreement”) which consisted of: (1) a prefatory agreement; (2)
a loan agreement; and (3) a real estate mortgage.
Under said loan agreement, the Lenders will extend a loan to UNLAD which is payable by
way of conversion into equity in UNLAD. Said conversion into equity in UNLAD must
enable: (a) the Parent Company to acquire, together with the shares acquired by it as payment
of the Parent Company's Loan to PWU, 40.0% of the issued and outstanding capital stock of
UNLAD, as discussed above; and (b) AHC to acquire 20.0% of UNLAD’s issued and
outstanding capital stock.
In June 2012, the Parent Company extended the direct loan to PWU amounting to
P
=26.5 million in accordance with the Agreement, while in August and October 2012, the
Parent Company granted the Loan to UNLAD amounting to P
=166.0 million and P
=32.0 million,
respectively.
On March 25, 2013, the joint venture agreement and Omnibus Agreement have been amended
to discontinue imposition of interest on the Loan to PWU, Loan to UNLAD and AHC Loan to
UNLAD effective January 1, 2013.
As of March 31, 2014 and 2013, noncurrent receivables consist of loans of =
P448.0 million and
accrued interest of P
=16.0. Interest income in 2013 amounted to P
=12.7 million (see Note 19).
As of March 31, 2014 and 2013, the equity interest in UNLAD has not been assigned to the
Parent Company in exchange for the receivables from PWU and the Loan to UNLAD. The said
receivables from PWU and the Loan to UNLAD are presented as “Noncurrent receivables” in the
consolidated statements of financial position.
Currently, the Parent Company is working on the submission of all required documents to
effect the conversion of these receivables into equity. The Parent Company has nominated its
representatives as directors/trustees and officers of PWU and UNLAD.
b.
Land held for Swap
As discussed in Note 15, STI ESG’s BOD approved the transfer of the land to TechZone, a
company under common control with the Group, in exchange for condominium units to be
developed by TechZone. Subsequent to the transfer, the land was reclassified as “Deposit for
*SGVFS008027*
- 78 condominium units” under the “Goodwill and other noncurrent assets” account in the
consolidated statements of financial position.
Compensation and Benefits of Key Management Personnel of the Group
Short-term employee benefits
Post-employment benefits
2014
=28,970,705
P
1,436,336
=30,407,041
P
2013
2012
=22,191,822
P
=21,444,985
P
1,809,718
1,048,982
=24,001,540
P
=22,493,967
P
28. Basic and Diluted Earnings Per Share on Net Income Attributed to Equity Holders
of STI Holdings
The table below shows the summary of net income and weighted average number of common
shares outstanding used in the calculation of earnings per share for the year ended March 31, 2014
and 2013:
2014
Net income attributable to equity holders
of STI Holdings
Common shares outstanding at
beginning of period
Weighted average number of:
5,901,806,924 shares issued Share Swap (see Note 2)
795,817,789 shares issued
on November 24, 2011
2,627,000,000 shares issued on
November 7, 2012
273,000,000 shares issued on
November 28, 2012
Weighted average number of common shares
Basic and diluted earnings per share on net
income attributed to equity holders of
STI Holdings
2013
2012
P
=681,123,230
P
=777,415,889
P
=287,028,095
9,904,806,924
7,004,806,924
307,182,211
–
–
5,901,806,924
–
–
276,900,984
–
1,039,252,747
–
–
9,904,806,924
92,250,000
8,136,309,671
–
6,485,890,119
P
=0.069
P
=0.096
P
=0.044
The basic and diluted earnings per share are the same for the years ended March 31, 2014, 2013
and 2012 as there are no dilutive potential common shares.
29. Contingencies and Commitments
Contingencies
a. STI ESG filed a petition for review with the Court of Tax Appeals (CTA) on October 12,
2009. This is to contest the Final Decision on Disputed Assessment issued by the BIR
assessing STI ESG for deficiencies on income tax, and expanded withholding tax for the year
ended March 31, 2003 amounting to =
P124.3 million. On February 20, 2012, STI ESG rested
*SGVFS008027*
- 79 its case and its evidence has been admitted into the records. On June 27, 2012, the BIR rested
its case and has formally offered its evidence. On April 17, 2013, the CTA issued a Decision
which granted STI ESG’s petition for review and ordered a cancellation of the said BIR’s
assessment since the right to issue an assessment for the alleged deficiency taxes had already
prescribed. On May 16, 2013, STI ESG received a copy of the Commissioner of Internal
Revenue’s (CIR) Motion for Reconsideration dated May 8, 2013. STI ESG filed its Comment
to CIR’s Motion for Reconsideration on June 13, 2013. On August 22, 2013, the CIR filed its
Petition for Review dated August 16, 2013, with the CTA en banc. On October 29, 2013, STI
ESG filed its Comment to the CIR’s Petition for Review. The CTA en banc deemed the case
submitted for decision on May 19, 2014, considering the CIR’s failure to file its
memorandum. As at July 9, 2014, the case is still for decision by the CTA en banc.
b. A case for illegal dismissal, previously filed by a group of former employees of a school
owned by STI ESG, was terminated in favor of STI ESG with the finality of the decision of
the Supreme Court dated April 16, 2010 denying the claimants’ Petition for Review on
Certiorari. Said Petition for Review sought, among others, to assail the decisions of both the
Court of Appeals and National Labor Relations Commission (NLRC) finding that no illegal
dismissal was committed by STI ESG upon said former employees.
Also, STI ESG is waiting for the resolution of the Supreme Court of a Petition for Review on
Certiorari filed by a former employee for constructive dismissal. The former employee filed
said Petition with the Supreme Court after both the Court of Appeals and NLRC denied her
claims and rendered prior decisions in favor of STI ESG.
c. Due to the nature of STI ESG’s business, it is involved in various legal proceedings, both as
plaintiff and defendant, from time to time. The majority of outstanding litigation involves
illegal dismissal cases under which faculty members have brought claims against STI ESG by
reason of their faculty contract. Except as discussed in (d), STI ESG is not engaged in any
legal or arbitration proceedings (either as plaintiff or defendant), including those which are
pending or known to be contemplated and its BOD has no knowledge of any proceedings
pending or threatened against STI ESG or its franchises or any facts likely to give rise to any
litigation, claims or proceedings which might materially affect its financial position or
business. Management and its legal counsels believe that STI ESG has substantial legal and
factual bases for its position and is of the opinion that losses arising from these legal actions
and proceedings, if any, will not have a material adverse impact on STI ESG’s consolidated
financial position and results of operations.
d. STI ESG is likewise contingently liable for lawsuits or claims filed by third parties, including
labor-related cases, which are pending decision by the courts, the outcome of which are not
presently determinable.
e. Other subsidiaries also stand as defendant of various lawsuits and claims filed by their former
employees. The complainants are seeking payment of damages such as backwages and
attorney’s fees. As at July 9, 2014, the cases are pending before the Labor Arbiter.
Management and their legal counsels believe that the outcome of these cases will not have a
significant impact on the consolidated financial statements.
*SGVFS008027*
- 80 Commitments
a. Financial Commitments
STI ESG has a =
P50.0 million domestic bills purchase line from a local bank specifically for
the purchase of local and regional clearing checks. Interest on drawdown from such facility is
waived except when drawn against returned checks, to which the interest shall be the
prevailing lending rate of such local bank. The terms of such facility include, among others,
the continuing suretyship of the major shareholder.
As at March 31, 2014, the Group has P
=3.0 billion of undrawn committed borrowing facilities
related to its Credit Facility Agreement with Chinabank (see Note 16).
b. Capital Commitments
The Group has contractual commitments and obligations for the construction of the school
buildings and improvements in Batangas, Calamba, Quezon City and Lucena aggregating to
P
=1,057.2 million as at March 31, 2014.
The Group has contractual commitments and obligations for the construction of the school
buildings and improvements in STI-Kalookan and STI-Ortigas-Cainta aggregating
P
=1,057.2 million as at March 31, 2013.
c. Other Matters
i) The Group, as an educational institution, is subject to CHED Memorandum Order No. 13,
Series of 1998, otherwise known as the “Guidelines on the Procedure to be Followed by
Higher Education Institutions (HEIs) Intending to Increase Their Tuition Fees, Effective
School Year 1998–2000,” which states that 70.00% of the proceeds derived from the
tuition fee increase for the current school year should be used for the payment of increase
in salaries and wages, allowances and other benefits of its teaching and non-teaching
personnel and other staff, except those who are principal stockholders of the HEIs.
On April 21, 2014, WNU filed a Petition for Certiorari with an application for the
issuance of temporary restraining order and preliminary injunction against the CHED with
the Regional Trial Court of Quezon City.
The Petition was filed in response to the Order dated January 6, 2014 issued by Atty.
Julito Vitriolo, CHED’s Executive Director, which affirmed/executed the Closure
Order(s) dated July 19, 2011 and April 26, 2013 of WNU’s Bachelor of Science in Marine
Transportation (“BS MT”) and Bachelor of Science in Maritime Engineering (“BS
MarE”) degrees.
In the said Order , CHED resolved: (1) to allow WNUs existing students enrolled prior to
the issuance of the denial of its Motion for Reconsideration, Academic Year (AY) 20122013, to complete and graduate their Bachelor of Science in Marine Transportation
(BSMT) and Bachelor of Science in Maritime Engineering (BS MarE) degrees in WNU;
(2) WNU shall be directed to submit a complete list of the students enrolled as of AY
2012-2013; and (3) effective AY 2013-2014, WNU offering of maritime programs shall
be considered to have shifted to a rating school and shall be recognized as a pilot maritime
technical school in Western Visayas with 2-3 year “non-officer maritime program” and
that students admitted in WNU’s maritime programs effective AY 2013-2014 shall not be
*SGVFS008027*
- 81 considered to have enrolled in degree program but only in a “non-officer maritime
program” of WNU.
The issues presented in the Petition filed by WNU are as follows: (a) the April 26, 2013
Order denying WNU’s Motion for Reconsideration of the July 11, 2011 Closure Order
was issued despite full compliance by WNU on the required areas for evaluation of
WNU’s Maritime Programs; (b) the January 6, 2014 Order did not resolve nor mention the
status of the Verified Appeal filed on June 7, 2013; (c) the January 6, 2014 Order
downgrading WNU’s BS MT and BS MarE did not provide guidelines for its
implementation; (d) the shifting of the enrollees/students for AY 2013-2014 from a
rating/degree program to a pilot non officer program/certification will cause grave and
irreparable damage on the part of the affected students; (e) under the Manual of
Regulations for Private Higher Education, the January 6, 2014 Order should be effected at
the end of the academic year.
On May 23, 2014, the Trial Court issued an Order dismissing the case on the ground that
(a) the period to file the petition for certiorari lapsed on July 28, 2013 or after the sixty
(60) day period from receipt of the April 26, 2013 Order of CHED and (b) the Court of
Appeals has jurisdiction over petition for certiorari against quasi- judicial agencies such as
CHED.
On June 11, 2014, WNU filed a Motion for Reconsideration of the May 23, 2014 Order of
the Trial Court. In the said Motion for Reconsideration, WNU asserted that (a) the sixty
(60) day period to file the petition for certiorari should be counted from the time of the
receipt of the assailed order, January 6, 2014 Order of CHED and (b) the Regional Trial
Court of Quezon City has jurisdiction over the said case.
WNU set the Motion for Reconsideration for hearing on June 20, 2014. However, the
presiding judge of the Trial Court was on leave. The Trial Court instead informed the
parties that it will issue a notice of the schedule of hearing of the WNU’s Motion for
Reconsideration.
30. Financial Risk Management Objectives and Policies
The principal financial instruments of the Group comprise cash and cash equivalents and shortterm loans. The main purpose of these financial instruments is to raise working capital and major
capital investment financing for the Group’s school operations. The Group has various other
financial assets and liabilities such as receivables and accounts payable and other current
liabilities, which arise directly from its operations.
The main risks arising from the Group’s financial instruments are liquidity risk and credit risk.
The BOD and management reviews and agrees on the policies for managing each of these risks as
summarized below.
Liquidity Risk
The Group’s liquidity profile is managed to be able to finance its operations and capital
expenditures and other financial obligations. To cover its financing requirements, the Group uses
internally-generated funds. As part of its liquidity risk management program, the Group regularly
evaluates the projected and actual cash flow information and continuously assesses conditions in
the financial markets for opportunities to pursue fund-raising initiatives.
*SGVFS008027*
- 82 Any excess funds are primarily invested in short-dated and principal-protected bank products that
provide flexibility of withdrawing the funds anytime. The Group regularly evaluates available
financial products and monitors market conditions for opportunities to enhance yields at
acceptable risk levels.
The Group’s current liabilities are mostly made up of trade liabilities with 30 to 60-day payment
terms. On the other hand, the biggest components of the Group’s current assets are cash,
receivables from students and franchisees and advances to associates and joint ventures with credit
terms of 30 days and AFS financial assets.
As at March 31, 2014 and 2013 and April 1, 2012, the Group’s current assets amounted to
P
=1,025.5 million, =
P1,812.4 million and =
P889.0 million, respectively, while current liabilities
amounted to =
P912.2 million, =
P1,060.2 million, respectively.
The table below summarizes the maturity profile of the Group’s financial assets held for liquidity
purposes and other financial liabilities as at financial reporting date based on undiscounted
contractual payments.
March 31, 2014
Financial Assets
Loans and receivables:
Receivables (current and noncurrent)*
(included as part of “Investments in
and advances to associates and joint
ventures” account)
Deposits (included as part of “Prepaid
expenses and other current assets”
and “Goodwill, intangible and other
noncurrent assets” accounts)
AFS financial assets
Financial Liabilities
Other financial liabilitiesAccounts payable and other current
liabilities**
Nontrade payable
Short-term loan:
Principal
Interest
Long-term debt:
Principal
Due and
Demandable
Less than
2 Months
P
= 583,302,563
26,653,074
=
P–
65,764,225
=
P–
14,548,895
36,123,762
–
–
–
P
= 646,079,399
More than
1 Year
Total
=
P–
165,359,844
=
P–
463,978,935
P
= 583,302,563
736,304,973
–
–
–
36,123,762
–
–
P
= 65,764,225
–
–
P
= 14,548,895
1,831,769
–
P
= 167,191,613
P
= 211,421,740
151,470,221
P
= 27,744,853
–
P
= 10,947,443
–
P
= 244,293,427
–
=
P–
–
P
= 494,407,463
151,470,221
–
–
–
–
–
1,706,250
180,000,000
1,650,000
–
–
180,000,000
3,356,250
–
P
= 362,891,961
–
P
= 27,744,853
–
P
= 12,653,693
49,940,706
P
= 475,884,133
58,465,494
P
= 58,465,494
108,406,200
P
= 937,640,134
Due and
Demandable
Less than
2 Months
2 to 3 Months
3 to 12 Months
More than
1 Year
Total
=
P–
17,918,138
=
P–
3,939,716
=
P–
10,944,280
–
–
–
–
–
=
P17,918,138
–
–
P
=3,939,716
–
–
=
P10,944,280
=
P219,860,121
P
=1,110,063
P
=3,746,413
2 to 3 Months 3 to 12 Months
38,755,552
40,587,321
50,599,940
50,599,940
P
= 553,334,427 P
= 1,446,918,559
March 31, 2013
Financial Assets
P
=1,489,451,909
240,539,396
(included as part of “Investments in
and advances to associates and joint
ventures” account)
52,689,744
Deposits (included as part of “Prepaid
expenses and other current assets”
and “Goodwill, intangible and other
noncurrent assets” accounts)
–
–
P
=1,782,681,049
Other financial liabilitiesAccounts payable and other current
liabilities**
=
P80,417,708
=
P– P
=1,489,451,909
418,817,781
692,159,311
–
52,689,744
33,342,037
33,342,037
4,663,478
4,663,478
=
P456,823,296 P
=2,272,306,479
=
P552,956
=
P305,687,261
* Excluding advances to officers and employees amounting to P
=25,024,073 and =
P 22,592,828 as at March 31, 2014 and 2013, respectively.
** Excluding taxes payable, unearned tuition and school fees, subscriptions payable, SSS, Philhealth and Pag-ibig benefits payable amounting to P
=23,023,029 and =
P14,998,560 as
at March 31, 2014 and 2013, respectively.
*SGVFS008027*
- 83 As at March 31, 2014 and 2013, the Group’s current ratios are as follows:
Current assets
Current liabilities
Current ratios
March 31,
2013
=1,812,433,009
P
332,135,285
5.457:1.000
March 31,
2014
=1,025,488,146
P
912,194,435
1.124:1.000
Credit Risk
Credit risk is the risk that the Group will incur a loss arising from students, franchisees or other
counterparties that fail to discharge their contractual obligations. The Group manages and
controls credit risk by setting limits on the amount of risk that the Group is willing to accept for
individual counterparties and by monitoring expenses in relation to such limits.
It is the Group’s policy to require the students to pay all their tuition and other school fees before
they can get their report cards and other credentials. In addition, receivable balances are
monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not
significant.
With respect to credit risk arising from the other financial assets of the Group, which comprise
cash and cash equivalents and AFS financial assets, the Group’s exposure to credit risk arises from
default of the counterparty, with a maximum exposure equal to the carrying amount of these
instruments. At financial reporting date, there is no significant concentration of credit risk.
Credit Risk Exposures. The table below shows the maximum exposure to credit risk for the
components of the consolidated statements of financial position as at financial reporting date:
March 31, 2014
Gross
Net
Maximum
Maximum
Exposure(1)
Exposure(2)
Financial Assets
Cash and cash equivalents (excluding cash on hand)
Advances to associates and joint ventures**
Deposits***
P
=581,840,338
736,304,973
21,175,875
40,587,321
50,599,940
P
=1,430,508,447
P
=575,340,337
272,326,038
21,175,875
40,587,321
50,599,940
P
=960,029,511
March 31, 2013
Financial Assets
Advances to associates and joint ventures**
Deposits***
Gross
Maximum
Exposure(1)
Net
Maximum
Exposure(2)
P
=1,488,848,927
692,159,311
52,689,744
33,342,037
4,663,478
P
=2,271,703,497
P
=1,481,845,131
228,180,376
52,689,744
33,342,037
4,663,478
P
=1,800,720,766
* Excluding advances to officers and employees amounting to =
P 25,024,703 and =
P 22,592,828 as at March 31, 2014 and 2013,
respectively.
**Included as part of “Investments in and advances to associates and joint ventures” account
***Included as part of “Prepaid expenses and other current assets” and “Goodwill, intangible and other noncurrent assets” account
(1)
Gross financial assets before taking into account any collateral held or other credit enhancements or offsetting arrangements.
(2)
Gross financial assets after taking into account any collateral held or other credit enhancements or offsetting arrangements or
insurance in case of bank deposits.
*SGVFS008027*
- 84 The credit quality of financial assets is managed by the Group using its internal credit ratings. The
table below shows the credit quality by class of financial assets that are neither past due nor
impaired as at financial reporting date:
Class A(1)
Financial Assets
Deposits
Total
P
=– P
=581,840,338
–
78,722,372
–
21,175,875
–
40,587,321
–
50,599,940
P
=– P
=772,925,846
P
=581,840,338
78,722,372
21,175,875
40,587,321
50,599,940
P
=772,925,846
Class A(1)
Financial Assets
Deposits
March 31, 2014
Class B(2)
March 31, 2013
Class B(2)
P
=1,488,848,927
63,498,628
45,521,984
33,342,037
4,663,478
P
=1,635,875,054
Total
=
P– P
=1,488,848,927
–
63,498,628
–
45,521,984
–
33,342,037
–
4,663,478
=
P– P
=1,635,875,054
P 25,024,703 and =
P 22,592,828 as at March 31, 2014 and 2013, respectively..
(1)
This includes low risk and good paying customer accounts with no history of account treatment for a defined period and no overdue accounts
as at report date and deposits or placements to counterparties with good credit rating or bank standing financial review.
(2)
This includes medium risk and average paying customer account with no overdue accounts as at report date and new customer accounts for
which sufficient credit history has not been established and deposits or placements to counterparties not classified as Class A.
The table below shows the aging analysis of financial assets that are past due but not impaired as
at financial reporting date:
March 31, 2014
Neither
Past Due
Nor Impaired
Financial Assets
Cash and cash equivalents (excluding
cash on hand)
Advances to associates and joint
ventures
Deposits
Past Due but not Impaired
31 to 60 Days
61 to 90 Days
Over 90 days
Impaired
Total
P
= 581,840,338
78,722,372
=
P–
61,586,694
=
P–
132,016,972
=
P–
463,978,935
=
P–
105,629,684
P
= 581,840,338
841,934,657
21,175,875
40,587,321
50,599,940
P
= 772,925,846
–
–
–
P
= 61,586,694
–
–
–
P
= 132,016,972
–
–
–
P
= 463,978,935
14,947,887
–
–
P
= 120,577,571
36,123,762
40,587,321
50,599,940
P
= 1,551,086,018
March 31, 2013
Neither
Past Due
Nor Impaired
Financial Assets
Cash and cash equivalents (excluding
cash on hand)
Advances to associates and joint
ventures
Deposits
Past Due but not Impaired
31 to 60 Days
61 to 90 Days
Over 90 days
Impaired
Total
P
=1,488,848,927
63,498,628
=
P15,871,279
=
P151,653,229
=
P461,136,175
=
P57,815,801
P
=1,488,848,927
749,975,112
45,521,984
33,342,037
4,663,478
P
=1,635,875,054
=
P15,871,279
=
P151,653,229
=
P461,136,175
7,167,760
=
P64,983,561
52,689,744
33,342,037
4,663,478
P
=2,329,519,298
P 25,024,703 and =
P 22,592,828 as at March 31, 2014 and 2013, respectively.
*SGVFS008027*
- 85 Impairment Assessment
The main consideration for the impairment assessment include whether any payments of principal
or interest are overdue by more than 90 days or there are any known difficulties in the cash flows
of counterparties or infringement of the original terms of the contract.
Individually Assessed Allowances. The Group determines the allowance appropriate for each
individually significant account balance on an individual basis. Items considered when
determining allowance amounts include the sustainability of the counterparty’s business plan, its
ability to improve performance once a financial difficulty has arisen, projected receipts and the
expected dividend payout should bankruptcy ensue, the availability of other financial support, the
realizable value of collateral, if any, and the timing of the expected cash flows. The impairment
losses are evaluated at each reporting date, unless unforeseen circumstances require more careful
attention.
Collectively Assessed Allowances. Allowances are assessed collectively for losses on account
balances that are not individually significant and for individually significant loans and advances
where there is no objective evidence of individual impairment. Allowances are evaluated on each
reporting date with each portfolio receiving a separate review.
The collective assessment takes account of impairment that is likely to be present in the portfolio
even though there is no objective evidence of the impairment in an individual assessment.
Impairment losses are estimated by taking into consideration the following information; historical
losses on the portfolio, current economic conditions, the approximate delay between the time a
loss is likely to have been incurred and the time it will be identified as requiring an individually
assessed impairment allowance and expected receipts and recoveries once impaired. The
impairment allowance is then reviewed by credit management to ensure alignment with the
Group’s policy.
Capital Risk Management Policy
Parent Company. The Parent Company aims to achieve an optimal capital structure in pursuit of
its business objectives which include maintaining healthy capital ratios and strong credit ratings,
and maximizing shareholder value.
STI ESG. STI ESG’s objectives when managing capital are to safeguard its ability to continue as a
going concern in order to provide returns for stockholders and benefits for other stakeholders and
to maintain an optimal capital structure to reduce the cost of capital.
The Group manages its capital structure and makes adjustments to it in light of changes in
economic conditions. The Group is not subject to externally imposed capital requirements.
The Group considers its equity contributed by stockholders as capital.
Capital stock
Treasury stock
Retained earnings
March 31,
March 31,
2013
2014
P4,952,403,462
P
=4,952,403,462 =
1,119,079,467
1,119,079,467
(500,009,337)
(500,009,337)
2,151,532,167
2,690,263,952
=7,723,005,759
P
=8,261,737,544 P
*SGVFS008027*
- 86 The Group monitors capital on the basis of the debt-to-equity ratio which is calculated as total
debt divided by total equity. The Group includes all liabilities within debt. The Group defines
total equity as common stock, additional paid-in capital, unrealized mark-to-market gain (loss) on
investments in equity securities and retained earnings.
As at March 31, 2014 and 2013, the Group’s debt-to-equity ratios are as follows:
Total liabilities
Total equity
Debt-to-equity ratio
March 31,
2013
=367,895,200
P
8,135,356,191
0.045:1.000
March 31,
2014
P
=1,170,933,292
7,128,169,995
0.164:1.000
Another approach used by the Group is the asset-to-equity ratios shown below:
Total assets
Total equity
Asset-to-equity ratio
March 31,
2014
P
=8,299,103,287
7,128,169,995
1.164:1.000
March 31,
2013
=8,503,251,391
P
8,135,356,191
1.045:1.000
No changes were made in the objectives, policies or processes in 2014, 2013 and 2012.
31. Financial Instruments
The Group’s financial instruments consist of cash and cash equivalents, receivables, advances to
associates and joint ventures, deposits, loans payable, accounts payable and other current
liabilities. The primary purpose of these financial instruments is to finance the Group’s
operations.
There are no material unrecognized financial assets and liabilities as at March 31, 2014 and 2013.
Fair Value Information
Due to the short-term nature of cash and cash equivalents, receivables, short-term loans, accounts
payable and other current liabilities, current portion of long-term debt, their carrying values
reasonably approximate their fair values at year end.
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value.
Advances to Associates and Joint Ventures and Deposits. The fair value of these instruments are
computed by discounting the face amount using PDSTF-R2 at reporting date.
The fair value of advances to associates and joint ventures, classified under Level 2, amounted to
P
=36.5 million and =
The fair value of rental deposits, classified under Level 2, amounted to =
P37.9 million and
P
=30.6 million as at March 31, 2014 and 2013, respectively.
*SGVFS008027*
- 87 AFS Financial Assets. The fair values of publicly-traded instruments are determined by reference
to market bid quotes as of financial reporting date. Investments in unquoted equity securities for
which no reliable basis for fair value measurement is available are carried at cost, net of
impairment.
As of March 31, 2014 and 2013, there were no other financial assets and liabilities other than
quoted AFS financial assets which are measured at fair value determined in reference with quoted
prices in active market (Level 1 Hierarchy).
Noncurrent receivables. The fair value of noncurrent receivables from unlisted entities to be
settled by common shares does not materially differ from its fair value.
Long-term debt. The carrying value approximates fair value because of recent and regular
repricing based on market conditions. Variable rate loans are repriced on a quarterly/ semi-annual
basis (see Note 16).
The carrying value of long-term debt, classified under Level 2, amounted to =
P58.5 million as at
March 31, 2014.
For the years ended March 31, 2013 and 2012, there were no transfers between Level 1 and 2 fair
value measurements, and no transfers into and out of Level 3 fair value measurements.
32. Note to Consolidated Statements of Cash Flows
Non-cash investing and financing activities pertain to the following:
a. Share Swap between the Parent Company and STI ESG in September 2012 amounting to
P
=2,950.9 million (see Notes 1, 3 and 18).
b. Acquisitions of property and equipment under finance lease recorded under the “Property and
equipment” account amounted to =
P6.1 and P
=7.6 million as at March 31, 2014 and 2013,
c. Unpaid progress billing for construction in progress amounting to P
=129.6 million and
P
=46.2 million as at March 31, 2014 and 2013, respectively (see Note 10).
d. Conversion of advances to related parties amounting to P
=41.6 million into equity investment
(see Note 12).
e. Reclassification of land amounting to P
=387.9 million from “Property and equipment” account
to “Other noncurrent assets” account in 2013 (see Note 10).
f.
Application of the cash bond amounting to =
P21.9 million to purchase a certain land to be used
for the construction of a school building in 2013.
*SGVFS008027*
- 88 -
33. Events after the Reporting Date
The Group entered into the following transactions after March 31, 2014:
a. Deposit for Future Stock Subscription in AHC
In May 2014, the Parent Company made a deposit for future subscription to 40% of
outstanding common stock of AHC.
b. Chinabank Credit Facility
On May 9, 2014, the first drawdown date, STI ESG elected to have a 7 year term loan with
floating interest based on the 1-year PDST-F plus a margin of two percent (2.00%) per annum,
which interest rate shall in no case be lower than the BSP overnight rate plus a margin of
three-fourth percent (0.75%) per annum. Said interest rate shall be repriced and determined
on the relevant interest rate repricing date, and thereafter, such repriced interest rate shall be
the applicable interest rate for the immediately succeeding two (2) interest periods. The
amounts of =
P100.0 million were drawn from the facility in May 2014,
subject to 4.34% and 4.43% interest rates, respectively. These loans are unsecured and are
due in July 2021.
c. Land Acquisition
Subsequent to March 31, 2014, STI ESG made various payments to acquire a parcel of land in
San Jose del Monte, Bulacan with a total purchase price amounting to =
P154.4 million.
*SGVFS008027*
SCHEDULE A – FINANCIAL ASSETS
March 31, 2014
(Amount in Pesos)
6764 Ayala Avenue,
Makati City
Name of Issuing Entity and
Description of Each Issue
Number of Shares
or Principal
Amount of Bonds
and Notes
Amount Shown in the
Balance Sheet
The Group has no financial assets at FVPL
as of March 31, 2014
Value Based on
Market Quotations at
Balance Sheet Date
Income
Received and
Accrued
SCHEDULE B – AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES,
RELATED PARTIES, AND PRINCIPAL STOCKHOLDERS (Other than Related Parties)
March 31, 2014
(Amount in Pesos)
6764 Ayala Avenue,
Makati City
Name and Designation of Debtor
Balance at
beginning of year
Collections /
Liquidations
Additions
Balance at end
of year
Andaya, Mitch
VP - Academics
196,693
13,070
209,763
-
Aporo , Kathy
Deputy School Administrator
448,393
-
448,393
-
Basilio, Rowena
School Administrator
305,902
-
305,902
-
Bautista, Teodoro
VP – Academics
-
356,288
129,418
226,870
Bundoc, Restituto O.
VP - School Operations
156,632
318,781
102,520
372,893
Cualoping, Vanessa
Director
239,312
-
239,312
-
De Guzman, Engelbert L
VP – Communications
635,322
1,304,075
1,731,666
207,731
Fabro, Ferdinand
AVP - Campus Development
-
326,992
86,210
240,782
Fernandez, Peter
EVP and COO
884,989
5,120
643,284
246,825
Jacob, Monico V.
President
2,537,308
427,411
1,292,018
1,672,701
Jamandre, Jay Joseph C.
AVP – HROD
219,545
1,662
221,207
-
Joson, Harry Alfonso
AVP – ARA/CCD/MIS
-
308,043
121,154
186,889
Magano, Shiela
AVP - School Management
-
511,285
296,358
214,927
Ortega, Ferdie
Creative Manager
-
502,061
262,459
239,602
Pebenito, Vanessa
Special Assistant to the COO
-
289,430
112,615
176,815
Rabaya, Colbert
Senior School Administrator
240,013
1,391
120,855
120,549
Sangalang, Amiel
VP – Comptrollership
292,790
40,905
116,149
217,546
Tabije, Karen Precious
Brand Manager
-
420,524
188,012
232,512
Tan, Suzette R.
AVP - Comptrollership
224,398
-
224,398
-
Tubongbanua, John
VP – CIS
266,178
-
266,178
-
6,647,475
4,827,038
7,117,871
4,356,642
The above schedule of advances to officers and employees of the Group with balances above P100,000 as
of March 31, 2014 pertain to car plan agreements. Such advances are non-interest bearing and are liquidated
on a semi-monthly basis. There were no amounts written off during the year.
SCHEDULE C – AMOUNTS RECEIVABLE FROM/PAYABLE TO RELATED PARTIES WHICH ARE
ELIMINATED DURING THE CONSOLIDATION OF THE FINANCIAL STATEMENTS
March 31, 2014
(Amount in Pesos)
6764 Ayala Avenue,
Makati City
Name and
Designation of
Debtor
Balance at
beginning
of year
Additions
Collections/
Liquidations
Balance at
end of year
5,100,000
-

Receivable of
STI
Education
Systems
Holdings,
Inc. (“STI
Holdings”)
from STI
Education
Services
Group, Inc.
(“STI ESG”)
5,100,000

Receivable of
STI ESG
from STI
Holdings
-
13,539,911
3,290,996

Receivable of
West Negros
University
from STI
Holdings
-
7,321,342

Receivable of
STI ESG
from West
Negros
University
-
22,515,669
-
Description
Terms
Business
advisory fees
Non-interest
bearing and
to be settled
within the
year
10,248,915
Reimbursement
Non-interest
bearing and
to be settled
within the
year
-
7,321,342
Assignment of
liability
Non-interest
bearing and
to be settled
within the
year
-
22,515,669
Advances
Non-interest
bearing and
to be settled
within the
year
The above-mentioned receivables are current and to be settled within the year.
SCHEDULE D – INTANGIBLE ASSETS – OTHER ASSETS
March 31, 2014
(Amount in Pesos)
6764 Ayala Avenue,
Makati City
Description
Beginning
balance
Additions at cost
Reclassifications
Charged to cost
and expenses
Ending balance
-
397,262,833
-
-
397,262,833
Goodwill
200,258,253
2,585,492
-
-
202,843,745
Deposits
31,962,268
6,793,284
-
-
38,755,552
-
20,000,000
-
-
20,000,000
7,711,712
24,577,384
-
2,390,954
29,898,142
387,862,833
-
387,862,833
-
-
14,205,510
29,463,669
642,000,576
480,682,662
Condominium
deposit
Deposit for
future purchase
of net assets
Computer
Software
Land
Other non
current asset
43,669,179
387,862,833
2,390,954
732,429,451
SCHEDULE E – LONG TERM DEBT
March 31, 2014
(Amount in Pesos)
6764 Ayala Avenue,
Makati City
Title of issue and
type of obligation
Amount
authorized by
indenture
Amount shown under
caption “Current
portion of long-term
debt” in related
balance sheet
Amount shown
under caption
“Long-Term Debt”
in related balance
sheet
China Banking
Corporation
(Chinabank) Bank loans:
Maturity Date /
Interest Rate
09.25.14 / 6%
20,279,160
05.16.18 / 4.75%
2,901,479
05.16.18 / 4.75%
8,218,765
09.29.15 / 6%
1,428,590
09.29.15 / 6%
250,000
09.29.15 / 6%
325,000
04.20.18 / 6%
18,500,000
12.16.15 / 6%
6,562,500
58,465,494
Loan from WNU’s
former
stockholders
Mortgage payable
88,811,174
30,345,680
19,485,271
19,485,271
109,755
109,755
108,406,200
49,940,706
58,465,494
SCHEDULE F –INDEBTEDNESS TO RELATED PARTIES
(LONG-TERM LOANS FROM RELATED COMPANIES)
March 31, 2014
(Amount in Pesos)
6764 Ayala Avenue,
Makati City
Name of Related Party
The Group has no longterm loans from related
parties as of March 31,
2014
Beginning balance
Additions at cost
Ending balance
SCHEDULE G - GUARANTEES OF SECURITIES OF OTHER ISSUERS
March 31, 2014
(Amount in Pesos)
6764 Ayala Avenue,
Makati City
Name of Issuing Entity of
Securities Guaranteed by
the Company
Not applicable
Title of Issue of
Each Class of
Securities
Guaranteed
Total Amount
Guaranteed and
Outstanding
Amount Owed
by Person for
which Statement
is Filed
Nature of
Guarantee
SCHEDULE H –CAPITAL STOCK
March 31, 2014
(Amount in Pesos)
6764 Ayala Avenue,
Makati City
Number of Shares Held By
Title of
Issue
Number of
Shares
Authorized
Common
10,000,000,000
Stock
Number of
Shares Issued
Stock
Dividends
declared
Number of
Shares
Outstanding
Number
of
Treasury
Shares
Number of
Shares
Reserved for
Options
Warrants,
Conversions,
and Other
Rights
9,904,806,924
-
9,904,806,924
None
None
*Related Parties
Prudent Resources, Inc.
Rescom Developers, Inc.
Eujo Philippines, Inc.
Insurance Builders, Inc.
Capital Managers and Advisors, Inc.
STI Education Services Group, Inc.
TOTAL
1,614,264,964
794,343,934
763,873,130
579,675,992
397,908,894
502,307,895
4,652,374,809
**Directors/Officers:
Eusebio H.Tanco
Monico V. Jacob
Vanessa Rose L. Tanco
Martin K. Tanco
Rainerio M. Borja
Maulik R. Parekh
Jesli A. Lapus
Ernest Lawrence Cu
Johnip G. Cua
Yolanda M. Bautista
Arsenio C. Cabrera, Jr.
TOTAL
1,442,013,875
33,784,057
1
2,000,001
36,560,000
3,250,000
3,200,000
1,000
6,500,000
26,000,000
1,000
5,000,001
6,500,000
1,564,809,935
Related Parties
Directors,
Officers and
Employees
Others
4,652,374,809*
1,564,809,935**
3,687,622,180
SCHEDULE I –USE OF PROCEEDS
March 31, 2014
(Amount in Pesos)
6764 Ayala Avenue,
Makati City
No. of Offer Shares:
Offer Price:
Gross Proceeds:
2,900,000,000
P 0.90
P 2,610,000,000
USE OF PROCEEDS AS OF MARCH 31, 2014
Disbursements
Subscription to 2.1 billion STI Education Services Group, Inc.(“STI
ESG”) shares (Refer to Annex A below)
Underwriting fees
Professional fees and other expenses
Documentary stamp taxes paid
Acquisition of West Negros University (WNU)
Equity contribution to WNU
TOTAL
Amount
P2,100,000,000.00
90,432,409.01
23,643,137.50
7,250,000.00
242,970,428.04
145,704,025.45
P2,610,000,000.00
ANNEX A
USE OF PROCEEDS by STI ESG
Disbursements
Acquisition of land – Cubao and Las Piñas
Acquisition of land, buildings and renovation of buildings – STI
Batangas
Construction of school buildings – Ortigas-Cainta, Caloocan,
Cubao,
Calamba and Las Piñas
Purchase of equipment for Ortigas-Cainta, Caloocan and Cubao
Purchase of furniture for Ortigas-Cainta and Caloocan
Payment of loans incurred for the purchase of land in Ortigas- Cainta,
Caloocan and Cubao
Payment of loans incurred for working capital requirements
TOTAL
Amount
P 434,921,286.54
141,251,067.29
792,931,285.82
32,806,153.33
21,250,068.13
591,388,300.00
85,451,838.89
P2,100,000,000.00
RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION
MARCH 31, 2014
Unappropriated retained earnings, beginning
Adjustments:
Unappropriated retained earnings as adjusted, beginning
Net income based on the face of the AFS
Less:
Non-actual/unrealized income net of tax
Equity in net income of associate/joint venture
Unrealized foreign exchange gain - net (except those attributable to
Cash and Cash equivalents) Unrealized actuarial gain
Fair Value adjustment (M2M gains)
Fair Value adjustment of Investment Property resulting to gain
Adjustment due to deviation from PFRS/GAAP-gain
Other unrealized gains or adjustments to the retained earnings
as a result of certain transactions accounted for under the PFRS
Add:
Non-actual losses
Depreciation on revaluation increment (after tax)
Adjustments due to deviation from PFRS/GAAP-loss
Loss on fair value adjustment of Investment property (after tax)
Net income actual/realized
Add (Less):
Dividend declarations during the period
Appropriation of Retained Earnings during the period
Reversals of appropriations
Effects of prior period adjustments
Treasury shares
TOTAL RETAINED EARNINGS
AVAILABLE FOR DIVIDEND, MARCH 31, 2014
=11,232,418
P
–
11,232,418
245,120,656
256,353,074
(149,998,396)
=106,354,678
P
MAP OF RELATIONSHIPS BETWEEN AND AMONG THE COMPANY AND ITS ULTIMATE
PARENT COMPANY, MIDDLE PARENT, SUBSIDIARIES OR CO-SUBSIDIARIES, AND
ASSOCIATES
MARCH 31, 2014
STI EDUCATION SYSTEMS
HOLDINGS, INC.*
99%
99%
STI EDUCATION
SERVICES GROUP, INC.*
SUBSIDIARIES
WEST NEGROS
UNIVERSITY CORP.
ASSOCIATES
iAcademy
100%
STI College
Tuguegarao,
Inc.
100%
STI
Investments,
Inc.
20%
STI College
Alabang, Inc.
40%
STI College
of Batangas,
Inc.
100%
STI College
of Dagupan,
Inc.
77%
Global Resource
for Outsourced
Workers, Inc.
17%
STI
Marikina,
Inc.
24%
STI College
Taft, Inc.
75%
De Los
Santos – STI
College
52%
Accent
Healthcare, Inc.
/ STI-Banawe,
Inc.
49%**
DLS-STI
College Quezon
Avenue, Inc.
100%
*STI Education Services Group, Inc. owns 5% equity interest in STI Holdings as at March 31, 2014.
**A dormant company accounted for as an associate for accounting purposes and the carrying value has been
reduced to zero.
STI EDUCATION SYSTEM HOLDINGS, INC.
SCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS
March 31, 2014
PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS
Effective as at March 31, 2014
Framework for the Preparation and Presentation of Financial
Statements
Conceptual Framework Phase A: Objectives and qualitative characteristics
PFRSs Practice Statement Management Commentary
Philippine Financial Reporting Standards
PFRS 1
(Revised)
First-time Adoption of Philippine Financial Reporting
Standards
Amendments to PFRS 1 and PAS 27: Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or
Associate
Amendments to PFRS 1: Additional Exemptions for
First-time Adopters
Amendment to PFRS 1: Limited Exemption from
Comparative PFRS 7 Disclosures for First-time Adopters
Amendments to PFRS 1: Severe Hyperinflation and
Removal of Fixed Date for First-time Adopters
Amendments to PFRS 1: Government Loans
PFRS 2
Share-based Payment
Amendments to PFRS 2: Vesting Conditions and
Cancellations
Amendments to PFRS 2: Group Cash-settled Sharebased Payment Transactions
PFRS 3
(Revised)
Business Combinations
PFRS 4
Insurance Contracts
Amendments to PAS 39 and PFRS 4: Financial
Guarantee Contracts
PFRS 5
Non-current Assets Held for Sale and Discontinued
Operations
PFRS 6
Exploration for and Evaluation of Mineral Resources
PFRS 7
Financial Instruments: Disclosures
Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets
Financial Assets - Effective Date and Transition
Adopted
Not
Not
Not
Early
Adopted Applicable Adopted
AND INTERPRETATIONS
Amendments to PFRS 7: Improving Disclosures about
Financial Instruments
Amendments to PFRS 7: Disclosures - Transfers of
Financial Assets
Amendments to PFRS 7: Disclosures – Offsetting
Financial Assets and Financial Liabilities
Amendments to PFRS 7: Mandatory Effective Date of
PFRS 9 and Transition Disclosures
PFRS 8
Operating Segments
PFRS 9*
Financial Instruments
Amendments to PFRS 9: Mandatory Effective Date of
PFRS 9 and Transition Disclosures
Financial Instruments – New hedge accounting
requirements
PFRS 10*
Consolidated Financial Statements
PFRS 11*
Joint Arrangements
PFRS 12*
Disclosure of Interests in Other Entities
PFRS 13*
Fair Value Measurement
Investment entities (amendments to PFRS 10, PFRS 12 and PAS 27)
Philippine Accounting Standards
PAS 1
(Revised)
Presentation of Financial Statements
Amendment to PAS 1: Capital Disclosures
Amendments to PAS 32 and PAS 1: Puttable Financial
Instruments and Obligations Arising on Liquidation
Amendments to PAS 1: Presentation of Items of Other
Comprehensive Income
PAS 2
Inventories
PAS 7
Statement of Cash Flows
PAS 8
Accounting Policies, Changes in Accounting Estimates
and Errors
PAS 10
Events after the Reporting Period
PAS 11
Construction Contracts
PAS 12
Income Taxes
Amendment to PAS 12 - Deferred Tax: Recovery of
Underlying Assets
PAS 16
Property, Plant and Equipment
Adopted
Not
Not
Not
Early
AND INTERPRETATIONS
PAS 17
Leases
PAS 18
Revenue
PAS 19
Amendments to PAS 19: Actuarial Gains and Losses,
Group Plans and Disclosures
Employee Benefits (Amended)
Employee Benefits - Defined Benefit Plans: Employee
Contributions (Amendments)
PAS 20
Accounting for Government Grants and Disclosure of
Government Assistance
PAS 21
The Effects of Changes in Foreign Exchange Rates
Amendment: Net Investment in a Foreign Operation
PAS 23
(Revised)
Borrowing Costs
PAS 24
(Revised)
Related Party Disclosures
PAS 26
Accounting and Reporting by Retirement Benefit Plans
PAS 27
(Amended)*
Separate Financial Statements
PAS 28
(Amended)*
Investments in Associates and Joint Ventures
PAS 29
Financial Reporting in Hyperinflationary Economies
PAS 31
Interests in Joint Ventures
PAS 32
Financial Instruments: Disclosure and Presentation
Amendments to PAS 32 and PAS 1: Puttable Financial
Instruments and Obligations Arising on Liquidation
Amendment to PAS 32: Classification of Rights Issues
Amendments to PAS 32: Offsetting Financial Assets and
PAS 33
Earnings per Share
PAS 34
Interim Financial Reporting
PAS 36
Impairment of Assets
Impairment of Assets - Recoverable Amount Disclosures
for Non-Financial Assets (Amendments)
PAS 37
Provisions, Contingent Liabilities and Contingent Assets
PAS 38
Intangible Assets
PAS 39
Financial Instruments: Recognition and Measurement
Adopted
Not
Not
Not
Early
AND INTERPRETATIONS
Amendments to PAS 39: Transition and Initial
Recognition of Financial Assets and Financial Liabilities
Amendments to PAS 39: Cash Flow Hedge Accounting
of Forecast Intragroup Transactions
Amendments to PAS 39: The Fair Value Option
Amendments to PAS 39 and PFRS 4: Financial
Guarantee Contracts
Financial Assets
Financial Assets – Effective Date and Transition
Amendments to Philippine Interpretation IFRIC–9 and
PAS 39: Embedded Derivatives
Amendment to PAS 39: Eligible Hedged Items
Financial Instruments: Recognition and Measurement Novation of Derivatives and Continuation of Hedge
Accounting (Amendments)
PAS 40
Investment Property
PAS 41
Agriculture
Philippine Interpretations
IFRIC 1
Changes in Existing Decommissioning, Restoration and
Similar Liabilities
IFRIC 2
Members' Share in Co-operative Entities and Similar
Instruments
IFRIC 4
Determining Whether an Arrangement Contains a Lease
IFRIC 5
Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds
IFRIC 6
Liabilities arising from Participating in a Specific Market
- Waste Electrical and Electronic Equipment
IFRIC 7
Applying the Restatement Approach under PAS 29
Financial Reporting in Hyperinflationary Economies
IFRIC 8
Scope of PFRS 2
IFRIC 9
Reassessment of Embedded Derivatives
Amendments to Philippine Interpretation IFRIC–9 and
PAS 39: Embedded Derivatives
IFRIC 10
Interim Financial Reporting and Impairment
IFRIC 11
PFRS 2- Group and Treasury Share Transactions
IFRIC 12
Service Concession Arrangements
Adopted
Not
Not
Not
Early
AND INTERPRETATIONS
IFRIC 13
Customer Loyalty Programmes
IFRIC 14
The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction
Amendments to Philippine Interpretations IFRIC- 14,
Prepayments of a Minimum Funding Requirement
IFRIC 16
Hedges of a Net Investment in a Foreign Operation
IFRIC 17
Distributions of Non-cash Assets to Owners
IFRIC 18
Transfers of Assets from Customers
IFRIC 19
Extinguishing Financial Liabilities with Equity
Instruments
IFRIC 20
Stripping Costs in the Production Phase of a Surface
Mine
IFRIC 21
Levies
SIC-7
Introduction of the Euro
SIC-10
Government Assistance - No Specific Relation to
Operating Activities
SIC-12
Consolidation - Special Purpose Entities
Amendment to SIC - 12: Scope of SIC 12
SIC-13
Jointly Controlled Entities - Non-Monetary
Contributions by Venturers
SIC-15
Operating Leases – Incentives
SIC-25
Income Taxes - Changes in the Tax Status of an Entity or
its Shareholders
SIC-27
Evaluating the Substance of Transactions Involving the
Legal Form of a Lease
SIC-29
Service Concession Arrangements: Disclosures.
SIC-31
Revenue - Barter Transactions Involving Advertising
Services
SIC-32
Intangible Assets - Web Site Costs
Annual improvements to PFRSs 2009 – 2011 cycle
Annual improvements to PFRSs 2010 – 2012 Cycle
Annual improvements to PFRSs 2011 – 2013 Cycle
Adopted
Not
Not
Not
Early

COVER SHEET S T I

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