Document 6526789

COVER SHEET
4 4 0 9
SEC Registration Number
A B O I T I Z
T R A N S P O R T
C O R P O R A T I O N
A N D
S Y S T E M
( A T S C )
S U B S I D I A R I E S
(Company’s Full Name)
1 2 t h
F l o o r ,
U n i t e d
T i m e s
N a t i o n s
A v e n u e ,
P l a z a
A v e n u e
E r m i t a ,
B u i l d i n g ,
c o r n e r
T a f t
M a n i l a
(Business Address: No. Street City/Town/Province)
Lilian P. Cariaso
(02) 528-7600
(Contact Person)
(Company Telephone Number)
1 2
3 1
Month
Day
1 7 - Q
(Form Type)
(Fiscal Year)
0 5
2 7
Month
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Corporate Finance
March 31, 2010
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
2,143
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
1
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended March 31, 2010
2. Commission identification number 4409
3. BIR Tax Identification No 000-313-401
Aboitiz Transport System (ATSC) Corporation
4. Exact name of issuer as specified in its charter
5. Province, country or other jurisdiction of incorporation or organization Philippines
6. Industry Classification Code:
(SEC Use Only)
12th Floor Times Plaza Building United Nations Avenue corner Taft Avenue Ermita, Manila /1000
7. Address of issuer's principal office
Postal Code
(02) 528-7630, (02) 528-7516, (02) 528-7608 and (02) 5287609
8. Issuer's telephone number, including area code
William Gothong and Aboitiz, Inc. Serging Osmeña Blvd. North Reclamation Area, Cebu City
9. Former name, former address and former fiscal year, if changed since last report
10.Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA
Title of each Class
Common Stock
Redeemable Preferred Stock
Number of shares of common
Stock outstanding and amount of debt outstanding
2,446,136,400
4,560,417
11. Are any or all of the securities listed on a Stock Exchange?
Yes [ X ]
No [ ]
Common and Redeemable Preferred Stock
Philippine Stock Exchange
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17
thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26
and 141 of the Corporation Code of the Philippines, during the preceding twelve (12)
months (or for such shorter period the registrant was required to file such reports)
Yes [ X ] No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [ X ] No [ ]
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following Financial Statements are filed as part of this SEC Form 17-Q:
1. Unaudited Consolidated Balance Sheets as of March 31, 2010 and
Audited Consolidated Balance Sheets as of December 31, 2009
Page 11
2. Unaudited Consolidated Statements of Income for the Three Months
Ended March 31, 2010 and 2009
Page 12
3. Unaudited Consolidated Statements of Comprehensive Income for
the Three Months Ended March 31, 2010 and 2009
Page 13
4. Unaudited Consolidated Statement of Changes in Equity for the Three
Months Ended March 31, 2010 and 2009
Page 14
5. Unaudited Consolidated Cash Flows for the Three Months Ended
March 31, 2010 and 2009.
Page 16
6. Noted to Consolidated Financial Statements
Page 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1st QUARTER ENDING MARCH 31, 2010
Key Performance Indicators (KPI)
The following KPI’s are used to evaluate the financial performance of ATS and its
subsidiaries. The amounts are in millions of Pesos except for the financial ratios. 2009
financial ratios on the table below are based on latest audited December 31, 2009.
a. Revenues – ATS revenues are mainly composed of freight and passage revenues and
they are recognized when the related services are rendered. Total Revenue for the three
months ended March 31, 2010 is P3.1 billion.
b. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) - is calculated
by adding back interest expense, amortization and depreciation into income before
income tax, excluding extraordinary gains or losses. EBITDA for March 31, 2010 is P94
million.
c. Income (Loss) before income tax (IBT) – is the earnings of the company before income
(loss) tax expense. The Loss Before Income Tax for March 31, 2010 is P201.4 million.
3
d. Debt-to-equity ratio – is determined by dividing total liabilities over stockholders’ equity.
ATS’ debt-to-equity ratio in 2010 is 1.5:1.0. Total liabilities increased by P2.0 billion due
to additional borrowings and Total equity stood at P5.04 billion or 2% lower compared to
2009 due to the loss for the first quarter of 2010.
e. Current ratio – is measured by dividing total current assets by total current liabilities.
The Company’s current ratio as of March 31, 2010 is 0.75:1:00. Total current assets is
P5.6 billion or 16% higher than 2009. Total current liabilities are P7.4 billion or 37%
increase compared to 2009.
The following table shows comparative figures of the Top Five key performance indicators
(KPI) for 2010 versus 2009 (amounts in millions except for the financial ratios) based on the
consolidated financial statements of ATS and its subsidiaries:
Consolidated
Revenues
EBITDA (a)
IBT (b)
Debt-to-Equity Ratio(c)
Current Ratio (d)
a)
b)
c)
d)
2009
2010
2,853
456
201
1.06:1.00
0.89:1.00
3,139
94
(201)
1.5:1.0
0.75:1.00
Earnings before interest, taxes, depreciation and amortization (calculated by adding back
interest expense and amortization and depreciation into income before income tax, excluding
extraordinary gains and losses).
Income before income tax or loss before income tax
Total liabilities/total stockholders’ equity. The 2009 figures are based on the latest audited
December 31, 2009.
Total current assets/total current liabilities. The 2009 figures are based on latest audited
December 31, 2009.
Consolidated Income Statement
ATS registered P3.1 billion consolidated revenues for the first quarter ending March 31,
2010. This is a P286 million or 10% improvement versus P2.9 billion registered during the
same period last year. The increase in revenues is mainly led by our international ship
chartering business and our supply chain management solutions. More and more it is
evident that customers are recognizing ATS’ value added services. The sale of goods from
our trading business increased P244M or 65% with the entry of new principals.
Local freight business contributed P1.2 billion in revenues, a 5% decrease versus 2009. This
is a result of lower freight rates. Volumes increased however, as we maintain our 77% load
factor with higher capacity at lower asset cost.
Our Passage business operated at very limited capacity during the first quarter as we had
three SuperFerry vessels under maintenance and drydocking. This caused a P210 million
reduction in revenues (inclusive of ancillary revenues) to register at P527.4 million. To
partly replace lost capacity from the sale of vessels in the past, ATS purchased two new roro
4
passenger (ropax) vessels at low market prices. The two vessels are expected to operate
during the latter part of the year.
Having most of our vessels on offhire due to maintenance during the 1st quarter of this year
resulted in the company operating only 64% of our total passenger fleet capacity and 82% of
freight capacity. These affected our volumes since we were not able to give our customers
the much needed frequency and speed and hindered our earning capacity.
During the period in review, ATS registered P141.9 million Net Loss Attributable to Holders
of the Parent. Total operating expenses reached P2.0 billion, 31% higher from 2009. This is
largely caused by close to 50% higher fuel prices versus the same period last year.
Earnings per Share
Earnings Per Share is computed by dividing Net Income Attributable to Equity Holders of the
Parent over weighted average number of common shares outstanding for the year. Earnings
per share for the first three months of 2010 stood at (P0.06)/share compared to P0.05/share
last year.
In co m e S ta te m e n t
% to T o ta l R e ve n u e
M ar 10
M ar 09
'1 0 vs '0 9
% Va r ia n c e
M ar 10
M ar 09
REVENUE
Fre igh t - n e t
1,5 83
1,47 7
10 6
7%
5 0%
5 2%
P as s age - n e t
4 99
63 5
(1 36 )
-2 1%
1 6%
2 2%
Se r vice fee s
3 22
22 1
10 1
46%
1 0%
8%
Sa le o f G o o ds (A O D I an d SO I)
O th e rs
6 20
37 7
24 4
65%
2 0%
1 3%
1 15
14 4
(29 )
-2 0%
4%
5%
3 ,1 39
2,8 5 3
286
10%
10 0%
10 0%
C O S TS A N D E X P E N S E S
O p er atin g
2,0 19
1,53 6
48 3
31%
6 4%
5 4%
Te rm in al
2 51
30 3
(51 )
-1 7%
8%
1 1%
O v er h ea d
C o s t o f Sa le s (A O D I an d S O I)
5 15
5 40
51 3
30 8
1
23 2
0%
75%
1 6%
1 7%
1 8%
1 1%
3 ,3 25
2,6 6 0
665
25%
10 6%
9 3%
O T H E R IN C O M E (C H A R G E S )
Fin an c e c os ts - n et
G a in on dis po s al o f pro pe r ty a nd e qu ipm e n t
Fo re ign e xch an ge ga in – n et
E qu ity in n et e ar nin gs (los s e s) of a ss o cia te s
O th e rs - n e t
IN C O M E B E F O R E IN C O M E TA X
(28 )
(6)
27%
-1%
-1%
4
(2 2)
9
(5)
-5 6%
0%
0%
(10 )
4
(14 )
-3 40 %
0%
0%
6
2
4
1 81 %
0%
0%
12
15
(2)
-1 7%
0%
1%
(16 )
8
(2 4 )
-2 88 %
-1%
0%
(2 01 )
201
(4 03 )
-2 00 %
-6%
7%
P R O V IS IO N FO R (B E N E FIT F R O M )
IN C O M E TA X
C u rr e nt
D e fe rre d
N E T IN C O M E
7
22
(15 )
-6 9%
0%
1%
(81 )
30
(1 11 )
-3 71 %
-3%
1%
(74 )
52
(1 26 )
-2 43 %
-2%
2%
(1 27 )
149
(2 76 )
-1 85 %
-4%
5%
(1 42 )
15
132
17
(2 74 )
(2)
-2 07 %
-1 2%
-5%
0%
5%
1%
(1 27 )
14 9
(2 76 )
-1 85 %
-4%
5%
A TT R IB U T A B L E T O :
E q u ity h o lde r s o f th e pa r e n t
M ino r ity in te r es ts
The figures above are in millions except otherwise indicated
5
Other changes (+/-5% or more) in the financial statement not covered in the above
discussion
7% increase in freight revenue generated by the international chartering business
21% lower passage revenues due to lower number of ships operating
46% increase in service fees from value added services
65% increase in sale of goods due to increased revenues from trading and third party
logistics.
 25% higher total costs and expenses attributed to 31% higher operating costs from
higher fuel expenses and 75% higher cost of sales from increased supply chain sales
 27% higher finance cost from additional borrowings
 340% higher foreign exchange loss due to peso-dollar exchange rates




Balance Sheet
Total assets recorded as of March 31, 2010 is P12.5 billion. Property and equipment
increased P985 million from the acquisition of two ropax vessels. Receivables also
increased by 38% largely due to higher transactions related to Abojeb’s crewing principals.
Total liabilities of ATS increased P2.0 billion attributable to P1.4 billion higher short term
loans. The company borrowed from financial institutions to fund vessel acquisition. Total
interest bearing loans at the end of the quarter stood at P2.9 billion. Accounts payable also
increased by P610 million or 15% from international shipping services still to be rendered
but already paid. Total equity decreased by P122.1 million or 2% due to lower retained
earnings brought about by lower net income for the first quarter of 2010.
Cashflow Statement
Total capital expenditures reached P1.25 billion because of vessel acquisitions and
drydocking of three ships to ensure their future reliability. These expenditures were
financed by short term debt. The company however is working on raising long term fixed
rate notes. Cash and cash equivalents at the end of the period, stood at P850.7 million.
6
Mar 10
Dec 09
20-09 var.
2010 %
to total
ASSETS
Current Assets
Cash and cash equivalents
Receivables - net
Inventories
Prepaid expenses and other current assets
Total Current Assets
Noncurrent Assets
Investments in associates
Available-for-sale investments
Property and equipment - net
Deferred income tax - net
Goodwill
Other noncurrent assets - net
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Loans payable
Accounts payable and other current liabilities
Current portion of obligations under finance lease
Income tax payable
Total Current Liabilities
851
3,246
615
877
5,588
1,096
2,348
571
785
4,800
88
43
5,802
353
256
413
6,956
12,545
74
43
4,818
256
256
375
5,822
10,622
2,802
4,593
5
11
7,411
Noncurrent Liabilities
Obligations under finance lease - net of current portion
25
Redeemable preferred shares
20
Pension liability
31
Other Noncurrent Liabilities
20
Total Noncurrent Liabilities
96
Equity Attributable to Equity Holders of the Parent
Common shares
2,485
Capital in excess of par value
911
Unrealized mark-to-market gain on available-for-sale investments
18
Cummulative Translation Adjustment
(3)
Share in Cumulative translation adjustments of an associate 8
Excess of cost over net asset valuation
(12)
Acquisition of minority interests
6
Retained earnings
1,619
Treasury shares
(59)
4,973
Equity Attributable to Minority Interests
64
Total Stockholders’ Equity
5,037
TOTAL LIABLITIES AND STOCKHOLDERS’ EQUITY12,545
(245)
898
43
92
788
(22%)
38%
8%
12%
16%
7%
26%
5%
7%
45%
14
0
985
98
0
38
1,134
1,923
19%
0%
20%
38%
0%
10%
19%
18%
1,392
3,983
6
13
5,394
1,409
610
(1)
(2)
2,017
101%
15%
(20%)
(14%)
37%
37%
61%
0%
0%
99%
25
20
18
4
68
(0)
0
12
16
28
(1%)
0%
69%
349%
41%
0%
0%
0%
0%
1%
0
0%
0
0%
0
0%
(1)
30%
7 1,383%
0
0%
0
0%
(142)
(8%)
0
0%
(135)
(3%)
13
26%
(122)
(2%)
1,923
18%
33%
12%
0%
0%
0%
0%
0%
22%
-1%
66%
1%
67%
167%
2,485
911
18
(2)
1
(12)
6
1,761
(59)
5,109
51
5,160
10,622
1%
0%
46%
3%
2%
3%
55%
100%
The figures above are in millions except otherwise indicated
Other changes (+/-5% or more) in the financial statement not covered in the above
discussion
None.
7
Other Information
Other material events and uncertainties known to management that would address the past
and would have an impact on ATS’ future operations are discussed below.
i.
Total fuel/lubes expense is a major component of ATS’ total cost and expenses. ATS
is constantly looking for ways to reduce fuel consumption to lessen the impact of the
increasing fuel prices on the bottom line.
ii.
For 2010, ATS estimates over P2.5 billion in capital expenditures. The bulk of these
expenditures is earmarked for vessel purchase and maintenance. It is the policy of
the company for vessels to be drydocked every 30 months. ATS will also continue to
right-size and replace old tonnage.
iii.
On May 6, 2010 ATS signed a Notes Facility Agreement with SB Capital Investment
and BPI Capital Corporation as Joint Lead Managers for the issuance of 5-year pesodenominated corporate fixed rate notes in the aggregate amount of P2 billion. The
Notes will be issued in a private placement to not more than 19 institutional investors
pursuant to Section 9.2 of the Securities Regulation Code (SRC) and Rule 9.2(2)(B) of
the SRC Rules. ATS expects to issue the Notes shortly after the signing.
iv.
Except as disclosed in the management discussion and notes to the financial
statements, there are no other known events that will trigger direct or contingent
financial obligation that is material to ATS, including any default or acceleration of an
obligation. There are also no other known trends, events or uncertainties that have
had or that are reasonably expected to have a material favorable or unfavorable
impact on revenues or income from operations.
v.
All significant elements of income or loss from continuing operations are already
discussed in the management discussion and notes to financial statements.
Likewise any significant elements of income or loss that did not arise from ATS’
continuing operations are disclosed either in the management discussion or notes to
financial statements.
vi.
There is no material off-balance sheet transaction, arrangement, obligation, and
other relationships of ATS with unconsolidated entities or other persons created
during the reporting period.
vii.
Seasonal aspects of the business are considered in ATS’ financial forecast.
viii.
ATS does not expect any liquidity or cash problem within the next twelve months.
Capital expenditures are funded through cash generated from operations and
additional borrowings.
ix.
As markets contract, the business climate will become more competitive. These
factors may have an unfavorable impact on our financial performance.
8
Company Outlook
We continue to be the preferred solutions provider of customers and we see that demand is
growing. We are looking forward to satisfying it as our complete fleet becomes fully
operational by the second half of the year, after the majority of the vessels complete their
drydocking and maintenance. In addition, the two recently bought SuperFerries will
contribute to the existing fleet. This means ATS will have 82% higher passenger capacity
compared to the 1st quarter capacity. Freight capacity will like increase by 46%. The
earnings potential of the company is better reflected at these levels.
Although its operating environment will continue to be a challenging one as it faces
uncertainties in fuel prices and the purchasing power of its customers. Efforts are
continuously placed on operational excellence at all levels of the organization. Last March,
the board of directors approved the statutory merger of ATS and its wholly-owned subsidiary
Zoom in Packages, Inc. (ZIP), with ATS as the surviving entity. The merger will result in
integrated processes and systems, further improving the effectiveness and efficiency of the
delivery of 2GO freight solutions. With ATS passion for better ways, we continue to strive in
providing solutions to serve customers at the lowest cost.
9
SIGNATURE
Pursuant to the requirements of the Securities Regulation Code, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Registrant
Aboitiz Transport System (ATSC) Corporation
Signature and Title
Ismael R. Cabonse
Date
May 13, 2010
Officer in Charge
10
ABOITIZ TRANSPORT SYSTEM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Amounts in Thousands
March 31, 2010
Mar-10
Dec-09
850,737
3,246,022
614,565
877,011
5,588,335
1,095,711
2,347,627
571,179
785,366
4,799,883
87,994
43,346
5,802,063
353,452
256,463
94,290
318,691
6,956,299
12,544,634
74,208
43,323
4,817,558
255,531
256,463
112,127
262,903
5,822,114
10,621,997
2,801,795
4,593,098
0
4,965
11,160
7,411,019
1,392,390
3,982,707
0
6,222
12,974
5,394,293
ASSETS
Current Assets
Cash and cash equivalents
Receivables - net
Inventories
Prepaid expenses and other current assets
Total Current Assets
Noncurrent Assets
Investments in associates
Available-for-sale investments
Property and equipment - net
Deferred income tax
Goodwill
Software development costs - net
Other noncurrent assets - net
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Loans payable
Accounts payable and other current liabilities
Current portion of long-term debt
Current portion of obligations under finance lease
Income tax payable
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion
0
Obligations under finance lease - net of current portion
25,213
Redeemable preferred shares
20,176
Pension liability
30,577
Other Noncurrent Liabilities
20,182
Total Noncurrent Liabilities
96,148
Equity Attributable to Equity Holders of the Parent
Common shares
2,484,653
Capital in excess of par value
910,901
Unrealized mark-to-market gain on available-for-sale investments
18,312
Unrealized loss on marketable equity securities
0
Cummulative Translation Adjustment
(2,633)
Share in Cumulative translation adjustments of an associate
7,609
Excess of cost over net asset valuation
(11,700)
Acquisition of minority interests
5,940
Reserves of disposal group classified as held for sale
0
Retained earnings
1,618,924
Treasury shares
(58,715)
4,973,291
Equity Attributable to Minority Interests
64,177
Total Stockholders’ Equity
5,037,468
TOTAL LIABLITIES AND STOCKHOLDERS’ EQUITY 12,544,634
0
25,346
20,176
18,115
4,494
68,132
2,484,653
910,901
18,312
0
(2,026)
513
(11,700)
5,940
0
1,760,853
(58,715)
5,108,730
50,842
5,159,572
10,621,997
11
ABOITIZ TRANSPORT SYSTEM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Amounts in Thousands
March 31, 2010
REVENUE
Freight - net
Passage - net
Service fees
Sale of Goods (AODI and SOI)
Others
COSTS AND EXPENSES
Operating
Terminal
Overhead
Cost of Sales (AODI and SOI)
OTHER INCOME (CHARGES)
Finance costs
Interest Income
Gain on disposal of property and equipment
Gain on disposal of investment
Foreign exchange gain – net
Equity in net earnings (losses) of associates
Others - net
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM)
INCOME TAX
Current
Deferred
NET INCOME
ATTRIBUTABLE TO:
Equity holders of the parent
Minority interests
Mar-10
Mar-09
1,583,090
498,758
321,866
620,394
115,276
3,139,384
1,476,876
635,144
220,525
376,604
144,129
2,853,278
2,018,846
251,444
514,709
540,069
3,325,068
1,536,312
302,529
513,257
308,157
2,660,255
(29,329)
1,595
4,136
0
(9,914)
5,566
12,182
(15,764)
(201,448)
(24,794)
2,982
9,469
0
4,137
1,983
14,604
8,381
201,404
6,887
(81,306)
(74,419)
(127,029)
22,007
30,050
52,057
149,347
(141,929)
14,900
(127,029)
132,331
17,016
149,347
12
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
NET INCOME
OTHER COMPREHENSIVE INCOME
Unrealized gains (losses) on AFS investments
Realized losses (gains) on AFS investments
Changes in cumulative translation adjustments
Cash Dividend
Income tax relating to the components of other
comprehensive income
OTHER COMPREHENSIVE INCOME,
NET OF TAX
TOTAL COMPREHENSIVE INCOME,
NET OF TAX
ATTRIBUTABLE TO:
Equity holders of the parent
Non-controlling interests
Mar-10
(127,029)
5,886
-
5,886
Mar-09
149,347
(513)
(6,099)
(6,612)
(121,144)
142,734
(135,439)
14,295
(121,144)
128,893
13,841
142,734
See accompanying Notes to Consolidated Financial Statements.
13
ABOITIZ TRANSPORT SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
FOR THE PERIODS ENDED 31 MARCH 2010
Attributable to owners of the parent
Common
Shares
Balances at January 1, 2010
Changes in equity for 2010:
Issuance of capital stock
Purchase of treasury shares
Gain on Dilution
Acquisition of minority interest
Cash dividends
Changes in minority interest
Total comprehensive income for the year
Balances at March 31, 2010
2,484,653
-
Share in Other Excess of Cost
Capital in Available-for- Comprehensive Over Net Asset Acquisition
NonExcess of sale financial
Income of
Valuation of an of Minority Retained Treasury
controlling
Par Value
assets
Associates
Investment
Interest
Earnings
Stock
Total
Interests
910,901
16,799
(11,700)
5,940 1,760,853
(58,715) 5,108,731
50,842
-
-
2,484,653
910,901
-
6,490
23,289
(11,700)
5,940
(141,929)
1,618,924
(135,439)
(58,715) 4,973,292
Total
5,159,573
(960)
(960)
(121,144)
14,295
64,177 5,037,469
ABOITIZ TRANSPORT SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
FOR THE PERIODS ENDED 31 MARCH 2009
Common
Shares
Balances at January 1, 2009
Changes in equity for 2009:
Issuance of capital stock
Purchase of treasury shares
Gain on Dilution
Acquisition of minority interest
Cash dividends
Changes in minority interest
Total comprehensive income for the year
Balances at March 31, 2009
2,484,653
-
AvailableCapital in
for-sale
Excess of financial
Par Value
assets
910,901
-
Attributable to owners of the parent
Share in Other Excess of Cost
Comprehensive Over Net Asset Acquisition
Income of
Valuation of an of Minority Retained
Associates
Investment
Interest
Earnings
10,491
(11,700)
5,940 1,214,711
-
-
2,484,653
910,901
-
(3,438)
7,053
(11,700)
132,331
5,940 1,347,042
NonTreasury
controlling
Stock
Total
Interests
(58,715) 4,556,281
34,505
128,893
(58,715) 4,685,174
101
13,841
48,447
Total
4,590,786
101
142,734
4,733,621
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
March 31, 2010
March 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before tax
Adjustments to reconcile net income (loss):
Depreciation and amortization
Loss on impairment of assets
Provision for:
Probable losses on CWT
Probable cargo losses and damages
Inventory losses
Doubtful accounts
Interest expense
Interest income
Loss (gain) on disposal of property and equipment
Loss (gain) on available-for-sael investments
Writeoff of AFS investment
Provision for retirement benefits
Recovery of provision
Equity in net losses (earnings) of associates
Unrealized foreign exchange loss (gain)
Dividend income
Operating income (loss) before working capital changes
Decrease (increase) in:
Receivables
Inventories
Prepaid expenses and other current assets
Increase (decrease) in:
Accounts payable and accrued expense
Other non current liabilities
Cash generated from (used for) operations
Interest received
Income tax paid
Net cash provided by operating activities
(201,448)
201,403
280,019
262,880
3,113
29,329
(1,595)
(4,136)
15,996
24,794
(2,982)
(9,469)
(5,566)
326
(82)
99,961
(1,983)
(8,611)
(22)
482,006
(901,311)
(43,386)
(84,758)
(164,464)
(46,860)
(91,472)
606,329
28,150
(295,015)
1,398
(6,887)
(300,504)
236,315
(9,469)
406,056
(12,299)
(1,251,421)
(264,883)
(70,748)
(8,220)
(23)
(1,634)
(9,504)
393,757
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment
Decrease (increase) in:
Other noncurrent assets
Investments in and advances to subsidiaries
Short term investments/AFS
Proceeds from:
Disposal of property and equipment and tied-up vessel
Sale of AFS Investment
Dividend received
Net cash used in investing activities
(Forward)
7,213
82
(1,323,117)
11,805
0
22
(264,194)
-2CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Notes/loans payable
Payments of:
Notes/loans payable
Long term debt/obligations under capital lease
Interest paid
(Increase) decrease in minority interest
Net cash provided (used in) financing activities
1,462,528
91,736
(53,124)
(1,390)
(27,804)
(1,565)
1,378,646
(145,957)
(20,137)
(24,621)
13,564
(85,415)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(244,975)
44,149
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
1,095,711
850,737
1,092,842
1,136,991
EFFECT OF FOREIGN EXCHANGE LOSS ON CASH AND CASH
EQUIVALENTS
See accompanying Notes to Consolidated Financial Statements.
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Exchange Rate Data and When Otherwise
Indicated)
1. Corporate Information
Aboitiz Transport System (ATSC) Corporation (the Parent Company) was incorporated in the
Philippines on May 26, 1949. The Parent Company’s shares of stocks are listed in the Philippine
Stock Exchange. The Parent Company and its Subsidiaries (collectively referred to as “the
Group”) are primarily engaged in the business of operating steamships, motorboats and other
kinds of watercrafts; operating flight equipment and trucks; and acting as agent for domestic and
foreign shipping companies for purposes of transportation of cargoes and passengers by air, land
and sea within the waters and territorial jurisdiction of the Philippines. The Parent Company’s
registered office address is 12th Floor, Times Plaza Building, United Nations Avenue corner Taft
Avenue, Ermita, Manila.
The Company’s parent is Aboitiz Equity Ventures, Inc. (AEV), a publicly-listed company
incorporated in the Philippines, and the ultimate parent company is Aboitiz & Company, Inc.
(ACO), also incorporated in the Philippines.
On September 23, 2008, AEV together with ACO entered into a Memorandum of Agreement
(MOA) with KGLI-NM Holdings Inc. (KGLI-NM). The MOA states that KGLI-NM will
purchase all of the shareholdings of AEV and ACO in the Parent Company on a per share
purchase price to be computed based on the Group’s equity value of =
P5 billion or equivalent to
=
P2.044 per share. The final terms of the sale will be subject to the due diligence audit and the
execution of a definitive share purchase agreement between the parties. AEV owns
1,889,482,107 common shares of the Parent Company while ACO owns 390,322,384 common
shares of the Parent Company, representing 77.24% and 15.96 %, respectively, of the Parent
Company’s total outstanding capital stock.
The MOA also provides that should KGLI-NM decide to proceed with the purchase, it shall also
undertake a tender offer of the shares owned by the minority shareholders at the same terms
offered to ACO and AEV in accordance with the requirements of the Securities Regulation Code.
KGLI-NM further undertakes to pay in cash for the Parent Company shares acquired under the
tender offer.
The planned acquisition would include all the shipping and logistics businesses of the Group
except for the following subsidiaries: Aboitiz Jebsen Bulk Transport Corporation (AJBTC) and
Subsidiaries, Jebsen Maritime, Inc. (JMI), Aboitiz Jebsen Manpower Solutions, Inc. (AJMSI) and
Jebsen Management Limited (JMBVI) and Subsidiaries (collectively called “Aboitiz Jebsen
Group”).
On December 19, 2008, the Parent Company received written advice that AEV, together with
ACO, accepted the Term Sheet offered by KGLI-NM for the acquisition by KGLI-NM of 49%
equity stake in the Parent Company instead of the total buy-out proposed in the MOA. The 49%
equity stake shall include the 7% equity stake of the public in the Parent Company. Under the
agreement, which was expected to close on or before April 30, 2009, the purchase price will be
based on a total equity value of the Group in the amount of P
=4.5 billion or equivalent to P
=1.84 per
share. Accordingly, the Aboitiz Jebsen Group will be acquired by AEV and ACO on or before
April 30, 2009. The agreement also gives KGLI-NM an option to acquire the remaining 51%
2
equity stake of AEV and ACO anytime from May 1, 2009 to September 30, 2009 at the same
price of =
P1.84 per share plus a premium of 9.5% annualized price per share calculated from April
30, 2009 to September 30, 2009 or to date of acquisition.
On April 30, 2009, the Parent Company received written advice from AEV and ACO that
KGLI-NM will not proceed with the purchase of US$30 million worth of the Parent Company’s
common shares owned by the former. KGLI-NM cited the current constraints in the debt markets
as the reason for its decision not to push through with its planned purchase of the Parent
Company shares owned by AEV and ACO. KGLI-NM had previously informed AEV and ACO
on March 31, 2009 that the former is exercising its option under Section 5 (c) (i) of the Term
Sheet dated December 19, 2008 to purchase US$30 million worth of the Parent Company’s
shares from AEV and ACO. In view of KGLI-NM’s decision not to close pursuant to the Term
Sheet and its notice dated March 31, 2009, the Term Sheet dated December 19, 2008 as well as
the Memorandum of Agreement dated September 23, 2008 between AEV and ACO, on one hand,
and KGLI-NM, on the other hand, have been deemed terminated.
The consolidated financial statements as at December 31, 2009 and 2008 and for each of the three
years in the period ended December 31, 2009, were authorized for issue by the Board of Directors
(BOD) on February 25, 2010.
2. Summary of Significant Accounting Policies
Basis of Preparation
The consolidated financial statements have been prepared on a historical cost basis, except for
AFS investments which have been measured at fair value. The financial statements are presented
in Philippine pesos, and all values are rounded to the nearest thousand (P
=000), except when
otherwise indicated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in accordance with
Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Parent Company
and its subsidiaries as at December 31 of each year. The following are the subsidiaries:
Subsidiaries
W G & A Supercommerce, Inc. (WSI)1
Zoom In Packages, Inc. (ZIP)
Aboitiz One, Inc. (AOI) and Subsidiaries:
Reefer Van Specialist Inc. (RVSI)
Aboitiz One Distribution, Inc.(AODI)
Scanasia Overseas Inc. (SOI)4
Hapag-Lloyd Philippines, Inc.(HLP)
Reefer Truck Specialists Inc. (RTSI)5
Cox Trucking Corporation (COX)4
(Forward)
Nature of Business
Ships’ hotel
management
Transportation/
logistics
Transportation/
logistics
Transportation
Distribution
Distribution
Transportation/
logistics
Transportation
Transportation
Percentage of Ownership
2009
2008
Direct Indirect
Direct Indirect
100.0
–
100.0
–
2007
Direct Indirect
100.0
–
100.0
–
100.0
–
100.0
–
100.0
–
100.0
–
100.0
–
–
–
–
–
100.0
100.0
100.0
94.0
–
–
–
–
100.0
100.0
100.0
94.0
–
–
–
–
100.0
100.0
–
85.0
–
–
–
–
–
–
–
–
–
–
100.0
80.0
3
Subsidiaries
Supercat Fast Ferry Corp. (SFFC)2
Aboitiz Jebsen Bulk Transport Corporation
(AJBTC) and Subsidiaries: 6
Filscan Shipping, Inc. (FILSCAN)
Nature of Business
Shipping
Ship management
Manning and crew
management services
General Charterer, Inc (GCI)
Manning and crew
management services
NOR-PHIL Ocean Shipping, Inc.
Manning and crew
(NOR-PHIL)
management services
Overseas Bulk Transport, Inc.
Manning and crew
(OVERSEAS)
management services
Viking International Carriers, Inc.
Manning and crew
(VIKING)
management services
Joss Asian Feeders, Inc. (JOSSAF)
Shipping
Harbor Training Center, Inc. (HTC)
Training
EMS Crew Management Philippines,Inc. Manning and crew
(EMS)
management services
Aboitiz Jebsen Manpower Solutions, Inc.
Manpower services
6
AJMSI)
6
Jebsen Maritime, Inc. (JMI)
Manpower services
Jebsen Management (JMBVI) Limited
Shipping
and Subsidiaries: 3 and 6
Jebsens International (Australia)
Chartering
Pty. Ltd.
and Shipping
Jebsen Orient Shipping Services AS
Chartering
and Shipping
Jebsens International (Singapore)
Chartering
Pte. Ltd
and Shipping
Jebsens Logistics Services
Fertilizer Bagging
Cebu Ferries Corporation5
Shipping
Percentage of Ownership
2009
2008
Direct Indirect
Direct Indirect
100.0
–
100.0
–
62.5
–
62.5
–
2007
Direct Indirect
100.0
–
62.5
–
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
–
–
62.5
62.5
46.9
–
–
–
62.5
62.5
46.9
–
–
–
62.5
62.5
46.9
62.5
–
62.5
–
62.5
–
62.5
50.0
–
–
62.5
50.0
–
–
62.5
50.0
–
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
–
50.0
–
–
–
50.0
–
–
100
50.0
–
1
Ceased operations in February 2006
Acquired from Accuria, Inc., an affiliate under common control, on August 30, 2007.
3
Parent Company exercises power to govern the financial and operating policies.
4
Acquired SOI in July 2008, and disposed COX and RTSI in August and September 2008, respectively
5
Liquidated in May 2008.
6
Classified as disposal group held for sale in December 2008
2
Subsidiaries are fully consolidated from the date on which control is transferred to the Group and
cease to be consolidated from the date on which control is transferred out of the Group.
Consolidated financial statements are prepared using uniform accounting policies for like
transactions and other events in similar circumstances. All significant intra-group balances,
income and expenses, and unrealized profits and losses resulting from intra-group transactions are
eliminated in the consolidation.
Minority interests represent the portion of profit or loss and net assets in the subsidiaries not held
by the Group and are presented separately in the consolidated statement of income and within
equity in the consolidated balance sheet, separately from the equity attributable to equity holders
of the parent. Acquisitions of minority interests are accounted for using the entity concept
method, whereby, the difference between the consideration paid or payable and the book value of
the share of the net assets acquired is recognized as an equity transaction.
Merger
On July 2, 2007, the SEC approved the merger of ALI and AOI, with the latter as the surviving
entity, effective July 2, 2007. ALI is a wholly owned subsidiary of the AOI. Consequently, by
operation of law, the separate corporate existence of ALI ceased as provided under the
Corporation Code. Thus, upon the implementation of the merger, all outstanding shares of capital
stock of ALI were cancelled.
4
Changes in Accounting Policies and Disclosures
The Group has adopted the following new, revised and amended standards and interpretations that
have been issued and are effective as of January 1, 2009. Except as otherwise indicated, adoption
of these new standards and interpretations did not have significant impact on the Group’s
consolidated financial statements.
PAS 1, Presentation of Financial Statements
The revised standard separates owner and non-owner changes in equity. The statement of
changes in equity includes only details of transactions with owners, with non-owner changes in
equity presented in a reconciliation of each component of equity. In addition, the standard
introduces the statement of comprehensive income: it presents all items of recognized income and
expense, either in one single statement, or in two linked statements. The Group has elected to
present two linked statements.
PAS 23, Borrowing Costs (Revised)
The revised PAS 23 requires capitalization of borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset.
PFRS 8, Operating Segments
PFRS 8 replaced PAS 14, Segment Reporting, upon its effective date. The Group concluded that
the operating segments determined in accordance with PFRS 8 are the same as the business
segments previously identified under PAS 14.
Philippine Interpretation IFRIC-13, Customer Loyalty Programmes
Philippine Interpretation IFRIC-13 requires customer loyalty credits to be accounted for as a
separate component of the sales transaction in which they are granted. A portion of the fair value
of the consideration received is allocated to the award credits and deferred. This is then
recognized as revenue over the period that the award credits are redeemed. This interpretation did
not have any impact in the Group’s financial statements as it does not have any loyalty programs
with customers.
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation
This Interpretation is to be applied prospectively. Philippine Interpretation IFRIC-16 provides
guidance on the accounting for a hedge of a net investment. As such it provides guidance on
identifying the foreign currency risks that qualify for hedge accounting in the hedge of a net
investment, where within the group the hedging instruments can be held in the hedge of a net
investment and how an entity should determine the amount of foreign currency gain or loss,
relating to both the net investment and the hedging instrument, to be recycled on disposal of the
net investment. This interpretation did not have any impact on the Group’s financial statements.
Philippine Interpretation IFRIC 18, Transfers of Assets from Customers
This Interpretation is to be applied prospectively to transfers of assets from customers received on
or after July 1, 2009. The Interpretation provides guidance on how to account for items of
property, plant and equipment received from customers or cash that is received and used to
acquire or construct assets that are used to connect the customer to a network or to provide
ongoing access to a supply of goods or services or both. When the transferred item meets the
definition of an asset, the asset is measured at fair value on initial recognition as part of an
exchange transaction. The service(s) delivered are identified and the consideration received (the
fair value of the asset) allocated to each identifiable service. Revenue is recognized as each
service is delivered by the entity. This interpretation did not have any impact on the Group’s
financial statements.
5
Amendments to Standards
PAS 32 and PAS 1 Amendments - Puttable Financial Instruments and Obligations Arising on
Liquidation
The standards have been amended to allow a limited scope exception for puttable financial
instruments to be classified as equity if they fulfill a number of specified criteria. The adoption of
these amendments did not have any impact on the financial position or the performance of the
Group.
PFRS 1 and PAS 27 Amendments - Cost of an Investment in a Subsidiary, Jointly Controlled
Entity or Associate
The amendments to PFRS 1, First-time Adoption of Philippine Financial Reporting Standards,
allowed an entity to determine the ‘cost’ of investments in subsidiaries, jointly controlled entities
or associates in its opening PFRS financial statements in accordance with PAS 27, Consolidated
and Separate Financial Statements, or using a deemed cost method. The amendment to PAS 27
required all dividends from a subsidiary, jointly controlled entity or associate to be recognized in
the income statement in the separate financial statement. The revision to PAS 27 did not have an
impact in the financial position or performance of the Group since the investments in subsidiaries
and associates were already accounted for using the cost method.
PFRS 2, Amendment - Vesting Conditions and Cancellations
The amendment to PFRS 2, Share-based Payments, clarifies the definition of vesting conditions
and prescribes the treatment for an award that is cancelled. It did not have an impact on the
financial position or performance of the Group.
PFRS 7 Amendments - Improving Disclosures about Financial Instruments
The amendments to PFRS 7, Financial Instruments: Disclosures, require additional disclosures
about fair value measurement and liquidity risk. Fair value measurements related to items
recorded at fair value are to be disclosed by source of inputs using a three level fair value
hierarchy, by class, for all financial instruments recognized at fair value. In addition, a
reconciliation between the beginning and ending balance for level 3 fair value measurements is
now required, as well as significant transfers between levels in the fair value hierarchy. The
amendments also clarify the requirements for liquidity risk disclosures with respect to derivative
transactions and financial assets used for liquidity management. The fair value measurement
disclosures are presented in Note35. The liquidity risk disclosures are not significantly impacted
by the amendments and are presented in Note34.
Philippine Interpretation IFRIC 9 and PAS 39 Amendments - Embedded Derivatives
This amendment to Philippine Interpretation IFRIC-9, Reassessment of Embedded Derivatives,
requires an entity to assess whether an embedded derivative must be separated from a host
contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or
loss category. This assessment is to be made based on circumstances that existed on the later of
the date the entity first became a party to the contract and the date of any contract amendments
that significantly change the cash flows of the contract. PAS 39, Financial Instruments:
Recognition and Measurement, now states that if an embedded derivative cannot be reliably
measured, the entire hybrid instrument must remain classified as at fair value through profit or
loss.
6
Improvements to PFRS 2008
The omnibus amendments to PFRS issued in 2008 (and 2009) were issued primarily with a view
to removing inconsistencies and clarifying wording. There are separate transitional provisions for
each standard. The adoption of the following amendments resulted in changes in accounting
policies but did not have any impact on the financial position or performance of the Group.
PAS 18, Revenue:
The amendment adds guidance (which accompanies the standard) to determine whether an entity
is acting as a principal or as an agent. The features to consider are whether the entity:




has primary responsibility for providing the goods or service;
has inventory risk;
has discretion in establishing prices; and
bears the credit risk.
The Group has assessed its revenue arrangements against these criteria and concluded that it is
acting as principal in all arrangements. The revenue recognition policy has been updated
accordingly.
New Accounting Standards, Interpretations, and Amendments to Existing Standards Effective
Subsequent to December 31, 2009
The Group will adopt the following standards and interpretations enumerated below when these
become effective. Except as otherwise indicated, the Group does not expect the adoption of these
new and amended PFRS and Philippine Interpretations to have significant impact on its financial
statements.
PFRS 3, Business Combinations (Revised) and PAS 27, Consolidated and Separate Financial
Statements (Amended)
The revised standards are effective for annual periods beginning on or after July 1, 2009.
PFRS 3 (Revised) introduces significant changes in the accounting for business combinations
occurring after this date. Changes affect the valuation of minority interest, the accounting for
transaction costs, the initial recognition and subsequent measurement of a contingent
consideration and business combinations achieved in stages. These changes will impact the
amount of goodwill recognized, the reported results in the period that an acquisition occurs and
future reported results. PAS 27 (Amended) requires that a change in the ownership interest of a
subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity
as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise
to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred
by the subsidiary as well as the loss of control of a subsidiary. The changes in PFRS 3 (Revised)
and PAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and
transactions with minority interests. PFRS 3 (Revised) will be applied prospectively while
PAS 27 (Amended) will be applied retrospectively with a few exceptions.
Philippine Interpretation IFRIC 17, Distributions of Non-Cash Assets to Owners
This interpretation is effective for annual periods beginning on or after July 1, 2009 with early
application permitted. It provides guidance on how to account for non-cash distributions to
owners. The interpretation clarifies when to recognize a liability, how to measure it and the
associated assets, and when to derecognize the asset and liability. The Group does not expect the
7
Interpretation to have an impact on the consolidated financial statements as the Group has not
made non-cash distributions to shareholders in the past.
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate
This interpretation, effective for annual periods beginning on or after January 1, 2012, 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.
Amendments to Standards
PAS 39 Amendment - Eligible Hedged Items
The amendment to PAS 39, Financial Instruments: Recognition and Measurement, effective for
annual periods beginning on or after July 1, 2009, clarifies that an entity is permitted to designate
a portion of the fair value changes or cash flow variability of a financial instrument as a hedged
item. This also covers the designation of inflation as a hedged risk or portion in particular
situations. The Group has concluded that the amendment will have no impact on the financial
position or performance of the Group, as the Group has not entered into any such hedges.
PFRS 2 Amendments - Group Cash-settled Share-based Payment Transactions
The amendments to PFRS 2, Share-based Payments, effective for annual periods beginning on or
after January 1, 2010, clarify the scope and the accounting for group cash-settled share-based
payment transactions. The Group has concluded that the amendment will have no impact on the
financial position or performance of the Group as the Group has not entered into any such sharebased payment transactions.
Improvement to PFRS 2009
The omnibus amendments to PFRS issued in 2009 were issued primarily with a view to removing
inconsistencies and clarifying wording. The amendments are effective for annual periods
financial years January 1, 2010 except otherwise stated. The Group has not yet adopted the
following amendments and anticipates that these changes will have no material effect on the
financial statements.
 PFRS 2, Share-based Payment: clarifies that the contribution of a business on formation of a
joint venture and combinations under common control are not within the scope of PFRS 2
even though they are out of scope of PFRS 3, Business Combinations (Revised). The
amendment is effective for financial years on or after July 1, 2009.
 PFRS 5, Non-current Assets Held for Sale and Discontinued Operations: clarifies that the
disclosures required in respect of non-current assets and disposal groups classified as held for
sale or discontinued operations are only those set out in PFRS 5. The disclosure requirements
of other PFRSs only apply if specifically required for such non-current assets or discontinued
operations.
8
 PFRS 8, Operating Segment Information: clarifies that segment assets and liabilities need
only be reported when those assets and liabilities are included in measures that are used by the
chief operating decision maker.
 PAS 1, Presentation of Financial Statements: clarifies that the terms of a liability that could
result, at anytime, in its settlement by the issuance of equity instruments at the option of the
counterparty do not affect its classification.
 PAS 7, Statement of Cash Flows: explicitly states that only expenditure that results in a
recognized asset can be classified as a cash flow from investing activities.
 PAS 17, Leases: removes the specific guidance on classifying land as a lease. Prior to the
amendment, leases of land were classified as operating leases. The amendment now requires
that leases of land are classified as either ‘finance’ or ‘operating’ in accordance with the
general principles of PAS 17. The amendments will be applied retrospectively.
 PAS 36, Impairment of Assets: clarifies that the largest unit permitted for allocating goodwill,
acquired in a business combination, is the operating segment as defined in PFRS 8 before
aggregation for reporting purposes.
 PAS 38, Intangible Assets: clarifies that if an intangible asset acquired in a business
combination is identifiable only with another intangible asset, the acquirer may recognize the
group of intangible assets as a single asset provided the individual assets have similar useful
lives. Also clarifies that the valuation techniques presented for determining the fair value of
intangible assets acquired in a business combination that are not traded in active markets are
only examples and are not restrictive on the methods that can be used.
 PAS 39, Financial Instruments: Recognition and Measurement: clarifies the following:
­ that a prepayment option is considered closely related to the host contract when the
exercise price of a prepayment option reimburses the lender up to the approximate
present value of lost interest for the remaining term of the host contract.
­ that the scope exemption for contracts between an acquirer and a vendor in a business
combination to buy or sell an acquiree at a future date applies only to binding forward
contracts, and not derivative contracts where further actions by either party are still to
be taken.
­ that gains or losses on cash flow hedges of a forecast transaction that subsequently
results in the recognition of a financial instrument or on cash flow hedges of
recognized financial instruments should be reclassified in the period that the hedged
forecast cash flows affect profit or loss.
 Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives: clarifies that it
does not apply to possible reassessment at the date of acquisition, to embedded derivatives in
contracts acquired in a business combination between entities or businesses under common
control or the formation of joint venture.
 Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation: states
that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments
may be held by any entity or entities within the group, including the foreign operation itself,
as long as the designation, documentation and effectiveness requirements of PAS 39 that
relate to a net investment hedge are satisfied.
9
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
three months or less, and are subject to an insignificant risk of change in value.
Inventories
Inventories are valued at the lower of cost or net realizable value (NRV). Cost is determined
using the moving average method for materials, parts and supplies, flight equipment expendable
parts and supplies and the first-in, first-out method for trading goods, truck and trailer expendable
parts, fuel, lubricants and spare parts. NRV is the estimated selling price in the ordinary course of
business, less estimated costs necessary to make the sale.
Business Combinations and Goodwill
Business combinations are accounted for using the purchase method. The cost of an acquisition is
measured as the fair value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at fair values at the date of acquisition, irrespective of the extent of any
minority interest.
Goodwill is initially measured at cost being the excess of the cost of business combination over
the Group’s share in the net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities. If the cost of the acquisition is less than the fair value of the net assets of
the subsidiary acquired, the difference is recognized directly in the consolidated statement of
income.
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 synergies of the combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units.
Where the goodwill forms part of a cash-generating unit and part of the operation within that unit
is disposed of, the goodwill associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on disposal of the operation. Goodwill
disposed of in this circumstance is measured based on the relative values of the operation
disposed of and the portion of the cash-generating unit retained.
When the Group acquires a business, embedded derivatives separated from the host contract by
the acquiree are not reassessed on acquisition unless the business combination results in a change
in the terms of the contract that significantly modifies the cash flows that would otherwise be
required under the contract.
Business combination of entities under common control is accounted for using a method similar
to pooling of interest. Under the pooling of interest method, any excess of acquisition cost over
the net asset value of the acquired entity is recorded in equity.
When subsidiaries are sold, the difference between the selling and the net assets plus cumulative
translation differences and unamortized goodwill is recognized in the consolidated statement of
income.
10
Investments in Associates
The Group’s investments in associates are accounted for under the equity method. An associate is
an entity in which the Group has significant influence and which is neither a subsidiary nor a joint
venture.
Under the equity method, the investments in associates are carried in the consolidated balance
sheet at cost plus post acquisition changes in the Group’s share in the net assets of associates.
Goodwill relating to an associate is included in the carrying amount of the investment and is not
amortized or separately tested for impairment.
The consolidated statement of income reflects the share in the results of operations of the
associates. Where there has been a change recognized directly in the consolidated statement of
changes in equity of the associate, the Group recognizes its share of any changes and discloses it,
when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses
resulting from transactions between the Group and the associates are eliminated to the extent of
the interest in the associate.
The share of profit of associates is shown on the face of the consolidated statement of income.
This is the profit attributable to equity holders of the associate and therefore is profit after tax and
minority interest in the subsidiaries of the associates.
The financial statements of the associate are prepared for the same reporting period as the parent
company and the associates’ accounting policies conform to those used by the Group for like
transactions and events in similar circumstances.
After the application of the equity method, the Group determines whether it is necessary to
recognize an additional impairment loss on the Group’s investment in its associates. The Group
determines at each balance sheet date whether there is any objective evidence that the investment
in the associate is impaired. If this is the case the Group calculates the amount of impairment as
the difference between the recoverable amount of the associate and its carrying value and
recognizes the amount in the consolidated statement of income.
Interest in a Joint Venture
The Group has an interest in a joint venture which is a jointly controlled entity, whereby the
venturers have a contractual arrangement that establishes joint control over the economic
activities of the entity. The Group recognizes its interest in the joint venture using the
proportionate consolidation method. The Group combines its proportionate share of each of the
assets, liabilities, income and expenses of the joint venture with similar items, line by line, in its
consolidated financial statements. The financial statements of the joint venture are prepared for
the same reporting period as the parent company. Adjustments are made where necessary to bring
the accounting policies in line with those of the Group.
Adjustments are made in the Group’s consolidated financial statements to eliminate the Group’s
share of intragroup balances, income and expenses and unrealized gains and losses on transactions
between the Group and its jointly controlled entity. Losses on transactions are recognized
immediately if the loss provides evidence of a reduction in the net realizable value of current
assets or an impairment loss. The joint venture is proportionately consolidated until the date on
which the Group ceases to have joint control over the joint venture.
Upon loss of joint control and provided the former joint control entity does not become a
subsidiary or associate, the Group measures and recognizes its remaining investment at its fair
value. Any difference between the carrying amount of the former joint controlled entity upon loss
11
of joint control and the fair value of the remaining investment and proceeds from disposal is
recognized in the consolidated statement of income. When the remaining investment constitutes
significant influence, it is accounted for as investment in an associate.
Property and Equipment
Property and equipment other than land are stated at cost, less accumulated depreciation and
accumulated impairment losses, if any. Such cost includes the cost of replacing part of the
property and equipment and borrowing costs for long-term construction projects if the recognition
criteria are met. When significant parts of property and equipment are required to be replaced in
intervals, the Group recognizes such parts as individual assets with specific useful lives and
depreciation, respectively. Repairs and maintenance costs are recognized in the consolidated
statement of income as incurred. Land is carried at cost less accumulated impairment losses.
Depreciation and amortization are calculated on a straight-line basis over the estimated useful
lives of the property and equipment as follows:
Number of Years
Ships in operation, excluding drydocking costs and
vessel equipment and improvements
15-30 years
Drydocking costs
2 ½-5 years
Vessel equipment and improvements
3-5 years
Containers
5-7 years
Handling equipment
5-7 years
Furniture and equipment
3-5 years
Land improvements
5-10 years
Buildings and warehouses
5-20 years
Transportation equipment
5-10 years
Leasehold improvements
5-12 years
Leasehold improvements are amortized over their estimated useful lives or the term of the lease,
whichever is shorter.
Flight equipment is depreciated based on the estimated number of flying hours.
Drydocking costs, consisting mainly of replacement of steel plate of the ships’ hull and related
expenditures, are capitalized as a component of “Ships in operation”. Steel components are
depreciated over five (5) years or the remaining life of the vessel whichever is shorter. Other
components are depreciated over two and one-half (2 ½) years. When drydocking costs occur
prior to the end of this period, the remaining unamortized balance of the previous drydocking cost
is derecognized in consolidated statement of income.
Ships under refurbishment include the acquisition cost of the ships, the cost of ongoing
refurbishments and other direct costs. Construction in progress represents structures under
construction and is stated at cost. This includes cost of construction and other direct costs.
Borrowing costs that are directly attributable to the refurbishment of ships and construction of
property and equipment are capitalized during the refurbishment and construction period. Ships
under refurbishment and construction in progress are not depreciated until such time the relevant
assets are complete and available for use.
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 the consolidated statement of income in the year the asset is derecognized.
12
The asset’s residual values, useful lives and depreciation methods are reviewed at each financial
year end, and adjusted prospectively if appropriate. Fully depreciated assets are retained in the
accounts until these are no longer in use. When property and equipment are sold or retired, their
cost and accumulated depreciation and any allowance for impairment in value are eliminated from
the accounts and any gain or loss resulting from their disposal is included in the consolidated
statement of income.
Noncurrent Assets Classified as Held for Sale
Noncurrent assets and disposal groups classified as held for sale are measured at the lower of
carrying amount and fair value less cost to sell. Noncurrent assets and disposal groups are
classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use. This condition is regarded as met only when the
sale is highly probable and the asset or disposal group is available for immediate sale in its
present condition. Management must be committed to the sale, which should be expected to
qualify for recognition as a completed sale within one year from the date of classification.
Liabilities associated with these assets are presented separately in the consolidated balance sheet.
In the consolidated statement of income of the reporting period and the comparable period of the
previous year, income and expenses from discontinued operations are reported separate from
normal income and expenses down to the level of profit after taxes, even when the Group retains a
minority interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is
reported separately in the consolidated statement of income.
Property and equipment and intangible assets once classified as held for sale are not depreciated
or amortized.
If there are changes to a plan of sale, and the criteria for the asset or disposal group to be
classified as held for sale are no longer met, the Group ceases to classify the asset or disposal
group as held for sale and it shall be measured at the lower of:
a) its carrying amount before the asset was classified as held for sale adjusted for any
depreciation, amortization or revaluations that would have been recognized had the
asset not been classified as held for sale, and
b) its recoverable amount at the date of the subsequent decision not to sell.
The Group includes any required adjustment to the carrying amount of a noncurrent asset or
disposal group that ceases to be classified as held for sale in the consolidated statement of income
from continuing operations in the period in which the criteria for the asset or disposal group to be
classified as held for sale are no longer met. The Group presents that adjustment in the same
caption in the consolidated statement of comprehensive income used to present a gain or loss
recognized, if any.
If the Group ceases to classify a component of an entity as held for sale, the results of operations
of the component previously presented in discontinued operations shall be reclassified and
included in income from continuing operations for all periods presented. The amounts for prior
periods shall be described as having been re-presented.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is fair value as at the date of the acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated
amortization and any accumulated impairment losses. Internally generated intangible assets,
13
excluding capitalized development costs, are not capitalized and expenditure is reflected in the
consolidated statement of income in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Software development costs
Software development costs are initially recognized at cost. Following initial recognition, the
software development costs are carried at cost less accumulated amortization and any
accumulated impairment in value.
The software development costs is amortized on a straight-line basis over its estimated useful
economic life of three to five years and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The amortization commences when the software
development costs is available for use. The amortization period and the amortization method for
the software development costs are reviewed at each financial year end. Changes in the estimated
useful life is accounted for by changing the amortization period or method, as appropriate, and
treated as changes in accounting estimates. The amortization expense is recognized in the
consolidated statement of income in the expense category consistent with the function of the
software development costs.
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.
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 the
consolidated statement of income when the asset is derecognized.
Impairment of Nonfinancial Assets
The Group assesses at each balance sheet date whether there is an indication that nonfinancial
asset may be impaired. If any such indication exists, or when annual impairment testing for
nonfinancial asset is required, the Group makes an estimate of the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair
value less costs to sell and its value in use (VIU) and is determined for an individual asset, unless
the asset does not generate cash inflows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount,
the asset is considered impaired and is written down to its recoverable amount. In assessing VIU,
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. 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
subsidiaries or other available fair value indicators.
Impairment losses of continuing operations are recognized in the consolidated statement of
income in those expense categories consistent with the function of the impaired asset.
14
For nonfinancial assets excluding goodwill, an assessment is made at each balance sheet 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 Group makes an estimate of the asset’s or
CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there
has been a change in the assumptions used to determine the asset’s recoverable amount since the
last impairment loss was recognized. If that is the case, the carrying amount of the asset is
increased to its recoverable amount. That increased amount cannot exceed the carrying amount
that would have been determined, net of depreciation, had no impairment loss been recognized for
the asset in prior years. Such reversal is recognized in the consolidated statement of income
unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation
increase. After such a reversal, the depreciation expense is adjusted in future periods to allocate
the asset’s revised carrying amount, less any residual value, on a systematic basis over its
remaining useful life.
Goodwill
Goodwill is tested for impairment on December 31 of each year and when circumstances indicate
that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each cashgenerating unit (or group of cash-generating units) to which the goodwill relates. Where the
recoverable amount of each cash-generating unit is less than their carrying amount an impairment
loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
Treasury Shares
The Group’s own equity instruments which are reacquired (treasury shares) are recognized at cost
and deducted from equity. No gain or loss is recognized in the consolidated statement of income
on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any
difference between the carrying amount and the consideration is recognized in other capital
reserves.
Financial Instruments
Financial assets
Initial recognition
Financial assets within the scope of PAS 39 are classified as financial assets at fair value
through profit or loss (FVPL), loans and receivables, held-to-maturity (HTM) investments,
AFS investments, or as derivatives designated as hedging instruments in an effective hedge,
as appropriate. The Group determines the classification of its financial assets at initial
recognition and, where allowed and appropriate, re-evaluates such designation at every
balance sheet date.
Financial assets are recognized initially at fair value plus, in the case of investments not at
FVPL, directly attributable transaction costs.
Purchases or sales of financial assets that require delivery of assets within a time frame
established by regulation or convention in the marketplace (regular way purchases) are
recognized on the trade date i.e., the date that the Group commits to purchase or sell the asset.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
15
Financial assets at FVPL
Financial assets at FVPL include financial assets held for trading and financial assets designated
upon initial recognition as FVPL. Financial assets are classified as held for trading if they are
acquired for the purpose of selling in the near term. Derivatives, including separated embedded
derivatives are also classified as held for trading unless they are designated as effective hedging
instruments. Financial assets at FVPL are carried in the consolidated balance sheet at fair value
with gains and losses recognized in the consolidated statement of income.
Financial assets may be designated at initial recognition as at FVPL if the following criteria are
met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or recognizing the gains or losses on them on a
different basis; or (ii) the assets are part of a group of financial assets which are managed and
their performance evaluated on fair value basis, in accordance with a documented risk
management strategy; or (iii) the financial asset contains an embedded derivative that would need
to be separately recorded.
As at December 31, 2009 and 2008 the Group does not have any financial asset as at FVPL.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market, they are not entered into with the intention
of immediate or short-term resale and are not designated as AFS financial assets or financial
assets at FVPL. Loans and receivables are carried at amortized cost using the effective
interest method, less allowance for impairment. Amortized cost is calculated by taking into
account any discount or premium on acquisition and fees that are integral part of the effective
interest rate. Gains and losses are recognized in the consolidated statement of income when
the loans and receivables are derecognized or impaired, as well as through the amortization
process. Loans and receivables are included in current assets if maturity is within 12 months
from the balance sheet date.
As at December 31, 2009 and 2008, financial assets included under this classification are the
Group’s cash in bank and cash equivalents, trade and other receivables and refundable deposits
(presented as part of “Other current assets” in the consolidated balance sheet).
HTM investments
HTM investments are quoted non-derivative financial assets which carry fixed or determinable
payments and fixed maturities and which the Group has the positive intention and ability to hold
to maturity. After initial measurement, HTM investments are measured at amortized cost using
the effective interest method. This method uses an effective interest rate that exactly discounts
estimated future cash receipts through the expected life of the financial asset to the net carrying
amount of the financial asset. Where the Group sells other than an insignificant amount of HTM
investments, the entire category would be tainted and reclassified as AFS investments. Gains and
losses are recognized in the consolidated statement of income when the investments are
derecognized or impaired, as well as through the amortization process. As at December 31, 2009
and 2008, the Group has no HTM investments.
AFS investments
AFS investments are those non-derivative financial assets which are designated as such or do not
qualify to be classified as financial assets designated at FVPL, HTM investments or loans and
receivables. They are purchased and held indefinitely, and may be sold in response to liquidity
requirements or changes in market conditions. After initial measurement, AFS investments are
16
measured at fair value with unrealized gains or losses recognized in the consolidated statement of
comprehensive income and consolidated statement of changes in equity in the “Unrealized markto-market gain on AFS investments” until the AFS investments is derecognized, at which time the
cumulative gain or loss recorded in equity is recognized in the consolidated statement of income.
Assets under this category are classified as current assets if expected to be realized within twelve
months from the balance sheet date and as noncurrent assets if maturity date is more than a year
from balance sheet date.
The Group’s AFS investments as at December 31, 2009 and 2008 included investment in quoted
and unquoted shares of stock.
Financial liabilities
Initial recognition
Financial liabilities within the scope of PAS 39 are classified as financial liabilities at FVPL,
other financial liabilities, or as derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Group determines the classification of its financial liabilities at
initial recognition and, where allowed and appropriate, reevaluates such designation at every
balance sheet date.
Financial liabilities are recognized initially at fair value plus, in the case of investments not at
FVPL, directly attributable transaction costs.
Other financial liabilities
Financial liabilities are classified in this category if these are not held for trading or not designated
as at FVPL upon the inception of the liability. These include liabilities arising from operations or
borrowings.
The Group’s financial liabilities include debt and other borrowings (presented as loans payable in
the consolidated balance sheet), trade and other payables, obligations under finance lease, and
redeemable preferred shares.
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
Financial liabilities at FVPL
Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities
designated upon initial recognition at FVPL.
Financial liabilities are classified as held for trading if they are acquired for the purpose of selling
in the near term. This category includes derivative financial instruments entered into by the
Group that do not meet the hedge accounting criteria as defined by PAS 39.
Gains and losses on liabilities held for trading are recognized in the consolidated statement of
income.
As at December 31, 2009 and 2008, the Group does not have a financial liability held for trading
and has not designated any financial liabilities as at FVPL.
Other financial liabilities
Other financial liabilities are initially recognized at fair value of the consideration received, less
directly attributable transaction costs. After initial recognition, other financial liabilities are
17
subsequently measured at amortized cost using the effective interest method. Amortized cost is
calculated by taking into account any related issue costs, discount or premium. Gains and losses
are recognized in the consolidated statement of income when the liabilities are derecognized, as
well as through the amortization process.
Financial guarantee contracts
Financial guarantee contracts issued by the Parent Company to its Subsidiaries are those contracts
that require a payment to be made to reimburse the holder for a loss it incurs because the specified
debtor fails to make a payment when due in accordance with the terms of a debt instrument.
Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for
transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the
ability is measured at the higher of the best estimate of the expenditure required to settle the
present obligation at the balance sheet date and the amount recognized less cumulative
amortization.
Embedded Derivatives
Derivatives embedded in host contracts are separated from the host contract and accounted for as
a derivative if all of the following conditions are met: (a) the economic characteristics and risks of
the embedded derivative are not closely related to the risks and characteristics of the host contract;
(b) a separate instrument with the same terms as the embedded derivatives would meet the
definition of a derivative; and (c) the hybrid or combined instrument is not recognized at FVPL.
These embedded derivatives are measured at fair value with gains and losses arising from changes
in fair value recognized in the consolidated statement of income. Reassessment only occurs if
there is a change in the terms of the contract that significantly modifies the cash flows that would
otherwise be required.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the
consolidated balance sheet 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
assets and settle the liabilities 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 balance sheet.
Fair value of financial instruments
The fair value for financial instruments traded in active markets at the balance sheet date is based
on their quoted market price or dealer price quotations (bid price for long positions and ask price
for short positions), without any deduction for transaction costs. When current bid and asking
prices are not available, the price of the most recent transaction provides evidence of the current
fair value as long as there has not been a significant change in economic circumstances since the
time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist, options
pricing models, and other relevant valuation models.
‘Day 1’ profit and loss
Where the transaction price in a non-active market is different from the fair value of other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from observable market, the Group recognizes the difference
between the transaction price and fair value (a Day 1 profit and loss) in the consolidated statement
18
of income 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 consolidated statement of income 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’ profit and loss amount.
Classification of financial instruments between debt and equity
A financial instrument is classified as debt if it provides for a contractual obligation to:
 deliver cash or another financial asset to another entity; or
 exchange financial assets or financial liabilities with another entity under conditions that
are potentially unfavorable to the Group; or
 satisfy 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.
If the Group does not have an unconditional right to avoid delivering cash or another financial
asset to settle its contractual obligation, the obligation meets the definition of a financial liability.
The components of issued financial instruments that contain both liability and equity elements are
accounted for separately, with the equity component being assigned the residual amount after
deducting from the instrument as a whole the amount separately determined as the fair value of
the liability component on the date of issue.
Impairment of Financial Assets
The Group assesses at each balance sheet 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 and
only if, there is an 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. 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.
Loans and receivables
For loans and receivables carried at amortized cost, the Group first assesses individually whether
objective evidence of impairment exists for financial assets that are individually significant, or
collectively for financial assets that are not individually significant. If the Group determines 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 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 estimated
future cash flows (excluding future expected credit losses that have not yet been incurred). The
carrying amount of the asset is reduced through the use of an allowance account and the amount
19
of the loss is recognized in the consolidated statement of income. Interest income continues to be
accrued on the reduced carrying amount based on the original effective interest rate of the
financial asset. Loans together with the associated allowance are written off when there is no
realistic prospect of future recovery and all collateral has been realized or has been transferred to
the Group. If, in a subsequent period, the amount of the impairment loss increases or decreases
because of an event occurring after the impairment was recognized, the previously recognized
impairment loss increased or decreased by adjusting the allowance account. Any subsequent
reversal of an impairment loss is recognized in the consolidated statement of income, to the extent
that the carrying value of the asset does not exceed its amortized cost at the reversal date.
In relation to trade receivables, a provision for impairment loss is made when there is objective
evidence (such as the probability of insolvency or significant financial difficulties of the debtor)
that the Group will not be able to collect all the amounts due under the original terms of the
invoice. The carrying amount of the receivables is reduced through use of an allowance account.
Impaired debts are derecognized when they are assessed as uncollectible.
Assets carried at cost
If there is objective evidence that an impairment loss on 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 has been
incurred, the amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at the current market rate of return
for a similar financial asset.
AFS investments
For AFS investments, the Group assess at each balance sheet date whether there is objective
evidence that an investment or Group of investment is impaired.
In the case of equity investments classified as AFS, objective evidence of impairment would
include a significant or prolonged decline in the fair value of the investments below its cost.
Where there is evidence of impairment, the cumulative loss (measured as the difference between
the acquisition cost and the current fair value, less any impairment loss on that financial asset
previously recognized in the consolidated statement of income) is removed from equity and
recognized in the consolidated statement of income. Impairment losses on equity investments are
not reversed through the consolidated statement of income. Increases in fair value after
impairment are recognized in other comprehensive income.
In the case of debt instruments classified as AFS, impairment is assessed based on the same
criteria as financial assets carried at amortized cost. Future interest income is based on the
reduced carrying amount and is accrued based on the rate of interest used to discount future cash
flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest
income” in the consolidated statement of income. If, in subsequent period, the fair value of a debt
instrument increased and the increase can be objectively related to an event occurring after the
impairment loss was recognized in the consolidated statement of income, the impairment loss is
reversed through the consolidated statement of income.
Redeemable Preferred Shares (RPS)
The component of the RPS that exhibits characteristics of a liability is recognized as a liability in
the consolidated balance sheet, net of transaction costs. The corresponding dividends on those
shares are charged as interest expense in the consolidated statement of income. On issuance of
the RPS, the fair value of the liability component is determined using a market rate for an
20
equivalent non-convertible bond; and this amount is carried as a long term liability on the
amortized cost basis until extinguished on conversion or redemption.
The remainder of the proceeds is allocated to the conversion option that is recognized and
included in consolidated statement of changes in equity, net of transaction costs. The carrying
amount of the conversion option is not remeasured in subsequent years.
Transaction costs are apportioned between the liability and equity components of the convertible
preference shares based on the allocation of proceeds to the liability and equity components when
the instruments are first recognized.
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:
 the rights to receive cash flows from the asset have expired;
 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 “passthrough” arrangement; or
 the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred
nor retained substantially all the risks and rewards of the asset, but has transferred control
of the asset.
Where the Group has transferred its rights 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.
In such case, the Group also recognizes an associated liability. The transferred asset and the
associated liability are measured on a basis that reflects the rights and obligations that the Group
has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured
at the lower of the original carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or has expired.
Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the recognition of a new
liability, and the difference in the respective carrying amounts is recognized in the consolidated
statement of income.
Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. Revenue is measured at the fair value of the
21
consideration received, excluding discounts, rebates, sales taxes or duty. The Group assesses its
revenue arrangement against specific criteria in order to determine if it is acting as principal or
agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements.
The following specific recognition criteria must also be met before revenue is recognized:
Freight and passage
Freight and passage revenues are recognized when the related services are rendered. Customer
payments for services which have not yet been rendered are classified as unearned revenue under
“Trade and other payables” in the consolidated balance sheet.
Manning and crewing services
Revenue is recognized upon embarkation of qualified ship crew based on agreed rates and when
the corresponding training courses have been conducted.
Management services
Management fee is recognized when the related services are rendered.
Sale of goods
Revenue from the sale of goods is recognized when the significant risks and rewards of ownership
of the goods have passed to the buyer, usually on delivery of the goods.
Commissions
Commissions are recognized as revenue in accordance with the terms of the agreement with the
principal and when the related services have been rendered.
Charter revenues
Charter revenues from short-term chartering arrangements are recognized in accordance with the
terms of the charter agreements.
Rental income
Rental income arising from operating leases is recognized on a straight-line basis over the lease
term.
Interest income and expense
For all financial instruments measured at amortized cost and interest bearing financial assets
classified as AFS, interest income or expense is recorded using the effective interest rate (EIR),
which is the rate that exactly discounts the estimated future cash payments or receipts through the
expected life of the financial instrument or a shorter period, where appropriate, to the net carrying
amount of the financial asset or liability.
Dividend income
Dividend income is recognized when the shareholders’ right to receive the payment is established.
Borrowing Costs
Borrowing costs, including foreign exchange difference arising from foreign currency borrowings
that are regarded as an adjustment to interest costs, are capitalized if they are directly attributable
to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs
commences when the activities to prepare the asset are in progress and expenditures and
borrowing costs are being incurred. Borrowing costs are capitalized until the assets are
substantially ready for their intended use. If the carrying amount of the asset exceeds its
recoverable amount, an impairment loss is recorded. All other borrowing costs that the Group
incurs in connection with the borrowing of funds are expensed in the period they occur.
22
Pension Benefits
The Group has thirteen (13) defined benefit pension plans, which require contributions to be made
to separately administered funds.
The cost of providing benefits under the defined benefit plan is determined using the projected
unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or
expense when the net cumulative unrecognized actuarial gains and losses for each individual plan
at the end of the previous reporting year exceeded 10% of the higher of the defined benefit
obligation and the fair value of plan assets at that date. These gains or losses are recognized over
the expected average remaining working lives of the employees participating in the plans.
The past service cost is recognized as an expense on a straight-line basis over the average period
until the benefits become vested. If the benefits are already vested immediately following the
introduction of, or changes to, a pension plan, past service cost is recognized immediately.
The defined benefit asset or liability comprises the present value of the defined benefit obligation,
less past service costs and actuarial gains and losses not yet recognized and less the fair value of
plan assets out of which the obligations are to be settled. 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 is based on
market price information and in the case of quoted securities it is the published bid price. The
value of any defined benefit asset recognized is restricted to the sum of any past service costs and
actuarial gains and losses not yet recognized and the present value of any economic benefits
available in the form of refunds from the plan or reductions in the future contributions to the plan.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of
the arrangement at inception date: whether the fulfillment of the arrangement is dependent on the
use of a specific asset or assets or the arrangement conveys a right to use the asset. A
reassessment is made after the inception of the lease only if one of the following applies:
(a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) A renewal option is exercised and extension granted, unless the term of the renewal or
extension was initially included in the lease term;
(c) There is a change in the determination of whether fulfillment is dependent on a specified
asset; or
(d) There is a substantial change to the asset.
When a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances give rise to the reassessment for scenarios (a), (c) or (d) and at the date of
renewal or extension period for scenario (b).
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 reflected in
the consolidated statement of income.
23
Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset
and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the
end of the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as expense in the
consolidated statement of income on a straight-line basis over the lease term.
Group as a lessor
Leases where the Group does not transfer 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 bases as rental income. Contingent rents are recognized as revenue in the period in
which they are earned.
Foreign Currency Translation
The Group’s consolidated financial statements are presented in Philippine peso, which is the
Parent Company’s functional and presentation currency. Each entity in the Group determines its
own functional currency and items included in the financial statements of each entity are
measured using that functional currency.
Transactions in foreign currencies are initially recorded at the foreign exchange rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
translated at the functional currency rate of exchange ruling at the balance sheet date. All
differences are taken to the consolidated statement of income with the exception of all monetary
items that provide an effective hedge for a net investment in a foreign operation. These are
recognized in other comprehensive income until the disposal of the net investment, at which time
they are recognized in the consolidated statement of income. Tax charges and credits attributable
to exchange differences on those monetary items are also recorded in equity.
Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rates as at the dates of the initial transactions.
Non-monetary items are measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value is determined.
The functional currency of JMBVI and Subsidiaries is the United States (US) dollars. The assets
and liabilities of foreign operations are translated into Philippine peso using the Philippine
Dealing System (PDS) closing rate at the balance sheet date and their statements of income are
translated at the PDS weighted average exchange rates for the year. The exchange differences
arising from the translation are taken directly to a separate component of equity, under the
“Cumulative translation adjustments (CTA)” account. On disposal of a foreign entity, the
deferred cumulative amount recognized in equity relating to that particular foreign operation is
recognized in the consolidated statement of income.
Income Taxes
Current income tax
Current income tax assets and liabilities for the current periods are measured at the amount
expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to
compute the amount are those that are enacted, by the balance sheet date, in the countries where
the Group operates and generates taxable income.
24
Current income tax relating to items recognized directly in equity is recognized in equity and not
in the consolidated statement of income. Management periodically evaluates positions taken in
the tax returns with respect to situations in which applicable tax regulations are subject to
interpretation and establishes provisions where appropriate.
Deferred income tax
Deferred income tax is provided using the balance sheet liability method on temporary differences
on the balance sheet date between the tax bases of assets and liabilities and their carrying amounts
for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable
temporary differences, except:
 where the deferred income tax liability arises from the initial recognition of goodwill or
of an asset or liability in a transaction that is not a business combination and, at the time
of the transaction, affects neither the accounting profit nor taxable profit or loss; and
 in respect of taxable temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, where the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary differences
will not reverse in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, carryforward
benefits of net operating loss carryover (NOLCO) and minimum corporate income tax (MCIT), to
the extent that it is probable that future taxable profit will be available against which the
deductible temporary differences and the carry forward of unused tax credits and unused tax
losses can be utilized except:
 where the deferred income tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
 in respect of deductible temporary differences associated with investments in
subsidiaries, 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 profit will be available against which the temporary
differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet 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 income tax asset to be utilized. Unrecognized
deferred income tax assets are reassessed at each balance sheet date and are recognized to the
extent that it has become probable that future taxable profit will allow the deferred income tax
asset to be recovered.
Deferred income tax assets and 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 substantively enacted on the balance sheet date.
Deferred income tax relating to items recognized either in other comprehensive income or directly
in equity is recognized in consolidated statement of comprehensive income or consolidated
statement of changes in equity and not in the consolidated statement of income.
25
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable
right exists to set off current tax assets against current tax liabilities and the deferred taxes relate
to the same taxable entity and the same taxation authority.
Sales tax
Revenues, expenses, and assets are recognized net of amount of sales tax except:
 where the sales tax incurred on a purchase of assets or services is not recoverable from
the taxation authority, in which case the sales tax is recognized as part of the cost of
acquisition of the asset or as part of the expense item as applicable; and
 receivable and payables that are stated with the amount of sales tax are included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as
part of receivables or payables in the consolidated balance sheet.
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
obligation. Where the Group expects some or all of a provision to be reimbursed, for example
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 the
consolidated statement of income net of any reimbursement. If the effect of the time value of
money is material, provisions are discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognized as an interest expense.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized in the consolidated financial statements but are
disclosed in the notes to consolidated financial statements when an inflow of economic benefits is
probable.
Events After Balance Sheet Date
Post year events that provide evidence of conditions that existed on the balance sheet date are
reflected in the consolidated financial statements. Subsequent events that are indicative of
conditions that arose after balance sheet date are disclosed in the notes to consolidated financial
statements when material.
Earnings Per Common Share
Basic earnings per common share are determined by dividing net income by the weighted average
number of common shares outstanding, after retroactive adjustment for any stock dividends and
stock splits declared during the year.
Diluted earnings per common share amounts are calculated by dividing the net income for the
year attributable to the ordinary equity holders of the parent by the weighted average number of
common shares outstanding during the year plus the weighted average number of ordinary shares
that would be issued for any outstanding common stock equivalents.
26
3. Significant Accounting Judgments and Estimates
The preparation of the Group’s consolidated financial statements requires management to make
judgments, estimates and assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities and the disclosure of contingent liabilities, as at December 31, 2009, 2008
and 2007. However, uncertainty about these assumptions and estimates could result in outcomes
that require a material adjustment to the carrying amount of the asset or liability affected in the
future periods.
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 financial statements:
Operating lease commitments - Group as lessee
The Group has entered into commercial property leases on its distribution warehouses, sales
outlets, trucking facilities and administrative office locations. The Group has determined that it
does not acquire all the significant risks and rewards of ownership of these properties which are
leased on operating leases.
Operating lease commitments - Group as lessor
The Group has entered into short-term leases or chartering arrangements. The Group has
determined that it retains all the significant risks and rewards of ownership of these equipment
and so accounts for it as an operating lease.
Disposal group classified as held for sale
On December 19, 2008, AEV, together with ACO accepted the Term Sheet offered by KGLI-NM
for the acquisition of ATSC and Subsidiaries subject to the terms and conditions that the Aboitiz
Jebsen Group will be sold to AEV and ACO on or before April 30, 2009.
The Management considered the investments in Aboitiz Jebsen Group met the criteria to be
classified as held for sale as at December 19, 2008 for the following reasons:
 Aboitiz Jebsen Group is available for immediate sale and can be sold to AEV in its
current condition.
 The Board has plan to sell the Aboitiz Jebsen Group to AEV according to the terms of
MOA.
 The Board expects the sale of Aboitiz Jebsen Group to be completed by April 30, 2009.
On April 30, 2009, the Parent Company was advised by AEV and ACO that KGLI-NM will no
longer proceed with the purchase of the Parent Company’s shares. Consequently, AEV and ACO
will no longer acquire the Aboitiz Jebsen Group from the Parent Company.
As the sale of Aboitiz Jebsen Group did not materialize, the Group ceased to classify the Aboitiz
Jebsen Group as held for sale in 2009.
Determining functional currency
Based on the economic substance of the underlying circumstances relevant to the Group, the
functional currency of the companies in the Group has been determined to be the Philippine peso,
except for subsidiaries whose functional currency is the US dollar. The Philippine peso is the
27
currency of the primary economic environment in which the Group generally operates. It is the
currency that mainly influences the sale of services and the costs of the rendering of services.
Legal contingencies
The Group is currently involved in legal and administrative proceedings. The Group’s estimate of
the probable costs for the resolution of these claims has been developed in consultation with
outside counsels handling defense in these matters and is based upon an analysis of potential
results. The Group and its legal counsels currently do not believe these proceedings will have a
material adverse effect on its financial position and results of operations. 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 Note30).
Estimates and Assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the
balance sheet 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.
Estimating allowance for impairment losses on trade and other receivables
The Group maintains allowances for impairment losses on trade and other receivables at a level
considered adequate to provide for potential uncollectible receivables. The level of this allowance
is evaluated by the Group on the basis of factors that affect the collectibility of the accounts.
These factors include, but are not limited to, the length of the Group’s relationship with debtors,
their payment behavior and known market factors. The Group reviews the age and status of the
receivables, and identifies accounts that are to be provided with allowance on a continuous basis.
The amount and timing of recorded expenses for any period would differ if the Group made
different judgment or utilized different estimates. An increase in the Group’s allowance for
impairment losses would increase the Group’s recorded expenses and decrease current assets.
The main considerations for impairment assessment include whether any payments are overdue
or if there are any known difficulties in the cash flows of the counterparties. The Group assesses
impairment into two areas: individually assessed allowances and collectively assessed
allowances.
The Group determines allowance for each significant receivable on an individual basis. Among
the items that the Group considers in assessing impairment is the inability to collect from the
counterparty based on the contractual terms of the receivables. Receivables included in the
specific assessment are the accounts that have been endorsed to the legal department, nonmoving account receivables, accounts of defaulted agents and accounts from closed stations.
For collective assessment, allowances are assessed for receivables that are not individually
significant and for individually significant receivables where there is no objective evidence of
individual impairment. Impairment losses are estimated by taking into consideration the age of
the receivables, past collection experience and other factors that may affect collectibility.
As at March 31, 2010 and December 31, 2009, allowance for impairment losses on trade and
other receivables amounted to P
=264,243 and =
P259,359, respectively. Carrying values of the
Group’s trade and other receivables as at March 31, 2010 and December 31, 2009 amounted to
=3,246,022 and =
P
P2,347,627, respectively (see Notes 8 and34).
Estimating allowance for inventory losses
The Group provides an allowance for inventories whenever the value of inventories becomes
lower than its cost due to damage, physical deterioration, obsolescence, changes in price levels or
28
other causes. The allowance account is reviewed on an annual basis. Inventory items identified
to be obsolete and unusable are written off and charged as expense for the period.
As at March 31, 2010 and December 31, 2009, the net carrying value of inventories amounted to
=614,565 and P
P
=571,179, respectively (see Note 9).
Estimating useful lives of property and equipment
The estimated useful lives used as basis for depreciating property and equipment items were
determined on the basis of management’s assessment of the period within which the benefits of
these asset items are expected to be realized taking into account actual historical information on
the use of such assets as well as industry standards and averages applicable to the Group’s assets.
In 2007, management extended the estimated useful life of Super Ferry 2, one of the ships in
operation, by five (5) years. Also, the estimated useful life of the steel component of each of the
vessels was revised from 2 ½ years to 7 years or the remaining useful life of the related vessel
whichever is shorter. The extension is based on management’s assessment of the period within
which the benefit of using these assets is expected to be realized, after the extensive
improvements done to the assets. The change in estimated useful life has reduced depreciation
expense by =
P3.0 million in 2007.
In 2009, the estimated useful life of the vessel’s steel component was changed from 7 years to 5
years mainly because of the increased utilization of vessels resulting from the rationalization of
the Parent Company’s fleet.
The change in estimated useful life has increased depreciation expense by P
=4.2 million in 2009.
The Group’s property and equipment balance amounted to =
P5,802,063 and P
=4,817,558 as at
March 31, 2010 and December 31, 2009, respectively (see Note 14).
Estimating residual value
The residual value of the Group’s property and equipment asset is estimated based on the amount
that would be obtained from disposal of the asset, after deducting estimated costs of disposal, if
the assets are already of the age and in the condition expected at the end of its useful life. Such
estimation is based on the prevailing price of scrap steel. The estimated residual value of each
asset is reviewed periodically and updated if expectations differ from previous estimates due to
changes in the prevailing price of scrap steel.
Estimating useful life of software development costs
The estimated useful life used as a basis for amortizing software development costs was
determined on the basis of management’s assessment of the period within which the benefits of
these costs are expected to be realized by the Group.
As at March 31, 2010 and December 31, 2009, the carrying value of software development costs
amounted to =
P94,290 and =
P112,127, respectively (see Note 15).
Deferred income tax assets
The carrying amount of deferred income tax assets is reviewed at each balance sheet 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 income tax assets to be utilized. Significant
management judgment is required to determine the amount of deferred income tax assets that can
be recognized, based upon the likely timing and the level of future taxable income together with
the future tax planning strategies. Management expects future operations will generate sufficient
taxable profit that will allow part of the deferred income tax assets to be utilized.
29
The Group’s gross deferred income tax assets amounted to P
=353,452 and P
=255,531 as at
March 31, 2010 and December 31, 2009, respectively (see Note 29).
Impairment of AFS investments
The Group considers AFS financial assets as impaired when there has been a significant or
prolonged decline in the fair value of such investments below their 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% or more and “prolonged” as
greater than twelve months. In addition, the Group evaluates other factors, including normal
volatility in share price for quoted equities and future cash flows and discount factors for
unquoted equities in determining the amount to be impaired.
The carrying value of AFS investments amounted to P
=43,346 and P
=43,323 as at
March 31, 2010 and December 31, 2009, respectively (see Notes 13 and 34).
Fair value of financial instruments
Where the fair value of financial assets and liabilities recorded in the consolidated balance sheet
cannot be derived from active markets, they are determined using valuation techniques including
the discounted cash flows model. The inputs to the models are taken from observable markets
where possible, but where this is not feasible, a degree of judgment is required in establishing the
fair values. The judgments include considerations of inputs such as liquidity risk and credit risk.
Changes in assumptions about these factors could affect the reported fair value of financial
instruments.
The carrying values and corresponding fair values of financial assets and financial liabilities and
the manner in which fair values were determined are described in Note 35.
Impairment of nonfinancial asset
Determining the recoverable amounts of the nonfinancial assets listed below, which involves the
determination of future cash flows expected to be generated from the continued use and ultimate
disposition of such assets, requires the use of estimates and assumptions that can materially affect
the consolidated financial statements. Future events could indicate that these nonfinancial assets
are impaired. Any resulting impairment loss could have a material adverse impact on the
financial condition and results of operations of the Group.
The preparation of estimated future cash flows involves significant judgment and estimations.
While the Group believes that its assumptions are appropriate and reasonable, significant changes
in these assumptions may materially affect its assessment of recoverable values and may lead to
future additional impairment changes under PFRS.
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. 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 carrying amount of goodwill as at March 31,
2010 and December 31, 2009 amounted to P
=256,463 (see Note 6).
Pension benefit
The determination of the obligation and cost for pension and other retirement benefits is
dependent on the selection of certain assumptions used by actuaries in calculating such amounts.
30
Those assumptions were described in Note 30 and include among others, discount rate, expected
return on plan assets and rate of compensation increase. In accordance with PFRS, actual results
that differ from the Group’s assumptions are accumulated and amortized over future periods and
therefore, generally affect the recognized expense and recorded obligation in such future periods.
While it is believed that the Group’s assumptions are reasonable and appropriate, significant
differences in actual experience or significant changes in assumptions may materially affect the
Group’s pension and other retirement obligations.
The Group’s pension asset and pension liability as at March 31, 2010 amounted to =
P67,589 and =
P
30,577, respectively and as at December 31, 2009 amounted to P
=67,589 and P
=18,115,
respectively, (see Notes 16).
4. Operating Segment Information
For management purposes, the Group is organized into business units based on their products and
services and has three reportable operating segments as follows.
 The shipping and transportation segment renders passage transportation and cargo freight
services.
 The distribution segment provides supply chain management.
 The manpower services segment renders manning and personnel, particularly crew
management services.
 No operating segments have been aggregated to form the above reportable operating
segments.
Management monitors the operating results of its business units 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 operating profit or
loss in the consolidated financial statements. However, Group financing (including finance costs
and finance income) and income taxes are managed on a group basis and are not allocated to
operating segments.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to
transactions with third parties.
31
Financial information about business segments follows:
Mar-10
Shipping and
Transportation
Manpower
Distribution
Elimination
Services
Consolidated
Revenue
External customer
2,441,240
Inter-segment
Total revenue
231,577
2,672,817
620,394
77,749
620,394
13,949
91,698
(245,526)
(245,526)
3,139,384
0
3,139,384
142
0
5,566
540,069
Results
Share in Equity Earmings
Cost of Sale
5,424
0
540,069
Fuel
625,889
113
0
(1,426)
624,577
Depreciation and amortization
266,193
9,151
4,676
0
280,019
28,912
0
0
0
28,912
298,717
0
0
0
298,717
(231,203)
14,704
15,051
0
(201,448)
(152,536)
14,704
10,803
0
(127,029)
11,900,638
6,600,495
1,052,280
909,215
1,396,993
1,295,090
(1,805,276)
(1,297,633)
12,544,634
7,507,166
1,246,102
81,834
2,101
0
4,243
6,159
Food and subsistence
Charter hire
Segment income (loss) before income tax
Segment income (loss)
Segment assets
Segment liabilities
Other information:
Capital expenditures
Investment in associate
1,252,446
87,994
Mar-09
Shipping and
Transportation
Manpower
Distribution
Elimination
Services
Consolidated
Revenue
External customer
2,390,334
Inter-segment
Total revenue
257,903
2,648,236
376,604
86,341
376,604
18,670
105,011
(276,573)
(276,573)
2,853,278
0
(571)
0
0
2,853,278
Results
Share in Equity Earmings
2,554
Cost of Sale
308,157
1,983
308,157
Fuel
485,642
175
0
(1,132)
484,685
Depreciation and amortization
250,390
8,868
3,621
0
262,880
40,836
0
0
0
40,836
144,920
0
0
0
144,920
174,433
(5,183)
32,154
0
201,404
131,239
(5,183)
23,291
0
149,347
9,635,113
4,587,482
705,385
607,129
958,325
857,065
(1,555,165)
(1,041,639)
9,743,658
5,010,037
269,448
24,415
3,242
0
2,257
4,418
Food and subsistence
Charter hire
Segment income (loss) before income tax
Segment income (loss)
Segment assets
Segment liabilities
Other information:
Capital expenditures
Investment in associate
5. Business Combinations and Goodwill
On June 3, 2008, AOI acquired 100% ownership in SOI, a company engaged in the business of
sales, marketing, warehousing and transportation of temperature-controlled and ambient food
products to its customers in the Philippines.
The fair value of the identifiable assets and liabilities of SOI as at the date of acquisition and the
corresponding carrying amounts immediately before the acquisition were:
274,947
28,833
32
Cash and cash equivalents
Trade and other receivables
Merchandise inventory
Prepayments and other current assets
Property and equipment
Trade and other payables
Other liabilities
Net assets
Goodwill arising from acquisition
Total consideration satisfied by cash
Cashflow on acquisition:
Net cash acquired with the subsidiary
Cash paid
Net cash outflow
Fair value
recognized
on acquisition
=148,246
P
119,070
68,651
64,822
11,009
411,798
223,096
65,282
123,420
250,450
=373,870
P
Previous
carrying value
=148,246
P
119,070
68,651
64,822
11,009
411,798
223,096
65,282
=123,420
P
P148,246
=
(373,870)
(P
=225,624)
SOI has contributed =
P0.704 million net loss and =
P10.5 million to the net income of the Group in
March 31, 2010 and December 31, 2009, respectively.
The following table shows the movement of goodwill:
Balances at beginning of year
Addition
Disposal
Balances at end of year
2009
P
=256,463
–
–
P
=256,463
2008
P10,323
=
250,450
(4,310)
=256,463
P
On January 22, 2009, AOI entered into an Investor’s Agreement (the Agreement) with Kerry
Logistics Network Limited (KLN), a Hong-Kong based logistics company. In accordance with
the Agreement, AOI invested =
P4.8 million in a wholly-owned subsidiary, KLN Investment
Holdings Philippines, Inc. (KLN Investment) on February 26, 2009.
On August 1, 2009, AOI subsequently sold its investment in KLN Investment to Kerry Freight
Services (Far East) Pte. Ltd, a subsidiary of KLN, which resulted in a gain of P
=52.5 million.
6. Impairment Testing of Goodwill
Goodwill acquired through business combinations have been attributed to each cash-generating
unit. The recoverable amount of the investments has been determined based on a value in use
calculation using cash flow projections based on financial budgets approved by senior
management covering a five-year period. The discount rate applied to cash flow projections is
11.40% in 2009, and cash flows beyond the five-year period are extrapolated using a zero percent
growth rate.
33
Key assumptions used in value in use calculation for December 31, 2009
The following describes each key assumption on which management has based its cash flow
projections to undertake impairment testing of goodwill.
Foreign exchange rates
In 2008, the assumption used to determine foreign exchange rate is a fluctuating Philippine peso
which starts at a rate of =
P40 to a dollar starting 2008 until the fifth year. In 2009, the rate used in
the assumption is =
P48.50 to a dollar starting 2009 until the fifth year.
Materials price inflation
In 2008, the assumption used to determine the value assigned to the materials price inflation is a
2% basis point increase in inflation in 2009, which then decreased by 1% basis points on the
second year and remains steady on the third until the fifth year. The starting point of 2009 is
consistent with external information sources. In 2009, the assumption used to determine the
value assigned to the materials price inflation is a 4.74% basis point increase in inflation in 2010.
As at December 31, 2009, the Group has not recognized any impairment in goodwill.
7. Cash and Cash Equivalents
Cash on hand and in banks
Cash equivalents
Mar-10
815,797
34,940
850,737
Dec-09
1,020,498
75,213
1,095,711
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are made for
varying periods of up to three months depending on the immediate cash requirements of the
Group, and earn interest at the respective short-term investment rates.
Total interest income earned by the Group from cash in banks and cash equivalents amounted to
=1,595 and P
P
=25,098 in March 31, 2010 and December 31, 2009, respectively.
8. Trade and Other Receivables
Trade
Service fees
Freight
Passage
Others
Nontrade
Advances to officers and employees
Less allowance for doubtful accounts
Mar-10
2,095,358
1,280,125
687,921
18,046
109,266
1,130,259
59,487
3,510,265
(264,243)
3,246,022
Dec-09
2,062,889
694,874
751,912
27,955
588,148
269,805
50,636
2,606,986
(259,359)
2,347,627
34
Trade receivables are non-interest bearing and are generally on 30 days’ terms. Insurance claims
receivables pertain to the Group’s claims for reimbursement of losses against insurance coverages
for hull and machinery, cargo and personal accidents.
Nontrade receivables are non-interest bearing and include advances to affiliates and suppliers.
9. Inventories
Fuel and lubricants (at cost)
Materials, parts and supplies:
At net realizable value
Total inventories at lower of cost or
net realizable value
Mar-10
124,945
Dec-09
119,496
489,620
451,683
614,565
571,179
The cost of inventories recognized as “Cost of sales” in the consolidated statements of income
amounted to P
=540,069 and P
=1,460,875 in March 31, 2010 and December 31, 2009, respectively.
10. Other Current Assets
Prepaid Expenses
Input value-added tax
Others
Less: allowance for probable losses
Mar-10
702,938
147,072
27,000
877,011
0
877,011
Dec-09
683,043
94,099
8,224
785,366
0
785,366
11. Investments in Associates
Mar-10
Acquisition Cost:
Balance at beginning of the year
Additions during the year
Acquisition of subsidiaries
previously accounted for as associate
Disposal during the year
Balance at end of the year
(forward)
Dec-09
22,449
1,637
18,849
3,600
24,086
22,449
35
Accumulated equity in net earnings:
Balance at beginning of the year
Equity in net earnings(losses) during the year
Reversal of equity in net earnings
of acquired subsidiaries previously
accounted for as associate
Disposal during the year
Dividends received
Balance at end of the year
Share in CTA of associates
Investments in associates included in the
disposal group classified as held for sale
51,246
5,566
(2,188)
53,434
56,812
80,898
7,096
87,994
51,246
73,695
513
74,208
87,994
74,208
12. Interest in Joint Ventures
On March 18, 2009, AOI and KLN Investments formed KLN Holdings, a jointly controlled
entity. In accordance with the Agreement, AOI and KLN Investments (the venturers) will hold
ownership interests of 78.4% and 21.6%, respectively, in KLN Holdings. However, the venturers
have the power to govern the financial and operating policies of KLN Holdings unanimously. As
at December 31, 2009, AOI’s investment in KLN Holdings amounted to P
=7.5 million.
In March 30, 2009, KLN Holdings and KLN Investments formed another jointly controlled entity,
Kerry-Aboitiz Logistics, Inc. (KALI), to engage in the business of international freight and cargo
forwarding. In accordance with the Agreement, KLN Holdings and KLN Investments will hold
62.5% and 37.5% interest in KALI, respectively. However, the venturers have the power to
govern the financial and operating policies of KALI unanimously. As of December 31, 2009,
KLN Holdings’ investment in KALI amounted to =
P9.6 million.
In accordance with the Agreement, AOI indirectly holds a 49% interest in KALI. To account for
this, KALI is proportionately consolidated by KLN Holdings using the latter’s 62.5% share. The
consolidated balances of KLN Holdings are then proportionately consolidated by AOI using the
latter’s 78.4% share.
13. AFS Investments
Listed shares of stock
Club shares
Unlisted shares of stock - at cost
Mar-10
26,812
5,500
11,034
43,346
Dec-09
26,789
5,500
11,034
43,323
36
Listed shares of stocks and club shares are carried at market value. Unrealized mark-to-market
gains or losses on AFS investments are recognized in the statement of comprehensive income and
included in the “Equity” section of the consolidated balance sheet.
Unquoted shares of stocks pertain to preferred shares which has a fixed number of shares that can
be redeemed every year.
14. Property and Equipment
The Parent Company’s ships in operation, land and improvements, and buildings and warehouses,
were appraised for the purpose of determining their market values. Based on the latest appraisal
dated September 2008 made by Eagle Marine Consultants Inc, the related ships in operation have
an aggregate market value of =P4,445 million against net book value of P
=2,607 million.
Containers include units acquired under finance lease arrangements (see Note 19). The related
depreciation of the leased containers amounting to =
P29.0 million in 2009, P
=62.1 million in 2008
and P
=128.8 million in 2007 were computed on the basis of the Company’s depreciation policy for
owned assets.
To ensure the maintenance of the ships in operation in accordance with international standards,
the Parent Company has availed of the services of its subsidiary and ship management company,
AJBTC, to oversee the regular upgrading and maintenance of the ships.
The Parent Company disposed three ships in operation in 2007 resulting in a gain of
=623.1 million. In 2008, the Parent Company disposed Tagbilaran properties, leasehold
P
improvements related to the vessel, MV2Go1, and containers that resulted to a net gain of
=117.8 million.
P
In 2008 and 2007, the Group recorded an impairment loss amounting to P
=15.2 million and
=19.6 million, respectively, to write down flight and handling equipment to the recoverable
P
amount. This has been recognized in the consolidated statements of income in the line item
“Overhead Expenses”.
In 2009, the Parent Company’s disposal of Our Lady of Medjugorje and containers resulted in a
net gain of =
P19.7 million. The retirement of Super Ferry 9 due to the incident that happened in
September 2009 resulted in a net gain from insurance proceeds on marine hull of =
P79.5 million
which was presented as “Other income” in the consolidated statements of income. The net book
value of Super Ferry 9 that was retired amounted to =
P255.5 million.
In 2009 and 2008, the Group recognized a reversal of impairment loss and an impairment loss of
=0.2 million and =
P
P15.2 million, respectively, on its flight equipment due to irreparable damage on
its aircraft engines.
37
As at March 31, 2010
Cost
At January 1
Additions
Disposals
Transfers/Reclassifications
Balance, end
Ships in
Operation and
Improvments Containers
Handling
Equipment
Flight
Equipment
5,879,221
1,473,739
436,577
13,898
(97)
(10,767)
0
0
6,315,701 1,476,869
1,232,955
17,243
0
1,035
1,251,233
50,621
18
(5)
13,590
64,224
741,089
448,538
19,026
522
(1,882)
0
12,786
0
771,018 449,060
211,873
8,766
(1,260)
1,714
221,093
369,539
3,256
0
0
372,795
268,237
11,205
(7,318)
105,926
378,051
4,285
740,910
0
0
745,195
10,680,096
1,251,421
(21,330)
135,051
12,045,238
9,994,143
1,941,456
(772,475)
(483,028)
10,680,096
1,127,308
14,132
0
(10,316)
10,897
1,142,022
50,621
253
(5)
(21,075)
34,430
64,224
578,843
21,602
(1,766)
15,236
0
613,916
76,926
3,196
0
0
0
80,122
145,780
2,798
0
1,665
0
150,243
211,985
8,679
0
0
0
220,665
118,547
9,636
(6,049)
104,624
209
226,966
0
0
0
0
0
0
5,862,538
263,220
(18,253)
90,134
45,536
6,243,175
5,756,894
951,210
(641,600)
(203,966)
5,862,538
368,938
70,849
152,130
151,084
5,802,063
4,817,558
Accumulated Depreciation and Amortization
At January 1
2,220,913
1,331,613
Depreciation for the year
196,939
5,984
Disposals
(97)
(10,336)
Transfers/Reclassification
0
0
Impairment for the year
0
0
Balance, end
2,417,755 1,327,261
Net Book Value
3,897,946
149,608
109,211
(0)
Furniture
and
Equipment
Ships under
Transport Refurbishment
Land and
Buildings
Leasehold
ation
and
Improve
and
Improvem Equipmen Construction in
ments
Warehouses
ents
t
Progress
March 2010
157,102
745,195
December
2009
- 38 -
15. Software Development Costs
Movement of the Group’s software development costs follows:
Mar-10
Dec-09
Cost:
Balances at beg of the year
Additions
Reclassifications
Disposal/retirement
Balances at end of the year
578,556
1,026
(2,063)
(10,181)
567,338
577,309
6,264
Accumulated amortization:
Balances at beg of the year
Amortization for the year
Adjustment
Balances at end of the year
466,429
16,799
(10,181)
473,048
389,099
82,335
(5,005)
466,429
94,290
112,127
Mar-10
67,589
251,102
318,691
Dec-09
67,589
195,314
262,903
Mar-10
259,728
73,467
2,468,600
2,801,795
Dec-09
113,190
0
1,279,200
1,392,390
Net Book Values
(5,017)
578,556
16. Other Noncurrent Asset
Pension assets
Refundable deposits and others
17. Loans Payable
US dollar loan
US dollar overdraft facility
Peso Loans
The peso loans pertain to unsecured short-term notes payable obtained by the Parent Company and
AOI from local banks with annual interest rates ranging from 4.875% to 7.80% in March 2010 and
5.35% to 8.75% in December 2009. These loans will mature on various dates up to September
2010.
- 39 -
The US dollar loans represent unsecured short-term notes payable obtained by AJBTC and JMI
from local banks and have outstanding balances amounting to US$5.75 million and
US$2.5 million as at March 31, 2010 and December 31, 2009, respectively. These loans bear
interest rates of 4.0% to 4.75% in March 2010 and 4.0% to 6.5% in December 2009. These loans
will mature on various dates up to October 2011.
The US dollar overdraft facility pertains to a loan obtained from a foreign bank by Jebsens Orient
Shipping AS, a wholly owned subsidiary of JMBVI based in Norway, with interest at the
aggregate of London Inter-bank Offered Rate (LIBOR) plus a margin of 1.50% per year. This
loan is secured by an assignment of the borrower’s earnings and a guarantee of JMBVI
shareholder.
Total interest expense incurred by the Group for the loans amounted to P
=4.48 million and P
=63.7
million in March 2010 and December 2009, respectively.
18. Trade and Other Payables
Trade
Accrued expenses
Nontrade
Unearned revenue- net of deferred discounts
Dividends payable
Mar-10
1,876,096
1,539,404
889,474
288,125
4,593,098
Dec-09
1,623,585
1,474,183
766,449
88,461
30,030
3,982,707
Trade and other payables are non-interest bearing and are normally on 30 days’ term.
The dividend payable pertains to dividend declared by JMBVI to its minority shareholders on
December 31, 2009, which was paid on February 1, 2010.
19. Finance Lease
The Group has certain containers and transportation equipment under finance lease arrangements
denominated in US dollars. Assets under finance lease as at March 31, 2010 and December 31,
2009, shown under “Property and equipment” account in the consolidated balance sheets, include
the following amounts:
Cost
Less: accumulated depreciation
Mar-10
43,670
7,728
35,942
Dec-09
44,526
6,679
37,847
- 40 -
Future minimum lease payments under finance lease, together with the present value of the
minimum lease payments, are as follows:
Minimum lease payments due within 1 year
Beyond 1 year but not later than 5 years
More than 5 years
Total minimum lease obligation
Less: amount representing interest
Present value of minimum lease payment
Less: current portion
Mar-10
6,640
26,996
3,310
36,946
6,768
30,178
4,965
25,213
Dec-09
8,466
27,069
3,308
38,843
7,275
31,568
6,222
25,346
The outstanding balance of the US dollar-denominated finance lease obligation of
US$0.7 million and US$2.4 million as at December 31, 2009 and 2008, respectively, have been
restated at the rate prevailing as of those dates of =
P46.20 and =
P47.52 to US$1, respectively.
20. Redeemable Preferred Shares (RPS)
On January 7, 2003, the Parent Company issued 374,520,487 RPS in the form of stock dividends
out of capital in excess of par value at the rate of one share for every four common shares held by
the shareholders.
The RPS has the following features:
 non-voting;
 preference on dividends at the same rate as common share;
 redeemable at any time, in whole or in part, as may be determined by the BOD within a
period not exceeding 10 years from the date of issuance at a price of not lower than P
=6 per
share as may be determined by the BOD. The shares must be redeemed in the amount of at
least =
P250,000 per calendar year;
 if not redeemed in accordance with the foregoing, the RPS may be converted to a bond
bearing interest at 4% over prevailing treasury bill rate to be issued by the Parent
Company; and,
 preference over assets in the event of liquidation.
On May 25, 2006, the Parent Company’s shareholders approved the Amendment of Article 7 of
the Articles of Incorporation to add a convertibility feature to the RPS so as to allow holders of
RPS, at their option, to convert every RPS into two (2) common shares of the Parent Company,
which conversion must be exercised on or before December 29, 2006 or within 120 days from the
approval by the SEC of such amendment, whichever occurs earlier.
On June 15, 2006, the SEC approved the Parent Company’s application for the amendment of its
Articles of Incorporation for the addition of this convertibility feature on the RPS.
On July 27, 2006, the BOD approved the call to all preferred shareholders to convert at their
option preferred shares into common shares at the stipulated conversion price of =
P3.20 for one (1)
- 41 -
preferred share or two common shares for every one (1) RPS held. During the Conversion Period
from September 1 to October 13, 2006, a total of 70,343,670 preferred shares or 93.91% were
converted to common shares. Consequently, the Parent Company issued a total of 140,687,340
new common shares to those RPS holders who opted to convert their preferred shares. The capital
stock was increased by P
=140.7 million representing the issuance of new common shares. The
excess between the carrying value of the preferred shares converted over the par value of the
common shares issued was credited to “Capital in excess of par value” amounting to
=67.2 million.
P
The remaining carrying value of the RPS shown under “Noncurrent Liabilities” section of the
consolidated balance sheets is presented at amortized cost. Increase in carrying value represents
accretion of interest expense amounting to =
P2.4 million, =
P2.1 million and =
P1.9 million in 2009,
2008 and 2007, respectively (see Note34).
There are 4,560,417 outstanding preferred shares as at December 31, 2009.
21. Equity
a. Capital stock
On August 7, 2008, the SEC approved the Parent Company’s application for the amendment
of its Articles of Incorporation for the reclassification of 70,343,670 converted preferred
shares to common shares resulting to an increase in common shares’ authorized capital stock
of 70,343,670 and a decrease of the redeemable preferred shares’ authorized capital stock of
the same amount.
The Company has authorized capital stock of 4,070,343,670 shares with =
P1 par value.
Outstanding capital stock are as follows:
Common shares issued:
Balance at beginning of year
Less treasury shares
Number of
Shares
Peso
Values
2,484,653
38,517
2,446,136
=2,484,653
P
58,715
=2,425,938
P
b. Retained earnings
Retained earnings include undistributed earnings amounting to =
P168.6 million in 2009 and
=157.7 million in 2008 representing accumulated equity in net earnings of subsidiaries and
P
associates, which are not available for dividend declaration until received in the form of
dividends from such subsidiaries and associates. Retained earnings are further restricted for
the payment of dividends to the extent of the cost of the shares held in treasury.
On December 31, 2009, AJBTC, AJMSI and JMI paid dividends to minority interests
amounting to P
=18.8 million, =
P0.4 million and P
=3.8 million, respectively.
- 42 -
22. Related Party Transactions
Transaction with associates and other related parties
In the normal course of business, transactions with associates and other related companies consist
of shipping services, charter hire, management services, ship management services, purchases of
steward supplies, availment of stevedoring, arrastre, trucking, and repair services and rental.
Those transactions were entered into at terms no less favorable than could have been obtained if
the transactions were entered into with unrelated parties. The amounts included in the
consolidated financial statements with respect to these transactions are as follows:
Mar-10
Mar-09
Purchases/
Revenue
Pilmico Foods Corporation (PFC)
Purchases/
Expenses
Revenue
Expenses
21,041
0
29,133
0
0
0
120
42
601
0
0
0
327
65
280
37
Total Distribution Logistics Systems, Inc. (TDLSI)
0
16,510
RVSI
Abotrans Brokerage Corporation (ABC)
Pilmico-Mauri Foods Corporation (PMFC)
0
0
0
0
0
0
0
0
66
0
0
17,443
Aboitiz Equity Ventures (AEV)
0
6,880
0
41,838
J&A Services
0
2,917
0
42,062
Aboitiz & Co. (ACO)
0
0
0
32,002
556
22,198
139
26,446
8,132
39,241
6,536
259,433
Fil-am Foods, Inc, (FFI)
APTSC
Aboitiz Construction Group, Inc. (ACGI)
Others
1,397
119,194
The consolidated balance sheets include the following amounts with respect to the transactions
with the above related parties:
Mar-10
Mar-09
Trade/Nontrade
Trade
Trade/Nontrade
Trade
Receivables
Payable and
Receivables
Payable and
Other Current
Other Current
Liabilities
Liabilities
PFC
0
0
23,787
0
FFI
0
0
0
0
15,646
0
2,092
0
APTSC
ACO
TDLSI
J&A Services
0
0
1,500
0
158
705
1,641
434
320
0
0
6
0
362
0
0
AEV
4
0
77
ACGI
0
0
0
111,804
0
60,424
76,595
62,346
63,058
19,971
49,068
436,238
548,797
PMFC
Others
- 43 -
As at December 31, 2009, AEV owns 77.24% of the common shares of the Parent Company. ACO
is the ultimate parent of the Group and owns 15.96% of the common shares of the Parent
Company.
In the normal course of business, the Group enters into transactions with related parties, principally
consisting of the following:
a. The Parent Company provided management services to SFFC, ZIP, AOI, RVSI, AODI, HLP,
APTSC, Cox and TDLSI at fees based on agreed rates. Management and other services
provided by the Parent Company amounted to P
=23.1 million and P
=59.3 million in March 2010
and December 2009, respectively.
b. AJBTC provided ship management services to the Parent Company that amounted to
=12.5 million and =
P
P47.6 million in March 2010 and December 2009, respectively.
c. AOI, ZIP, WSI and AJBTC place temporary cash advances to Parent Company that amounted
to =
P116.5 million and =
P139.5 million as at March 31, 2010 and December 31, 2009,
respectively. The advances are non-interest bearing.
d. SFFC obtained long-term cash advances from the Parent Company for working capital
requirements. The advances are interest bearing at an average rate of 9% per annum. As at
March 31, 2010 and December 31, 2009, the outstanding balance of long term cash advances
amounted to =
P464.3 million and =
P428.5 million, respectively.
e. Interest income earned by the Parent Company from SFFC advances amounted to
=9.7 million and =
P
P27.1 million in March 2010 and December 2009, respectively.
23. Operating Expenses
Fuel and Lubricants
Charter Hire
Depreciation and amortization
Outside Services
Personnel
Repairs and maintenance
Insurance
Food and subsistence
Commissions
Steward supplies
Rentals
Communication, light and water
Sales Concession
Others
Mar-10
616,570
298,717
205,912
333,864
111,773
135,735
67,536
28,912
9,680
21,041
54,887
15,397
9,715
109,109
2,018,846
Mar-09
477,441
144,920
178,548
254,179
100,637
120,334
60,740
40,836
9,147
19,248
0
16,874
11,958
101,451
1,536,312
- 44 -
24. Terminal Expenses
Outside Services
Depreciation and amortization
Transportation and delivery
Repairs and maintenance
Personnel
Rent
Fuel and Lubricants
Others
Mar-10
67,739
28,663
64,151
16,580
29,862
10,711
8,007
25,731
251,444
Mar-09
67,336
32,522
108,229
20,665
29,950
11,887
7,244
24,696
302,529
Mar-10
246,141
45,445
48,982
28,251
25,270
24,516
3,113
6,143
10,561
18,570
4,465
4,704
10,237
38,311
514,709
Mar-09
229,963
51,810
49,585
33,530
23,263
21,329
6,942
6,529
9,088
16,947
4,266
4,438
5,981
49,585
513,257
Mar-10
196,430
66,790
16,799
280,019
Mar-09
168,505
71,772
22,603
262,880
25. Overhead Expenses
Personnel
Depreciation and amortization
Outside Services
Advertising
Communication, light and water
Rent
Provision for doubtful accounts
Entertainment, amusement and recreation
Transportation and travel
Taxes and licenses
Repairs and maintenance
Office Supplies
Computer charges
Others
26. Depreciation and Amortization Expenses
Ships in operation and improvement
Other property and equipment
Software development costs
- 45 -
27. Personnel Costs
Salaries and wages
Crewing costs
Retirement benefits
Other employee benefits
Mar-10
263,357
64,093
17,220
43,105
387,775
Mar-09
245,586
58,202
14,574
42,188
360,549
Mar-10
26,220,191
3,109,152
29,329,343
Mar-09
24,506,895
286,666
24,220,229
Mar-10
156,029
Dec-09
74,050
71,185
17,645
59,343
48,853
396
353,452
71,185
17,645
59,351
46,452
2,166
270,849
14,263
1,055
15,318
255,531
28. Finance Costs
Interest expense
Other financing costs
29. Income Tax
The components of deferred income taxes are as follows:
NOLCO
Allowance for:
Doubtful accounts and probable losses
Inventory obsolescence
MCIT
Accrued pension benefits and others
Unrealized foreign exchange loss (gain)
Prepaid pension costs
Others
0
353,452
In computing deferred income tax assets and liabilities as at December 31, 2009 and 2008, the
rates used were 30% and 35%, respectively, which are the rates expected to apply to taxable
income in the years in which the deferred income tax assets and liabilities are expected to be
recovered or settled.
30. Contingencies
There are certain legal cases filed against the Group in the normal course of business.
Management and its legal counsel believe that the Group has substantial legal and factual bases for
- 46 -
its position and are of the opinion that losses arising from these cases, if any, will not have a
material adverse impact on the consolidated financial statements.
Also, the Parent Company has pending insurance claims (presented as part of Insurance and Other
Claims) amounting to =
P150.6 million as at December 31, 2009 which management believes is
probable of collection.
As at December 31, 2009, the Parent Company has provided guarantees on the bank loans of AOI,
AODI and ZIP amounting to =
P200.0 million.
31. Earnings Per Common Share
Basic and diluted earnings per common share were computed as follows:
Net income attributable to equity holders of the parent (a)
Weighted average number of common shares outstanding
for the year (b):
Basic Earnings per share (a/b)
Mar-10
(141,929)
Mar-09
132,331
2,446,136
(58.02)
2,446,136
(0.02)
There are no dilutive potential common shares as at December 31, 2009, 2008 and 2007.
32. Registration with the BOI
The Parent Company is registered with the BOI under the Omnibus Investment Code (OIC) of
1987 as a new operator of inter-island shipping through its SuperFerries 15, 16, 17 and 18 vessels
on a pioneer status starting February 13, 2003, SuperFerry 19 starting December 29, 2004, and
SuperFerry 12 starting May 4, 2005. Such registration entitles the Parent Company to income tax
holiday for a period of three to six years from the date of registration. Upon the request of the
Parent Company, the BOI cancelled the registrations of SuperFerry 19 and SuperFerries 15, 16, 17
and 18 last October 18, 2006 and January 12, 2007 including all incentives granted thereunder.
The Parent Company requested the cancellation of the said registrations due to the change in
activity of SuperFerry 19 and the sale of SuperFerries 15, 16, 17 and 18 leaving only
SuperFerry 12 as the remaining vessel entitled to ITH incentives up to May 3, 2008.
ZIP is registered with BOI under OIC of 1987 as a non-pioneer operator of logistics service
facilities. Such registration entitles ZIP to income tax holiday (ITH) for a period of four (4) years
from May 2005 or actual start of commercial operations, whichever is earlier. On October 30,
2007, the BOI approved ZIP’s application under Executed Order 226 as an expanding operator of
logistics service facilities, the new registration entitles ZIP to ITH for a period of three (3) years
from the date of registration. Incentives availed amounted to =
P23.7 million in 2009, P
=68.6 million
in 2008 and P
=55.8 million in 2007.
On February 19, 2008, the BOI approved SFFC’s application for registration as a New Operator
of Domestic Shipping (Passenger Vessel) on a Non-Pioneer status. The Company is entitled to
four (4) years ITH from date of registration. Incentives availed amounted to =
P63.6 million in
2009 and nil in 2008 due to net taxable loss position in non-registered activities.
- 47 -
33. Commitments and Other Matters
a. In 2002, the Parent Company entered into a Memorandum of Agreement (Agreement) with
Asian Terminals, Inc. (ATI) for the use of the ATI’s facilities and services at the South Harbor
for the embarkation and disembarkation of the Parent Company’s domestic passengers, as well
as loading, unloading and storage of cargoes. The Agreement shall be for a period of five
years, which shall commence from the first scheduled service of the Parent Company at the
South Harbor. The Agreement is renewable for another five years under such terms as may be
agreed by the parties in writing. If the total term of the Agreement is less than ten years, then
the Parent Company shall pay the penalty equivalent to the unamortized reimbursement of
capital expenditures and other related costs incurred by ATI in the development of South
Harbor. The Agreement became effective on January 14, 2003.
Under the terms and conditions of the Agreement, the Parent Company shall avail of the
terminal services of ATI, which include, among others, stevedoring, arrastre, storage,
warehousing and passenger terminal. Domestic tariff for such services (at various rates per
type of service as enumerated in the Agreement) shall be subject to an escalation of 5% every
year. Total service fees charged to operations amounted to =
P128.8 million, P
=159.4 million and
=160.1 million in 2009, 2008 and 2007, respectively (see Note 24).
P
b. AJBTC, JMI and AJMSI (Agents) have outstanding agreements with foreign shipping
principals, wherein the Agents render manning and crew management services consisting
primarily of the employment of crew for the principals’ vessels. As such, the principals have
authorized the Agents to act on their behalf with respect to all matters relating to the manning
of the vessels. Total service fees revenues recognized in the consolidated statements of
income from these agreements amounted to P
=400.0 million in 2009, P
=387.8 million in 2008
and P
=326.0 million in 2007.
c. JMBVI and Subsidiaries have outstanding Charter Party Agreements with vessels’ owners for
the use of the vessels or for sublease to third parties within the specified periods of one (1) to
three (3) years under the terms and conditions covered in the agreements. In consideration
thereof, JMBVI recognized charter hire expense amounted to P
=529.4 million, P
=1,962 million
and P
=2,245 million in 2009, 2008 and 2007, respectively (see Note 23).
d. The Group has entered into various operating lease agreements for its office spaces. The
future minimum rentals payable under the noncancellable operating leases are as follows:
Within one year
After one year but not more than five years
More than five years
2009
P
=162,177
286,360
10,934
P
=459,471
2008
=141,648
P
319,499
15,545
=476,692
P
- 48 -
e. In 2009, the Parent Company entered into various agreements to charter the following vessels:
Charter Period
From
To
15-Aug-08
20-Dec-09
05-Dec-09
18-Jul-10
02-Feb-09
23-Apr-09
11-May-09
31-Oct-09
02-Dec-09
03-Mar-10
10-Aug-09
27-Nov-09
f.
Vessel
MV MYRIAD
MV MYRIAD
MV INGENUITY
MV MARKELLA
MV MARKELLA
MV EPONYMA
Rate per day
$4,250
4,050
3,400
4,100
3,125
3,200
The Parent Company acquired SFFC from its affiliate, Accuria, Inc. on August 30, 2007 for a
total consideration of P
=13,700. The pooling of interest method was applied to account for the
acquisition since the Parent Company and Accuria, Inc. are entities under common control.
The excess of cost over SFFC’s net assets during the time of acquisition, amounting to
=11,700 is recorded in equity as “Excess of cost over net asset value of an investment”.
P
34. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise of cash and cash equivalents, trade and other
receivables, trade and other payables, redeemable preferred shares, and interest-bearing loans.
Trade and other receivables and trade and other payables arise from the Group’s operations.
Redeemable preferred shares and interest-bearing loans are used by the Group to finance its
operations.
The main risks arising from the Group’s financial instruments are cash flow interest rate risk
resulting from movements in interest rates that may have an impact on interest bearing financial
instruments; credit risk involving possible exposure to counter-party default, primarily, on its cash
investments and receivables; liquidity risk in terms of the proper matching of the type of financing
required for specific investments and maturing obligations; and foreign exchange risk in terms of
foreign exchange fluctuations that may significantly affect its foreign currency denominated
placements and borrowings.
Risk Management Structure
BOD
The BOD is mainly responsible for the overall risk management approach and for the approval of
risk strategies and policies of the Group.
Financial Risk Committee
The Financial Risk Committee has the overall responsibility for the development of risk strategies,
principles, frameworks, policies and limits. It establishes a forum of discussion of the Group’s
approach to risk issues in order to make relevant decisions.
Treasury Risk Office
The Treasury Risk Office is responsible for the comprehensive monitoring, evaluating and
analyzing of the Group’s risks in line with the policies and limits set by the Treasury Risk
Committee.
- 49 -
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to its long-term
debt and obligations under finance lease. To manage this risk, the Group determines the mix of its
debt portfolio as a function of the level of current interest rates, the required tenor of the loan, and
the general use of the proceeds of its various fund raising activities.
In 2009, interest rates of obligations under finance lease range from 7.0% to 9.0% (see Note 19).
Shown below are the carrying amounts, by maturity, of the Group’s interest bearing financial
instruments:
As at December 31, 2009
Cash in banks
Cash equivalents
Refundable deposits
Loans payable
Obligations under finance lease
Redeemable preferred shares
<1 year
=889,265
P
168,063
–
=1,057,328
P
1-5 years
=–
P
–
15,000
=15,000
P
Total
P
=889,265
168,063
15,000
P
=1,072,328
=1,392,390
P
6,222
–
P
=1,398,612
P–
=
25,346
20,176
P
=45,522
P
=1,392,390
31,568
20,176
P
=1,444,134
As at December 31, 2008
Cash in banks
Cash equivalents
Refundable deposits
Loans payable
Obligations under finance lease
Redeemable preferred shares
<1 year
=927,063
P
100,911
–
=1,027,974
P
1-5 years
=–
P
–
15,000
=15,000
P
Total
=927,063
P
100,911
15,000
=1,043,974
P
=829,879
P
81,692
–
=911,571
P
=–
P
30,832
17,790
=48,622
P
=829,879
P
112,524
17,790
=960,193
P
In 2008, the Group paid in full its Banco De Oro bilateral loan and Vereins Bank clean loan
amounting to P
=46.3 million and P
=8.7 million, respectively. As a result of the repayment of the
loans in 2008, the Group is no longer subject to cash flow interest rate risk. The Group’s
remaining financial liabilities have fixed interest rates and are not subject to cash flow interest rate
risk.
Equity price risk
Equity price risk is the risk that the fair value of traded equity instruments decrease as the result of
the changes in the levels of equity indices and the value of the individual stocks.
As at December 31, 2009 and 2008, the Group’s exposure to equity price risk is minimal.
- 50 -
Credit risk
The Group trades only with recognized, creditworthy third parties and the exposure to credit risk is
monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not
significant. Since the Group trades only with the recognized third parties, collateral is not required
in respect of financial assets.
For its cash investments, the Group’s credit risk is generally concentrated on possible default of
the counter-party, with a maximum exposure equal to the carrying amount of these investments
(see Note35). The risk is mitigated by the short-term and/or liquid nature of its cash investments
mainly in bank deposits and placements, which are placed with financial institutions of high credit
standing.
The credit quality per class of financial assets that were neither past due nor impaired is as
follows:
As at December 31, 2009
Cash in banks
Cash equivalents
Trade receivables
Service fees
Freight
Passage
Others
Nontrade receivables
Insurance and other claims
Advances to officers and
employees
Quoted equity investments
Listed shares of stocks
Club shares
Unquoted equity investments
Refundable deposits
Total
Neither past due nor impaired
High
Medium
=889,265
P
=–
P
168,063
–
Low
=–
P
–
Past due or
individually
impaired
=–
P
–
Total
P889,265
=
168,063
233,997
347,851
27,953
392,302
28,319
18,525
49,245
155,126
7,968
–
–
–
12,026
–
233,580
149,026
–
–
5,455
–
–
129,208
190,029
2
195,846
236,031
193,105
1,391
751,911
694,874
27,955
588,148
269,805
223,656
50,636
26,789
5,500
11,034
66,640
= 2,265,483
P
–
–
–
–
= 175,120
P
–
–
–
–
= 388,061
P
–
–
–
–
= 945,612
P
26,789
5,500
11,034
66,640
= 3,774,276
P
Low
=–
P
–
Past due or
individually
impaired
=–
P
–
Total
=927,063
P
100,911
As at December 31, 2008
Cash in banks
Cash equivalents
Trade receivables
Service fees
Freight
Passage
Others
Nontrade receivables
Insurance and other claims
Advances to officers and
employees
Quoted equity investments
Listed shares of stocks
Club shares
Unquoted equity investments
Refundable deposits
Total
Neither past due nor impaired
High
Medium
=927,063
P
=–
P
100,911
–
708,806
35,961
10,347
158,393
172,345
6,115
18,154
226,985
–
31,152
–
–
30,764
27,473
–
5,853
2,096
–
74,897
504,019
1,733
126,157
68,226
35,409
832,621
794,438
12,080
321,555
242,667
41,524
35,995
–
3,496
925
40,416
17,225
4,000
15,828
40,801
=2,233,790
P
–
–
–
–
=276,291
P
–
–
–
–
=69,682
P
–
–
–
–
=811,366
P
17,225
4,000
15,828
40,801
=3,391,129
P
- 51 -
High quality receivables pertain to receivables from related parties and customers with good
favorable credit standing. Medium quality receivables pertain to receivables from customers that
slide beyond the credit terms but pay a week after being past due are classified under medium
quality. Low quality receivables are accounts from new customers and forwarders. For new
customers, the Group has no basis yet as far payment habit is concerned. With regards to the
forwarders, most of them are either under legal or suspended. In addition, their payment habits
extend beyond the approved credit terms because their funds are not sufficient to conduct their
operations.
The Group evaluated its cash in bank and cash equivalents as high quality financial assets since
these are placed in financial institutions of high credit standing.
With respect to AFS investments and refundable deposits, the Group evaluates the counterparty’s
external credit rating in establishing credit quality.
The aging analysis per class of financial assets that were past due but not impaired is as follows:
As at December 31, 2009
Past due but not impaired
Neither past
due nor
impaired
=889,265
P
168,063
Cash in banks
Cash equivalents
Trade receivables
Service fees
622,704
Freight
504,845
Passage
27,953
Others
392,302
Nontrade receivables
33,774
Insurance and other
30,551
claims
Advances to officers and
employees
49,245
Quoted equity investments
Listed shares of stocks
26,789
Club shares
5,500
Unquoted equity
investments
11,034
Refundable deposits
66,640
Total
= 2,828,665
P
Less than
30
days
=–
P
–
31 to 60
days
=–
P
–
61 to 90
days
=–
P
–
Over 90
days
=–
P
–
Impaired
financial
assets
=–
P
–
Total
P889,265
=
168,063
33,814
19,635
–
154,775
25,492
9,278
2,995
2
4,391
41,253
4,916
2,585
–
6,741
122,955
14,148
479
–
27,218
41,704
67,052
164,335
–
2,721
4,627
751,912
694,874
27,955
588,148
269,805
–
–
172,481
20,624
223,656
730
121
81
459
–
50,636
–
–
–
–
–
–
–
–
–
–
26,789
5,500
–
–
= 234,446
P
–
–
= 58,040
P
–
–
= 309,759
P
–
–
= 84,008
P
–
–
= 259,359
P
11,034
66,640
3,774,277
- 52 -
As at December 31, 2008
Past due but not impaired
Neither past
due nor
impaired
=927,063
P
100,911
Cash in banks
Cash equivalents
Trade receivables
Service fees
757,724
Freight
290,419
Passage
10,347
Others
195,398
Nontrade receivables
174,441
Insurance and other claims
6,115
Advances to officers and
employees
39,491
Quoted equity investments
Listed shares of stocks
17,225
Club shares
4,000
Unquoted equity
15,828
investments
Refundable deposits
40,801
Total
=2,579,763
P
Less than
30
days
=–
P
–
31 to 60
days
=–
P
–
61 to 90
days
=–
P
–
Over 90
days
=–
P
–
Impaired
financial
assets
=–
P
–
Total
=927,063
P
100,911
–
87,617
1,575
81,976
28,183
34
–
78,336
119
16,662
464
345
6,718
102,062
–
2,835
14,916
10,990
5,801
33,267
39
21,963
16,701
111
62,378
202,737
–
2,721
7,962
23,929
832,621
794,438
12,080
321,555
242,667
41,524
172
88
215
450
–
40,416
–
–
–
–
–
–
–
–
–
–
17,225
4,000
–
–
=199,557
P
–
–
=96,014
P
–
–
=137,736
P
–
–
=78,332
P
–
–
=299,727
P
15,828
40,801
=3,391,129
P
Liquidity risk
The Group maintains sufficient cash and cash equivalents to finance its operations. Any excess
cash is invested in short-term money market placements. These placements are maintained to
meet maturing obligations and pay dividend declarations.
The Group’s policy is that not more than 35% of borrowings should mature in any 12-month
period. As at December 31, 2009 and 2008, the Company has no long-term debt.
The Group’s existing credit facilities with various banks are covered by the Continuing Suretyship
for the accounts of the Group.
The liability of the Surety is primary and solidary and is not contingent upon the pursuit by the
bank of whatever remedies it may have against the debtor or collaterals/liens it may possess. If
any of the secured obligations is not paid or performed on due date (at stated maturity or by
acceleration), the Surety shall, without need for any notice, demand or any other account or deed,
immediately be liable therefore and the Surety shall pay and perform the same.
The table below summarizes the maturity profile of the Group’s financial assets and liabilities at
the balance sheet date based on contractual undiscounted repayment obligations:
2008
2009
Financial assets:
Cash
Trade and other receivables
AFS investments
Refundable deposits
Total undiscounted financial
assets
(Forward)
Total
Less than
1 year
1 to 5 years
Total
P
=–
–
43,323
66,640
P
=1,095,711
2,606,986
43,323
66,640
P1,092,843
=
2,285,301
–
–
P–
=
–
37,053
40,801
P1,092,843
=
2,285,301
37,053
40,801
109,963
3,812,660
3,378,144
77,854
3,455,998
Less than
1 year
1 to 5 years
P
=1,095,711
2,606,986
–
–
3,702,697
- 53 -
2008
2009
Less than
1 year
Financial liabilities:
Trade and other payables
P
=3,894,247
Loans payable
1,399,833
Redeemable preferred shares
–
Obligation under capital lease
8,466
Other noncurrent liabilities
–
Total undiscounted financial
liabilities
5,302,546
Total net undiscounted
financial liabilities
(P
=1,599,849)
1 to 5 years
Total
Less than
1 year
P
=–
–
27,363
30,377
257
P
=3,894,247
1,399,833
27,363
38,843
257
=3,826,507
P
855,258
–
87,401
–
P–
=
–
27,363
38,025
3,736
=3,826,507
P
855,258
27,363
125,426
3,736
57,997
5,360,543
4,769,166
69,124
4,838,290
1 to 5 years
Total
=1,391,022)
(P
= 51,966) (P
=1,547,883) (P
(P
=8,730) (P
=1,382,292)
Foreign exchange risk
The foreign exchange risk of the Group relates primarily to its foreign currency-denominated bank
loans, obligation under finance lease, revenues and crew salaries. Management closely monitors
the fluctuations in exchange rates so as to anticipate the impact of foreign currency risks
associated with the financial instruments. To mitigate the risk of incurring foreign exchange
losses, the Group maintains cash in banks in foreign currency to match its financial liabilities.
The following table sets forth the financial assets and financial liabilities denominated in foreign
currency:
As at December 31, 2009
Financial Assets
Cash
Trade receivables
Amounts owed by related parties
Total Financial Assets
Financial Liabilities
Loans payable
Trade payables
Advances from shipping
principals
Amounts owed to a related party
Obligations under finance lease
Total Financial Liabilities
Net foreign currency
denominated liabilities
1
4
2
5
$1 = P
=41.1395
$1 = P
=44.4747
3
kr 1 =P
=8.9572
6
€1 = P
=66.6646
$1 = P
=32.8207
$1 = P
=46.2000
AUD1
CAD2
DKK3
EUR4
NZD5
USD6
Total Peso
Equivalent
$–
–
–
$–
$–
–
–
$–
kr –
–
–
kr –
€–
–
–
€–
$2
–
–
$2
$4,273
3,910
1,234
$9,417
P197,478
=
180,642
57,011
= 435,131
P
$–
173
$–
9
kr –
850
€–
137
$–
25
$2,450
11,775
P113,190
=
569,090
–
–
–
$173
–
–
–
$9
–
–
–
kr850
–
–
–
€137
–
–
–
$25
212
607
683
$15,727
9,794
28,043
31,568
= 751,685
P
($173)
($9)
(kr850)
(€137)
($23)
($6,310)
(P
= 316,554)
- 54 -
As at December 31, 2008
Financial Assets
Cash
Trade receivables
Amounts owed by related parties
Total Financial Assets
Financial Liabilities
Loans payable
Trade payables
Advances from shipping
principals
Amounts owed to a related party
Obligations under finance lease
Total Financial Liabilities
Net foreign currency
denominated liabilities
1
4
2
5
$1 = P
=32.2194
$1 = P
=39.0566
3
kr 1 = P
=8.8940
6
AUD1
CAD2
DKK3
EUR4
NZD5
USD6
Total Peso
Equivalent
$7
–
–
$7
$–
–
–
$–
kr –
–
–
kr –
€–
–
–
€–
$6
–
–
$6
$4,781
9,516
1,313
$15,610
=227,580
P
452,200
62,394
=742,174
P
$–
364
$–
9
kr –
1,550
€–
186
$–
180
$5,869
7,568
=278,895
P
402,655
–
–
–
$364
–
–
–
$9
–
–
–
kr 1,550
–
–
–
€186
–
–
–
$180
1,334
536
2,368
$17,675
63,392
25,471
112,524
=882,937
P
($357)
($9)
(kr 1,550)
(€186)
($174)
($2,065)
(P
=140,763)
€1 = P
=66.2463
$1 = P
=26.8717
$1 = P
=47.5200
The following table demonstrates the sensitivity to a reasonably possible change in the foreign
currency exchange rates, with all other variables held constant, of the Group’s profit before tax as
at December 31, 2009 and 2008.
Australian Dollar (AUD)
Appreciation/
(Depreciation) of
Foreign
Currency
+5%
(5%)
Effect on Income Before Tax
2008
2009
(P
=575)
(P
=356)
575
356
Canadian Dollar (CAD)
+5%
(5%)
(20)
20
(18)
18
Danish Krone (DKK)
+5%
(5%)
(381)
381
(689)
689
Euro (EUR)
+5%
(5%)
(457)
457
(616)
616
New Zealand Dollar (NZD)
+5%
(5%)
(38)
38
(234)
234
US Dollar (USD)
+5%
(5%)
(14,576)
14,576
(4,906)
4,906
- 55 -
There is no other impact on the Group’s equity other than those already affecting the consolidated
statement of income.
The table below demonstrates the income, expense, gains or losses of the Group’s financial
instruments for the years ended December 31, 2009, 2008 and 2007.
Effect in Profit or Loss
Increase (Decrease)
2008
2009
Loans and receivables:
Interest income on:
Cash in banks
Cash equivalents
Advances to a
subsidiary
Impairment loss on
receivables
Reversal of allowance
for impairment
losses
AFS investments:
Gain (loss) on sale
Unrealized mark-tomarket gains
(losses)
Realized mark-tomarket loss
Financial liabilities at
amortized cost:
Interest expense on:
Loans payable
Advances from
affiliate
Obligations under
finance lease
Interest accretion on
redeemable
preferred shares
2007
Effect in Equity
Increase (Decrease)
2008
2009
2007
P
=23,995
1,103
=12,646
P
2,178
=23,592
P
1,965
P
=–
–
P–
=
–
P–
=
–
3,432
4,581
7,147
–
–
–
30,129
8,504
11,906
–
–
–
60,884
–
–
–
–
–
–
(74)
2,732
–
–
–
–
–
–
11,219
(5,040)
(5,374)
–
–
–
–
–
(3,465)
(63,705)
(24,270)
(64,953)
–
–
–
(21,961)
(31,899)
(20,473)
–
–
–
(11,058)
(18,712)
(15,305)
–
–
–
(2,386)
(2,104)
(1,855)
–
–
–
Capital Management
Capital includes equity attributable to the equity holders of the parent.
The Group adopts a prudent approach on capital management to ensure that it maintains a strong
credit rating and healthy capital ratios in order to support its business and maximize shareholder
value.
The Group manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may adjust the
dividend payment to shareholders, return capital to shareholders, or issue new shares. The Group
is not subject to any externally imposed capital requirements.
No changes were made in the objectives, policies or processes during the years ending
December 31, 2009 and 2008.
- 56 -
The Group monitors capital using a gearing ratio, which is net debt divided by equity attributable
to equity holders of parent plus net debt. The Group includes within net debt are loans payable,
obligation under capital lease, long-term debt, redeemable preferred shares, less cash and cash
equivalents.
The table below summarized the Group’s net debt and capital:
Loans payable
Obligation under capital lease
Redeemable preferred shares
Cash and cash equivalents
Net debt
Equity attributable to equity holders of the
Parent
Capital and net debt
Gearing ratio
2009
P
=1,392,390
31,568
20,176
(1,095,711)
348,423
2008
=829,879
P
112,524
17,790
(1,092,843)
(132,650)
5,108,730
4,556,281
P
=5,457,153
=4,423,631
P
6.38%
(3.00%)
35. Fair Value of Financial Instruments
Set out below is a comparison by category of carrying amounts and fair values of all the Group’s
financial instruments as at December 31, 2009 and 2008:
2009
Carrying
Amount
Fair Value
FINANCIAL ASSETS
Loans and receivables
Cash on hand and in banks
Cash equivalents
Trade and other receivables
Trade receivables
Service fees
Freight
Passage
Others
Nontrade
Insurance and other claims
Advances to officers and
employees
Refundable deposits
AFS investments
Quoted shares of stocks
Listed shares of stocks
Club shares
Unquoted shares of stocks
(Forward)
2008
Carrying
Amount
Fair Value
P927,648
=
168,063
P927,648
=
168,063
P991,932
=
100,911
P991,932
=
100,911
684,860
530,539
27,955
585,427
265,178
203,032
684,860
530,539
27,955
585,427
265,178
203,032
770,243
591,701
12,080
318,833
221,601
30,700
770,243
591,701
12,080
318,833
221,601
30,700
50,636
66,640
3,509,978
50,636
66,640
3,509,978
40,416
40,801
3,119,218
40,416
40,801
3,119,218
26,789
5,500
11,034
43,323
=3,553,301
P
26,789
5,500
11,034
43,323
=3,553,301
P
17,225
4,000
15,828
37,053
=3,156,271
P
17,225
4,000
15,828
37,053
=3,156,271
P
- 57 -
2009
Carrying
Amount
FINANCIAL LIABILITIES
Other financial liabilities
Trade and other payables
Trade
Accrued expenses
Nontrade
Loans payable
Obligations under finance
lease
Redeemable preferred shares
Fair Value
2008
Carrying
Amount
Fair Value
P1,623,585
=
1,474,183
766,449
1,392,390
P1,623,585
=
1,474,183
766,449
1,392,390
P1,460,437
=
1,176,008
1,050,130
829,879
P1,460,437
=
1,176,008
1,050,130
829,879
31,568
20,176
=5,308,351
P
23,208
24,096
=5,303,911
P
112,524
17,790
=4,646,768
P
100,357
21,935
=4,638,746
P
Fair value is defined as the amount at which the financial instrument could be exchanged in a
current transaction between knowledgeable willing parties in an arm’s-length transaction, other
than in a forced liquidation or sale. Fair values are obtained from quoted market prices,
discounted cash flow models and option pricing models, as appropriate.
The following methods and assumptions are used to estimate the fair value of each class of
financial instruments:
Cash and cash equivalents and trade and other receivable, trade and other payables and
loans payable
The carrying amounts of cash and cash equivalents, trade and other receivables and trade and other
payables approximate fair value due to the relatively short-term maturity of these financial
instruments.
Loans payable
Loans payable that reprice every three (3) months, the carrying value approximates the fair value
because of recent and regular repricing based on current market rate. For fixed rate loans, the
carrying value approximates fair value due to its short term maturities, ranging from three months
to twelve months.
Redeemable preferred shares
The fair values of the redeemable preferred shares are based on the discounted value of future cash
flows using the applicable market interest rates. Discount rates ranging from 4.8% to 5.6% in
2009 and 6.2% to 6.7% in 2008 were used in calculating the fair value of the Group’s redeemable
preferred shares.
Refundable deposits
As at December 31, 2009, the carrying value of refundable deposits approximates fair value due to
the relatively short-term maturity of this financial instrument. As at December 31, 2008, the fair
values of refundable deposits are based on the discounted value of future cash flows using the
applicable market interest rates. Discount rates ranging from 6.4% to 6.5% in 2008 were used in
calculating the fair value of the Company’s refundable deposits.
- 58 -
AFS investments
The fair values of AFS investments are based on quoted market prices, except for unquoted equity
shares which are carried at cost since fair values are not readily determinable.
Obligations under finance lease
The fair values of obligation under finance lease are based on the discounted net present value of
cash flows using discount rates of 6.79% to 9.03% as at December 31, 2009 and 8.21% to 9.13%
as at December 31, 2008.
36. Dividendable Retained Earnings
ABOITIZ TRANSPORT SYSTEM (ATSC) CORP.
12/F Times Plaza Bldg., cor. Taft, UN. Ave., Ermita Manila
STATEMENTS OF RETAINED EARNINGS AVAILABLE
FOR DIVIDEND DECLARATION
MARCH 31, 2010 and DECEMBER 31, 2009
(Amount in Philippine Currency)
Mar 2010
Unappropriated Retained Earnings, Beginning, as adjusted to available for
dividends distribution
Add: Net income actually earned/realized during the period
Net income (loss) during the period closed to Retained Earnings
Less: Non-actual/unrealized income net of tax for the period/accumulated
Tax benefit (Deferred Tax Asset) during the period
Other unrealized gains or adjustments to the retained earnings as a result of certain
transactions accounted for under the PFRS, negative goodwill
Sub-total
Add: Non-actual losses
Accretion of interest on RPS under PAS 39
Unrealized foreign exchange gain - net (except those attributable to Cash and Cash
Equivalents) in 2004 realized in 2008
Sub-total
Add(Less): Movement during the period
Treasury shares
TOTAL RETAINED EARNINGS, END, AVAILABLE FOR DIVIDEND
2009
1,288,642,944.67
677,710,280.89
(187,749,274.99)
479,544,768.19
(148,575,987.84)
117,875,882.40
(336,325,262.83)
597,420,650.59
13,512,013.19
13,512,013.19
13,512,013.19
13,512,013.19
965,829,695.02
1,288,642,944.67
- 59 -
Aboitiz Transport System Corporation and Subsidiaries
AGING OF RECEIVABLES
March 31, 2010
Amounts in Thousands
30 Days
A/R - Trade
60 Days
Over
90 Days
90 Days
ADA/Under
Litigation
Total
1,683,433
168,063
46,097
159,365
38,400
2,095,358
534,668
7,092
22,470
478,674
0
1,042,904
A/R - Others
84,640
2,715
0
0
0
87,355
Advances to Officers/Employees
48,999
772
233
9,484
0
59,487
127,137
75,592
(5,654)
28,084
0
225,160
(139)
(127)
(171)
(155,982)
(107,824)
(264,243)
0
0
0
0
0
0
A/R - Non Trade/Affiliates
Receivable from insurance and other claims
Allowance for Doubful Accounts
Items Under Litigation
0
TOTAL
2,478,738
254,107
62,976
519,625
(69,424)
3,246,022