Document 6525551

COVER SHEET
4 4 0 9
SEC Registration Number
2 G O
[ F o r m e r l y
G R O U P , I N C.
A T S
( A T S C ) ,
C o n s o l i d a t e d
I n c . ]
(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)
Jeremias E. Cruzabra
(02)528-7608
(Contact Person)
(Company Telephone Number)
1 2
3 1
Month
Day
1 7 - Q
(Form Type)
(Fiscal Year)
0 5
3 1
Month
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Corporate Finance
September 30, 2012
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
1,965
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.
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 September 30, 2012
2. Commission identification number 4409
3. BIR Tax Identification No 000-313-401
2GO GROUP, INC.
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)
th
12 Floor Times Plaza Building United Nations Avenue corner Taft Avenue Ermita, Manila /1000
7. Address of issuer's principal office
Postal Code
(02) 528-7608
8. Issuer's telephone number, including area code
ATS Consolidated (ATSC), Inc., Sergio 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 [ ]
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 September 30, 2012 and
Audited Consolidated Balance Sheets as of December 31, 2011
Page 9
2. Unaudited Consolidated Statements of Income for the Nine Months
Ended September 30, 2012 and 2011
Page 10
3. Unaudited Consolidated Statements of Comprehensive Income for
the Nine Months Ended September 30, 2012 and 2011
Page 11
4. Unaudited Consolidated Statement of Changes in Equity for the Nine
Months Ended September 30, 2012 and 2011
Page 12
5. Unaudited Consolidated Cash Flows for the Nine Months Ended
September 30, 2012 and 2011
Page 14
6. Notes to Consolidated Financial Statements
Page 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FOR THE THREE (3) QUARTERS ENDING SEPTEMBER 2012
Key Performance Indicators (KPI)
The following KPI’s are used to evaluate the financial performance of 2GO Group and its subsidiaries. The
amounts are in millions of pesos except for the financial ratios.
a.
Revenues – 2GO Shipping revenues are mainly composed of freight and passage revenues and they are
recognized when the related services are rendered. Total revenue for the nine months ended September
30, 2012 is P10.3 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 September 30, 2012 is P601.4 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 the period ending September 30, 2012 is P547.5 million. This
included loss on disposal of two (2) cargo vessels and vessel lay-up costs amounting to P201.7 million and
P107.8 million, respectively. Sans these two extra-ordinary items, net loss is reduced to P238.0 million.
d.
Debt-to-Equity ratio – is determined by dividing total liabilities over stockholders’ equity. The Group’s
debt-to-equity ratio as of September 30, 2012 is 2.82:1.00. Total liabilities decreased by P426.5 million
mainly due to the debt service while total equity reduced by P328.9 million largely due to the net loss
incurred for the first three (3) quarters of 2012.
e.
Current ratio – is measured by dividing total current assets by total current liabilities. The Group’s current
ratio as of September 30, 2012 is 0.85:1.00. Total current assets is P830.0 million or 14% lower than 2011
due to the reduction in cash & cash equivalents, trade & other receivables and assets held for sale. Total
current liabilities, on the other hand, went up by P474.9 million or 9% from P5,494.9 million in 2011 to
P5,969.8 in 2012.
The following table shows comparative figures of the Top Five key performance indicators (KPI) for 2012
versus 2011 (amounts in millions except for the financial ratios) based on the consolidated financial statements
of 2GO Group, Inc. [formerly known as ATS Consolidated (ATSC), Inc.] and its subsidiaries:
Consolidated
2012
10,260
Revenues
2011
9,462
EBITDA (a)
601
468
(b)
IBT
(548)
(538)
Debt-to-Equity Ratio ©
2.82:1.00
2.67:1.00
Current Ratio (d)
0.85:1.00
1.07:1.00
Note: The figures above are in P’MM except as otherwise indicated.
(a) 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)
(b) Income before income tax or loss before income tax
(c) Total liabilities / total stockholders’ equity. The 2011 figures are based on
audited December 31, 2011
(d) Total current assets / total current liabilities. The 2011 figures are based
on audited December 31, 2011
Consolidated Income Statements
Unaudited
Sep-12
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
Vessel Lay Up C ost
Others - net
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM)
INCOME TAX
Current
Deferred
NET INCOME (LOSS)
NET INCOME ATTRIBUTABLE TO:
Equity holders of the parent
Minority interests
Sep-11
Variance
Peso
%
% to Total
Sep-12 Sep-11
4,761,590
1,973,006
1,039,298
1,524,606
961,957
10,260,458
3,982,060
1,783,155
891,810
2,379,129
425,648
9,461,802
779,530
189,851
147,488
(854,523)
536,310
798,656
20%
11%
17%
(36%)
126%
8%
46%
19%
10%
15%
9%
100%
42%
19%
9%
25%
4%
100%
7,300,891
853,910
834,011
1,348,429
10,337,241
5,883,176
1,071,307
835,860
1,998,841
9,789,184
1,417,716
(217,397)
(1,849)
(650,412)
548,057
24%
(20%)
(0%)
(33%)
6%
71%
8%
8%
13%
101%
62%
11%
9%
21%
103%
(299,077)
45,853
(296,394)
43,020
(2,683)
2,833
(1%)
7%
(3%)
0%
(3%)
0%
(123,191)
0
(1,007)
11,834
17,513
3,136
(135,025) (1,141%)
(17,513) (100%)
(4,143) (132%)
(1%)
0%
(0%)
0%
0%
0%
8,230
(107,791)
6,230
(470,752)
(547,536)
(25,358)
(16,856)
52,575
(210,530)
(537,912)
33,588 132%
(90,935) (539%)
(46,345) (88%)
(260,223) (124%)
(9,624)
(2%)
0%
(1%)
0%
(5%)
(5%)
(0%)
(0%)
1%
(2%)
(6%)
44,732
(249,299)
(204,567)
(342,969)
42,006
(325,209)
(283,204)
(254,708)
2,726
75,911
78,637
(88,261)
6%
23%
28%
(35%)
0%
(2%)
(2%)
(3%)
0%
(3%)
(3%)
(3%)
(342,017)
(952)
(342,969)
(257,502)
2,794
(254,708)
(84,515) (33%)
(3,745) (134%)
(88,261) (35%)
(3%)
(0%)
(3%)
(3%)
0%
(3%)
The Group’s consolidated revenues for the three quarters ending September 30, 2012 increased by P798.6
million or 8% against the same period last year. The shipping business accounted for 66% of the total revenues
while supply chain contributed 34% of total revenues.
The freight business realized a 20% or P779.5 million increase in revenues versus last year due to the combined
increases in both volume and average price. The passage business likewise increased by 11% or P189.8 million
due to higher average rates per passenger.
However, revenues of the supply chain business decreased by 36% of P854.5 million mainly due to the
disengagement of some identified principals showing negative profitability. This will eventually be replaced by
new principals showing good profit margins.
Costs and expenses increased during the period but to a lower extent than the revenues. Costs and expenses
increased by P548.1 million or 6% over the same period last year. This is mainly attributable to the increase in
fuel prices for the first three quarters of the year coupled with the addition of NN vessels in the combined fleet.
During the period under review, the Group recognized a one-time loss on the disposals of two (2) cargo vessels
classified as assets held for sale and vessel lay-up costs amounting to P201.7 million and P107.8 million,
respectively.
Earnings (Loss) per Share
Earnings (Loss) per Share is computed by dividing Net Income (Loss) Attributable to Equity Holders of the Parent
Company over weighted average number of common shares outstanding for the year. Earnings (Loss) per share
for the three (3) quarters of 2012 stood at (P0.14)/share compared to (P0.11)/share last year.
Other changes (+/-5% or more) in the financial statement not covered in the above discussion
3Q 2012 vs. 3Q 2011
Revenue
20% or P780 million increase in Freight revenues
11% or P190 million increase in Passage revenues
17% or P147 million increase in Service fees
36% or P855 million decrease in Sale of goods
126% or P536 million increase in Other revenues
Costs & Expenses
24% or P1,418 million increase in Operating costs
20% or P217 million decrease in Terminal costs
33% or P650 million decrease in Cost of sales
Other Income / Charges)
1,141% or P135 million decrease in Gain on disposal of property and equipment
132% or P4.1 million decrease in Foreign exchange gain
100% or P18 million decrease in Gain on disposal of investment
132% or P34 million increase in Equity in net earnings of associates
7% or P3 million increase in Interest income
88% or P46 million decrease in Others-net
Consolidated Balance Sheets
Unaudited
Audited
Sep-12
Dec-11
Peso
Variance
%
638,223
2,526,953
402,706
1,111,197
4,679,079
391,617
906,263
2,898,193
407,441
996,229
5,208,126
692,617
(268,040)
(371,240)
(4,735)
114,968
(529,047)
(301,000)
(30%)
(13%)
(1%)
12%
(10%)
(43%)
6%
22%
4%
10%
41%
3%
7%
24%
3%
8%
43%
6%
5,070,696
5,900,743
(830,047)
(14%)
45%
49%
108,007
9,763
9,377
4,496,847
1,213,401
250,450
10,446
207,669
6,305,960
11,376,656
99,777
9,763
9,377
4,651,107
964,101
250,450
13,826
232,940
6,231,342
12,132,086
8,230
0
0
(154,260)
249,300
0
(3,380)
(25,271)
74,618
(755,429)
8%
0%
0%
(3%)
26%
0%
(24%)
(11%)
1%
(6%)
1%
0%
0%
40%
11%
2%
0%
2%
55%
100%
1%
0%
0%
38%
8%
2%
0%
2%
51%
100%
1,229,503
3,617,208
985,716
73,006
25,938
38,477
5,969,847
1,215,440
3,432,208
785,716
30,174
25,938
5,501
5,494,976
14,063
185,000
200,000
42,833
(0)
32,976
474,871
1%
5%
25%
142%
(0%)
599%
9%
11%
32%
9%
1%
0%
0%
52%
10%
28%
6%
0%
0%
0%
45%
Long-term debt - net of current portion
2,339,576
3,178,028
(838,452)
(26%)
21%
26%
Obligations under finance lease - net of current portion
Accrued retirement benefits
Accrued Rent Payable
Deferred tax liabilities
Other noncurrent liabilities
Total Noncurrent Liabilities
Equity Attributable to Equity Holders of the Parent
Share capital
Additional paid-in capital
Unrealized gain on available-for-sale investments
Share in cumulative translation adjustments of associates
Excess of cost over net asset value of investments
Acquisitions of non-controlling interests
Retained earnings
Treasury shares
29,827
52,526
0
269
7,219
2,429,417
91,936
52,182
(62,108)
344
0
0
(1,190)
(901,406)
(68%)
1%
0%
0%
(14%)
(0)
0%
0%
0%
0%
0%
0
1%
0%
0%
0%
0%
27%
0
0
(31)
0
0
0
(342,016)
0
(342,047)
13,155
(328,891)
(755,427)
0%
0%
(11%)
0%
0%
0%
688%
0%
(10%)
71%
(10%)
(6%)
% to Total
Sep-12 Dec-11
ASSETS
Current Assets
C ash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Assets held for sale
Total Current Assets
Noncurrent Assets
Investments in associates
Investment Property
Available-for-sale investments
Property and equipment
Deferred tax assets
Goodwill
Software development costs
Other noncurrent assets
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Loans payable
Trade and other payables
Long-term debt
Obligations under finance lease
Redeemable preferred shares
Income tax payable
Total Current Liabilities
Noncurrent Liabilities
Noncontrolling interests
Total Stockholders’ Equity
TOTAL LIABLITIES AND STOCKHOLDERS’ EQUITY
269
8,409
3,330,823
2,484,653
2,484,653
910,901
910,901
249
279
5,294
5,294
(10,906)
(10,906)
5,940
5,940
(391,715)
(49,699)
(58,715)
(58,715)
2,945,700
3,287,747
31,692
18,537
2,977,392
3,306,284
11,376,656 12,132,083
22%
8%
0%
0%
(0%)
0%
(3%)
(1%)
26%
0%
26%
100%
20%
8%
0%
0%
(0%)
0%
(0%)
(0%)
27%
0%
27%
100%
The Group’s total assets amounted to P11.4 billion as of September 30, 2012, 6% lower than the P12.1 billion as
of December 31, 2011.
The bulk difference came from current assets which at the start of the year stood at P5.9 billion down to P5.1
billion as of September 30, 2012. Cash and cash equivalents decreased by 30% or P268 million mainly due to
debt service and payments of capital expenditures. Trade and other receivables reduced by 13% or P371 million
largely due to the settlement of notes receivable of the parent company. Assets held for sale decreased by P301
million due to the sale of two (2) freighter vessels, namely M/V 2GO1 and M/V 2GO2. The sale of the two
vessels is part of management’s cost reduction efforts and vessel fleet rationalization. Management endeavored
to reduce vessel capacity to mitigate inefficient assets that cause enormous expenses in repairs and
maintenance.
Property and equipment decreased by 3% or P154 million from P4.6 billion to P4.5 million as of September 30,
2012. During the second quarter of the year, the company sold real property located in Lapuz, Iloilo and two (2)
aircrafts for net cash proceeds of P93.3 million and P3 million, respectively.
Total liabilities went down by 5% or P426 million from P8.8 billion as of December 31, 2011 to P8.4 billion at the
end of September of this year. Current portion of long-term debt increased by P200 million to reflect the amount
due within one year as of September 30, 2012. Non-current portion of long-term debt, on the other hand, reduced
by 26% or P838 million largely due to the P650 million principal repayments during the first three quarter of 2012
coupled with the reclassification of the P200 million long-term debt as current.
Total equity stood at P3.0 billion at the end of September 2012, 10% or P329 million lower compared to the P3.3
billion as of the beginning of the year, due to continuing incurrence of losses by the Group.
Consolidated Cash Flow Statements
Nine Months Ended September 30
2012
2011
Net cash provided by operating activities
Third Quarter September 30
2012
2011
886,782
(645,983)
598,641
(61,689)
Net cash used in investing activities
(236,917)
(182,071)
(82,948)
(57,077)
Net cash provided (used in) financing activities
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
(917,907)
638,221
(577,958)
638,221
(31,841)
1,047,724
1,111,595
1,047,724
rd
The Group ended the 3 quarter with a net decrease in cash of P409 million compared to the same period last
year. The Group received the settlement of notes payable from its parent company, Negros Navigation Co, Inc.
The bulk portion of its cash was used to pay off its long-term debt and other financial obligations. Also, part of it
was also used for capital expenditures mainly related to vessel drydocking and other maintenance costs.
Other Information
Other material events and uncertainties known to management that would address the past and would have an
impact on 2GO’s future operations are discussed below.
i.
Total fuel/lubes expense is a major component of 2GO’s total cost and expenses. 2GO is constantly
looking for ways to reduce fuel consumption to lessen the impact of the increasing fuel prices on the
bottom line.
ii.
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 2GO,
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.
iii.
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 2GO continuing operations are disclosed either in the management
discussion or notes to financial statements.
iv.
There is no material off-balance sheet transaction, arrangement, obligation, and other relationships of
2GO with unconsolidated entities or other persons created during the reporting period.
v.
Seasonal aspects of the business are considered in 2GO’s financial forecast.
vi.
2GO 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.
Company Outlook
Despite reduced vessel capacity, the 2GO Group managed to maintain and even outperform last year’s
operations due to its continuous efforts of effective integration and stringent costs management. The first 3
quarters of 2012 was concentrated on improving profit by focusing on costs reduction. Exerted efforts are now
being done in the top line and bottom line numbers to close the gap and further improve the Group’s performance.
New customers and additional businesses on existing clients are in the pipeline to push the revenue attainment
th
for the 4 quarter. In the last quarter of this year, and through the coming year, would have us concentrate on
improving revenues, creating efficiency and profit margins, and driving sustainable competitive advantage. This
will require us to look for innovative ways of doing our business in order transform the 2GO group from merely a
shipping company into a total logistic solutions package.
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:
2GO GROUP, INC. [formerly ATS Consolidated (ATSC), Inc.]
Signature and Title:
JEREMIAS E. CRUZABRA, Group CFO
Date:
November 14, 2012
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
Sept-2012
Unaudited
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Assets held for sale
Total Current Assets
Noncurrent Assets
Investments in associates
Investment Property
Available-for-sale investments
Property and equipment
Deferred tax assets
Goodwill
Software development costs
Other noncurrent assets
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities
Loans payable
Trade and other payables
Current portion of:
Long-term debt
Obligations under finance lease
Redeemable preferred shares
Income tax payable
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion
Obligations under finance lease - net of current portion
Accrued retirement benefits
Deferred tax liabilities
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
Equity
Attributable to the equity holders of the Parent Company:
Share capital
Additional paid-in capital
Unrealized gain on available-for-sale investments
Share in cumulative translation adjustments of associates
Excess of cost over net asset value of investments
Acquisitions of non-controlling interests
Retained earnings
Treasury shares
Noncontrolling interests
Total Equity
TOTAL LIABLITIES AND EQUITY
Dec-11
Audited
638,223
2,526,953
402,706
1,111,197
4,679,079
391,617
5,070,696
906,263
2,898,193
407,441
996,229
5,208,126
692,617
5,900,743
108,007
9,763
9,377
4,496,847
1,213,401
250,450
10,446
207,669
6,305,960
11,376,656
99,777
9,763
9,377
4,651,107
964,101
250,450
13,826
232,940
6,231,341
12,132,084
1,229,503
3,617,208
1,215,440
3,432,208
985,716
73,006
25,938
38,477
5,969,847
785,716
30,174
25,938
5,501
5,494,977
2,339,576
29,827
52,526
269
7,219
2,429,417
8,399,264
3,178,028
91,936
52,182
269
8,409
3,330,823
8,825,800
2,484,653
910,901
249
5,294
(10,906)
5,940
(391,715)
(58,715)
2,945,700
31,692
2,977,392
11,376,656
2,484,653
910,901
279
5,294
(10,906)
5,940
(49,698)
(58,715)
3,287,748
18,536
3,306,284
12,132,084
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Earnings (Loss) Per Share Amounts)
Nine Months Ended S eptember 30
2012
Unaudited
REVENUES
Freight
Passage
Service fees
Sale of goods
Others
COSTS AND EXPENSES
Operating
Terminal
Overhead
Cost of goods sold
OTHER INCOME (CHARGES)
Interest and financing charges
Interest Income
Gain (loss) on disposal of property and
equipment
Gain on disposal of investment
Vessel lay-up costs
Foreign exchange gain (loss)
Equity in net earnings (losses) of associates
Others - net
LOSS BEFORE INTEGRATION COSTS
Integration costs
LOSS BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM)
INCOME TAX
Current
Deferred
NET INCOME (LOSS)
NET INCOME (LOSS) ATTRIBUTABLE TO:
Equity holders of the parent
Minority interests
2011
Unaudited
Three Months Ended S eptember 30
2012
Unaudited
2011
Unaudited
4,761,590
1,973,006
1,039,298
1,524,606
961,957
10,260,458
3,982,060
1,783,155
891,810
2,379,129
445,797
9,481,951
1,564,255
543,550
322,835
486,939
379,418
3,296,997
1,339,133
478,563
319,592
785,667
159,839
3,082,793
7,300,891
853,910
834,011
1,348,429
10,337,241
5,866,037
1,114,900
829,555
1,998,841
9,809,333
2,207,481
346,632
281,921
517,043
3,353,078
1,966,778
472,307
260,050
681,087
3,380,222
(299,077)
45,853
(296,394)
43,020
(102,554)
10,403
(93,602)
22,456
(123,191)
(107,791)
(1,007)
8,230
18,623
(458,359)
(535,143)
(12,393)
(547,536)
11,834
17,513
(16,856)
3,136
(25,358)
52,575
(210,530)
(537,912)
(537,912)
1,693
(25,573)
(4,152)
4,456
(3,706)
(119,432)
(175,513)
(7,335)
(182,848)
(538)
(13)
(1,231)
597
(3,438)
7,618
(68,150)
(365,579)
(365,579)
44,732
(249,299)
(204,567)
(342,969)
42,006
(325,209)
(283,204)
(254,708)
5,494
(249,299)
(243,805)
60,957
14,420
(199,867)
(185,447)
(180,132)
(342,017)
(952)
(257,502)
2,794
65,941
(4,985)
(180,050)
(82)
(342,969)
(254,708)
60,957
(180,132)
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in Thousands)
Net loss for the period
Net change in unrelaized gains (losses) of available for sale investments
Total comprehensive loss for the period
Attributable to :
Equity Holders of the Parent Company
Non Controlling Interest
Sept-2012
Unaudited
(342,969)
(342,969)
Sept-2011
Unaudited
(254,708)
(15,683)
(270,391)
(342,017)
(952)
(342,969)
(273,185)
2,794
(270,391)
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in Thousands)
Excess of Cost
Acquisition of
Over Net
Additional Non Contolling Asset Value of
Share Capital Paid In Capital
Interest
Investment
Share in
Cummulative
Translation of
Adjustment of
Unrealized
Gain on AFS
Investment
Retained
Earnings
(Deficit)
Balances at December 31, 2010
Changes in Equity for 2011:
Issuance of capital stock
Changes in minority interest
Loss on available for sale investments
Total comprehensive income for the period
Balances at September 30, 2011
2,484,653
910,901
5,940
(11,700)
-
21,189
584,569
2,484,653
910,901
5,940
(11,700)
-
(15,683)
5,506
(257,502)
327,067
Balances at December 31, 2011
Changes in Equity for 2012:
Issuance of capital stock
Changes in minority interest
Loss on available for sale investments
Total comprehensive income for the period
Balances at September 30, 2012
2,484,653
910,901
5,940
(10,906)
279
5,294
(49,698)
5,294
(342,017)
(391,715)
(31)
2,484,653
910,901
5,940
(10,906)
249
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Nine Months Ended September 30
2012
Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before income tax
Adjustments for:
Depreciation and amortization
Provision for doubtful accounts
Decline in value of assets other than AR, investments and project cost
Interest expense
Interest income
Loss (gain) on disposal of property and equipment
Loss (gain) on available-for-sale investments
Equity in net losses (earnings) of associates
Unrealized foreign exchange loss (gain)
Dividend income
Integration costs
Vessel lay-up costs
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 in) operations
Interest received
Income tax paid
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment
Decrease (increase) in:
Other noncurrent assets
Investments in associates and subsidiaries
Proceeds from:
Disposals of property and equipment and tied-up vessels
Insurance Claims
Sale of AFS Investment
Purchase of available-for-sale investment
Dividend received
Net cash used in investing activities
(Forward)
2011
Unaudited
(547,536)
(537,912)
678,134
5,450
20,334
299,077
(45,853)
123,191
(8,230)
3,642
12,393
107,791
648,393
795,424
8,233
46,165
296,394
(43,020)
(11,834)
(17,513)
25,358
700
(81)
(16,856)
545,058
371,652
(71,761)
(114,968)
(187,903)
91,461
(86,603)
79,387
(846)
911,856
19,658
(44,732)
886,782
(960,804)
(11,548)
(610,339)
6,362
(42,006)
(645,983)
(518,796)
(506,335)
29,988
4,000
18,421
-
247,890
(236,917)
204,780
84,690
19,417
(3,125)
81
(182,071)
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Nine Months Ended September 30
2012
Unaudited
2011
Unaudited
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Notes/loans payable
Long term debt
Payments of:
Notes/loans payable
Long term debt and obligations under finance lease
Interest paid
(Increase) decrease in minority interest
Net cash provided by (used in) financing activities
858,913
-
1,370,000
4,000,000
(844,850)
(669,276)
(276,800)
14,107
(917,907)
(1,938,900)
(2,006,454)
(310,405)
(2,646)
1,111,595
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
(268,040)
906,263
283,541
764,183
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
638,223
1,047,724
1
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Number of Shares, Earnings per Common Share
Exchange Rate Data and When Otherwise Indicated)
1.
Corporate Information and Approval of Consolidated Financial Statements
Corporate Information
2GO Group, Inc. [formerly ATS Consolidated (ATSC), Inc., the Parent Company] was incorporated in the
Philippines on May 26, 1949. Its corporate life was renewed on May 12, 1995 and will expire on May 25,
2045. The Parent Company’s shares of stocks are listed in the Philippine Stock Exchange (PSE). The Parent
Company and its Subsidiaries (collectively referred to as “the Group”) are primarily engaged in the business
of operating vessels, motorboats and other kinds of watercrafts; aircrafts 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.
On December 1, 2010, the Board of Directors (BOD) of Aboitiz Equity Ventures, Inc. (AEV) and Aboitiz &
Company, Inc. (ACO) approved the sale of their shareholdings in the Parent Company to Negros Navigation
Co., Inc. (NENACO). On December 28, 2010, the sale was finalized at P
=1.8813 per share. AEV sold its
entire shareholdings in the Parent Company comprising of 1,889,489,607 common shares for =
P3.6 billion.
ACO, on the other hand, sold its entire shareholdings in the Parent Company comprising of 390,322,384
common shares for P
=734.0 million. This resulted to 93.2% NENACO ownership of the outstanding common
shares of the Parent Company, along with all the Parent Company’s non-controlling shares that may be
tendered to NENACO subsequent to December 31, 2010.
As a result of the sale, NENACO whose ultimate parent is Negros Holdings & Management Corporation
(NHMC) becomes the new immediate parent. NENACO and the ultimate parent are both incorporated and
domiciled in the Philippines.
On February 22, 2011, in relation to the tender offer issued by NENACO for the outstanding common
shares held by public shareholders of the Parent Company, NENACO acquired 120,330,004 common shares
representing 4.9% for a total purchase price of P
=226.4 million pertaining to the Parent Company’s
noncontrolling interest. As a result, NENACO’s ownership interest in the Parent Company increased to
98.10%.
Pursuant to the securities and purchase agreements, the Parent Company and its subsidiaries applied for the
change in corporate names, which was approved by the Philippine Securities and Exchange Commission
(SEC) on various dates in 2011. On December 29, 2011, the BOD approved the change in corporate
branding of the Group to 2GO Logistics Group or variants thereto, resulting to another revision in the
corporate names of the Parent Company and its subsidiaries upon approval by the Philippine SEC (see Note
37).
On August 24, 2011, the Philippine SEC also approved the amendment to the Parent Company’s secondary
purpose to include rendering technical services requirement to customers for refrigerated marine container
vans and related equipments or accessories. This amendment was previously adopted by the BOD on April
28, 2011 and the stockholders on June 22, 2011.
Approval of Consolidated Financial Statements
The consolidated financial statements of the Group as at December 31, 2011 and 2010 and for each of the
three years in the period ended December 31, 2011 were authorized for issue by the BOD on April 12, 2012.
2
2.
Summary of Significant Accounting and Financial Reporting Policies
Basis of Preparation
The consolidated financial statements are prepared on a historical cost basis, except for quoted available-forsale (AFS) investments which are measured at fair value and assets held for sale carried at fair value less
cost to sell. The consolidated financial statements are presented in Philippine peso, and all values are
rounded to the nearest thousand, except when otherwise indicated.
Statement of Compliance
The consolidated financial statements are prepared in compliance with Philippine Financial Reporting
Standards (PFRS).
Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent with those of the previous financial year except for the
following new and amended PFRSs and Philippine Interpretations which were adopted as of January 1,
2011.
Standards or interpretations that have been adopted and that are deemed to have an impact on the Group’s
consolidated financial statement disclosures are described below:
PAS 24, Related Party Transactions (Amendment), clarifies the definitions of a related party. The new
definitions emphasize a symmetrical view of related party relationships and clarify the circumstances in
which persons and key management personnel affect related party relationships of an entity. In addition,
the amendment introduces an exemption from the general related party disclosure requirements for
transactions with government and entities that are controlled, jointly controlled or significantly
influenced by the same government as the reporting entity.
PAS 32, Financial Instruments: Presentation (Amendment), alters the definition of a financial liability in
PAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments.
The amendment is applicable if the rights are given pro rata to all of the existing owners of the same
class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own
equity instruments for a fixed amount in any currency.
Improvements to PFRSs issued in 2010
Improvements to PFRSs, an omnibus of amendments to standards, deal 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 to accounting policies but did
not have any impact on the financial position or performance of the Group.
PFRS 3, Business Combinations [Measurement options available for non-controlling interest (NCI) were
amended]. The measurement options available for NCI were amended. Only components of NCI that
constitute a present ownership interest that entitles their holder to a proportionate share of the entity’s net
assets in the event of liquidation should be measured at either fair value or at the present ownership
instruments’ proportionate share of the acquiree’s identifiable net assets. All other components are to be
measured at their acquisition date fair value.
PFRS 7, Financial Instruments - Disclosures, intends to simplify the disclosures provided by reducing
the volume of disclosures around collateral held and improving disclosures by requiring qualitative
information to put the quantitative information in context.
PAS 1, Presentation of Financial Statements, clarifies that an entity may present an analysis of each
component of other comprehensive income either in the statement of changes in equity or in the notes to
the financial statements. The Group opted to present each component of other comprehensive income in
the consolidated statements of changes in equity.
Other amendments resulting from the 2010 Improvements to PFRSs to the following standards did not have
any impact on the accounting policies, financial position or performance of the Group:
3
PFRS 3, Business Combinations [Contingent consideration arising from business combination prior to
adoption of PFRS 3 (as revised in 2008)]
PFRS 3, Business Combinations (Un-replaced and voluntarily replaced share-based payment awards)
PAS 27, Consolidated and Separate Financial Statements
PAS 34, Interim Financial Statements
The following interpretations and amendment to interpretations did not have any impact on the accounting
policies, financial position or performance of the Group:
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (determining the fair value of award
credits)
Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement (Amendment)
Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments
New Accounting Standards, Amendments and Interpretations
Effective Subsequent to 2011
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
PFRSs and Philippine Interpretations to have significant impact on its financial statements. The relevant
disclosures will be included in the notes to the consolidated financial statements when these become
effective.
Effective 2012
PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements,
requires additional disclosure about financial assets that have been transferred
but not derecognized to enable the user of the Group’s financial statements to understand the relationship
with those assets that have not been derecognized and their associated liabilities. In addition, the
amendment requires disclosures about continuing involvement in derecognized assets to enable the user
to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those
derecognized assets. The amendment affects disclosures only and has no impact on the Group’s financial
position or performance.
Amendment to PAS 12, Income Taxes - Recovery of Underlying Assets, clarifies the determination of
deferred tax on investment property measured at fair value. The amendment introduces a rebuttable
presumption that deferred tax on investment property measured using the fair value model in PAS 40,
Investment Property, should be determined on the basis that its carrying amount will be recovered
through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that
are measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be
measured on a sale basis of the asset.
Effective 2013
Amendments to PAS 1, Financial Statement Presentation - Presentation of Items of Other
Comprehensive Income, change the grouping of items presented in Other Comprehensive Income (OCI).
Items that could be reclassified (or “recycled”) to profit or loss at a future point in time (for example,
upon derecognition or settlement) would be presented separately from items that will never be
reclassified. The amendment affects presentation only and has therefore no impact on the Group’s
financial position or performance.
Amendments to PAS 19, Employee Benefits, range from fundamental changes such as removing the
corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The Group is currently assessing the impact of these amendments.
PFRS 10, Consolidated Financial Statements, replaces the portion of PAS 27, Consolidated and
Separate Financial Statements that addresses the accounting for consolidated financial statements. It also
includes the issues raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a
single control model that applies to all entities including special purpose entities. The changes
introduced by PFRS 10 will require management to exercise significant judgment to determine which
4
entities are controlled, and therefore, are required to be consolidated by a parent, compared with the
requirements that were in PAS 27.
PAS 27, Separate Financial Statements (as revised in 2011), as a consequence of the new PFRS 10,
Consolidated Financial Statements, and PFRS 12, Disclosure of Interests in Other Entities, what remains
of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate
financial statements.
PFRS 11, Joint Arrangements, replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointlycontrolled Entities - Non-monetary Contributions by Venturers. PFRS 11 removes the option to account
for jointly-controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the
definition of a joint venture must be accounted for using the equity method. 2GO EXPRESS INC.
accounts for its joint venture under proportionate consolidation and is currently assessing the impact of
this standard.
PAS 28, Investments in Associates and Joint Ventures (as revised in 2011), as a consequence of the new
PFRS 11, Joint Arrangements, and PFRS 12, PAS 28 has been renamed PAS 28, Investments in
Associates and Joint Ventures, and describes the application of the equity method to investments in joint
ventures in addition to associates.
PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities,
amendments require an entity to disclose information about rights of set-off and related arrangements
(such as collateral agreements). The new disclosures are required for all recognized financial
instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized
financial instruments that are subject to an enforceable master netting arrangement or ‘similar
agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments
require entities to disclose, in a tabular format unless another format is more appropriate, the following
minimum quantitative information. This is presented separately for financial assets and financial
liabilities recognized at the end of the reporting period:
a. The gross amounts of those recognized financial assets and recognized financial liabilities;
b. The amounts that are set off in accordance with the criteria in PAS 32 when determining the net
amounts presented in the balance sheet;
c. The net amounts presented in the balance sheet;
d. The amounts subject to an enforceable master netting arrangement or similar agreement that are not
otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of the
offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and
e. The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments to PFRS 7 are to be retrospectively applied for annual periods beginning on or after
January 1, 2013. The amendment affects disclosures only and has no impact on the Group’s financial
position or performance.
PFRS 12, Disclosure of Interests in Other Entities, includes all of the disclosures that were previously in
PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously
included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint
arrangements, associates and structured entities. A number of new disclosures are also required.
PFRS 13, Fair Value Measurement, establishes a single source of guidance under PFRS for all fair value
measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides
guidance on how to measure fair value under PFRS when fair value is required or permitted. The Group
is currently assessing the impact that this standard will have on the Group’s financial position and
performance.
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, applies
to waste removal costs that are incurred in surface mining activity during the production phase of the
5
mine (“production stripping costs”) and provides guidance on the recognition of production stripping
costs as an asset and measurement of the stripping activity asset.
Effective 2014
PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities,
clarifies the meaning of “currently has a legally enforceable right to set-off” and also clarify the
application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house
systems) which apply gross settlement mechanisms that are not simultaneous. While the amendment is
expected not to have any impact on the net assets of the Group, any changes in offsetting is expected to
impact leverage ratios and regulatory capital requirements. The Group is currently assessing impact of
the amendments to PAS 32.
Effective 2015
PFRS 9, Financial Instruments: Classification and Measurement, reflects the first phase on the
replacement of PAS 39 and applies to classification and measurement of financial assets and financial
liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after
January 1, 2015. In subsequent phases, hedge accounting and impairment of financial assets will be
addressed with the completion of this project expected on the first half of 2012. The adoption of the first
phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial
assets, but will potentially have no impact on classification and measurements of financial liabilities. The
Group will quantify the effect in conjunction with the other phases, when issued, to present a
comprehensive picture.
The Group’s receivables, due to and from related parties, other receivables, accounts payable and
accrued expenses, dividends payable, loans payable and long-term debt may be affected by the adoption
of this standard.
Effectivity date to be determined
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, covers accounting
for revenue and associated expenses by entities that undertake the construction of real estate directly or
through subcontractors. The interpretation requires that revenue on construction of real estate be
recognized only upon completion, except when such contract qualifies as construction contract to be
accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case
revenue is recognized based on stage of completion. Contracts involving provision of services with the
construction materials and where the risks and reward of ownership are transferred to the buyer on a
continuous basis will also be accounted for based on stage of completion. The Philippine SEC and the
Financial Reporting Standards Council have deferred the effectivity of this interpretation until the final
revenue standard is issued by International Accounting Standards Board and an evaluation of the
requirements of the final revenue standard against the practices of the Philippine real estate industry is
completed.
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Parent Company and the
following wholly-owned and majority-owned subsidiaries as at September 30, 2012 and December 31, 2011
and 2010.
6
Percentage of Ownership
Direct Indirect
2011
Direct Indirect
2010
Direct Indirect
100.0
–
100.0
–
100.0
–
–
–
100.0
100.0
–
–
100.0
100.0
–
–
100.0
100.0
–
–
85.0
–
–
–
85.0
–
–
–
85.0
–
–
100.0
– 100.00
–
–
100.0
–
100.0
–
100.0
–
100.0
–
–
–
–
–
100.0
–
100.0
–
–
–
20.0
20.0
80.0
80.0
20.0
20.0
80.0
80.0
–
–
–
–
–
59.0
–
59.0
–
–
–
50.0
–
50.0
–
–
–
–
51.1
100.0
–
–
51.1
100.0
–
–
–
–
100.0
–
100.0
–
100.0
–
2012
Subsidiaries
Nature of
Business
2GO Express, Inc. (formerly ATS Transportation/
Express, Inc.)1 and Subsidiaries: Logistics
2GO Logistics, Inc, (formerly
ATS Distribution, Inc.)1
Distribution
Scanasia Overseas, Inc. (SOI) Distribution
Hapag-Lloyd Philippines,
Transportation/
Inc.(HLP)
Logistics
Reefer Van Specialist, Inc.
Transportation
(RVSI)2
WRR Trucking Corporation
Transportation
(WTC)3
Supercat Fast Ferry Corp. (SFFC) Transporting
passenger
Special Container and Value Added Transportation/
Services, Inc.4
Logistics
NN-NN-ATS Logistics Management &
Holdings
Holding
Co., Inc.(NALMHCI)5
Company
J&A Services Corporation
Vessel support
(JASC)6
services
Red Dot Corporation (RDC)6 Manpower
services
North Harbor Tugs Corporation Tug assistance
(NHTC)6
Super Terminal Inc. (STI)6 and 7 Passenger
terminal operator
Sungold Forwarding
Transportation/
Corporation (SFC)6
logistics
Supersail Services Inc. (SSI)6 Manpower
provider
W G & A Supercommerce, Inc.
Vessels’ hotel
(WSI)8
management
1
2
3
4
5
6
7
8
In various dates in 2011, the Philippine SEC approved the
amendments in 2GO Express, Inc.’s and 2GO Logistics, Inc.’s
Articles of Incorporation
Merged with the Parent Company effective September 1, 2010
Acquired in August 2011by 2GO Express from NENACO
Incorporated in May 2012
Incorporated in November 2011
Acquired by NALMHCI on December 1, 2011 from NENACO
NALMHCI has control over STI since it has the power to cast the
majority of votes at the BOD’s meeting and the power to
govern the financial and reporting policies of STI.
Ceased operations in February 2006
Except for JMBVI, all the subsidiaries were incorporated in the Philippines.
The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company
using consistent accounting policies.
Subsidiaries are all entities over which the Group has the power to govern the financial and operating
policies so as to obtain benefits from its activities and generally accompanying a shareholding of more than
one half of the voting rights. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Group controls another entity.
7
Subsidiaries are consolidated from the date of acquisition, being the date on which control is transferred to
the Group and continue to be consolidated until the date that such control ceases.
Non-controlling interest represents a portion of the profit or loss and net assets of subsidiaries not held by
the Group, directly or indirectly, and are presented separately in profit or loss and within the equity section
of the consolidated balance sheet and consolidated statement of changes in equity, separately from parent’s
equity. However, the Group must recognize in the consolidated balance sheet a financial liability (rather
than equity) when it has an obligation to pay cash in the future (e.g., acquisition of non-controlling interest
is required in the contract or regulation) to purchase the non-controlling’s shares, even if the payment of that
cash is conditional on the option being exercised by the holder. The Group will reclassify the liability to
equity if a put option expires unexercised.
Non-controlling interest shares in losses, even if the losses exceed the non-controlling equity interest in the
subsidiary. Changes in the controlling ownership interest, i.e., acquisition of non-controlling interest or
partial disposal of interest over a subsidiary that do not result in a loss of control, are accounted for as equity
transactions.
Consolidated financial statements are prepared using uniform accounting policies for like transactions and
other events in similar circumstances. All intra-group balances, transactions, income and expenses and
profits and losses resulting from intra-group transactions that are recognized in assets, liabilities and
equities, are eliminated in full.
If the Group loses control over a subsidiary, it:
Derecognizes the assets (including goodwill) and liabilities of the subsidiary
Derecognizes the carrying amount of any non-controlling interest
Derecognizes the related other comprehensive income like cumulative translation differences, recorded
in equity
Recognizes the fair value of the consideration received
Recognizes the fair value of any investment retained
Recognizes any surplus or deficit in profit or loss
Reclassifies the parent’s share of components previously recognized in other comprehensive income to
profit or loss or retained earnings, as appropriate.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the
amount of any non-controlling interest in the acquiree. For each business combination, the acquirer
measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the
acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative
expenses.
When the Group acquires a business, it assesses the financial assets and financial liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic circumstances
and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in
host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously
held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be
an asset or liability, will be recognized in accordance with PAS 39 either in profit or loss or as a change to
other comprehensive income. If the contingent consideration is classified as equity, it should not be
remeasured until it is finally settled within equity.
Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the
business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets,
8
liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses.
Where goodwill forms part of a cash-generating unit or a group of cash-generating units and part of the
operation within that unit is disposed of, the goodwill associated with the operation disposed of is included
in the carrying amount of the operation when determining the gain or loss on disposal of the operation.
Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed
of and the portion of the cash-generating unit retained.
When subsidiaries are sold, the difference between the selling price and the net assets plus any other
comprehensive income, and fair value of retained interest is recognized in profit or loss.
Where there are business combinations in which all the combining entities within the Group are ultimately
controlled by the same ultimate parties before and after the business combination and that the control is not
transitory (“business combinations under common control”), the Group accounts such business
combinations under the purchase method of accounting, if the transaction was deemed to have substance
from the perspective of the reporting entity. In determining whether the business combination has
substance, factors such as the underlying purpose of the business combination and the involvement of
parties other than the combining entities such as the non-controlling interest, shall be considered.
In cases where the business combination has no substance, the Group accounts for the transaction similar to
a pooling of interests. The assets and liabilities of the acquired entities and that of the Parent Company are
reflected at their carrying values. Comparatives shall be restated to include balances and transactions as if
the entities had been acquired at the beginning of the earliest period presented as if the companies had
always been combined.
Investments in Associates
The following are the associates of the Group as at September 30, 2012 and December 31, 2011:
MCCP Philippines (MCCP)
Hansa-Meyer ATS Projects, Inc. (HATS)
(formerly Aboitiz Project
T.S. Corporation)
Nature of Business
Container transportation
Project logistics and
consultancy
Percentage of Ownership
Direct
Indirect
33
–
–
50
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 profit or loss 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 recognized in profit or loss. This is the profit attributable to equity
holders of the associate and therefore is profit after tax and non-controlling 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.
9
After the application of the equity method, the Group determines whether it is necessary to recognize an
additional impairment loss on the Group’s investments in associates. The Group determines at the end of
each reporting period 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 profit or loss.
Interest in a Joint Venture
The Group has an interest in a joint venture which is a jointly controlled entity, whereby the joint venture
partners 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 jointly controlled 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 jointly controlled entity upon loss of joint control and the fair
value of the remaining investment and proceeds from disposal is recognized in profit or loss. When the
remaining investment constitutes significant influence, it is accounted for as investment in an associate.
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.
Financial Instruments
Initial recognition
Financial assets and financial liabilities are recognized in the consolidated balance sheet when the Group
becomes a party to the contractual provisions of the instrument. 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.
Financial instruments are recognized initially at fair value plus transaction costs except for those designated
at fair value through profit and loss (FVPL).
Classification of financial instruments
The Group further classifies its financial assets in the following categories: held-to-maturity (HTM)
investments, AFS investments, financial assets at FVPL, and loans and receivables. Financial liabilities are
classified as financial liabilities at FVPL and other financial liabilities. The classification depends on the
purpose for which the investments are acquired and whether they are quoted in an active market.
Management determines the classification of its financial assets and liabilities at initial recognition and, where
allowed and appropriate, re-evaluates such designation at every reporting date.
Determination of fair value
The fair value for financial instruments traded in active markets at the end of reporting period 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
10
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.
If the financial instruments are not listed in an active market, the fair value is determined using appropriate
valuation techniques which include recent arm’s length market transactions, net present value techniques,
comparison to similar instruments for which market observable prices exist, options pricing models, and
other relevant valuation models.
Fair value measurement hierarchy
The Group categorizes its financial asset and financial liability based on the lowest level input that is
significant to the fair value measurement.
The fair value hierarchy has the following levels:
(a) Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities accessible by the
Group; (b) Level 2 - inputs that are observable in the marketplace other than those classified as Level 1; and
(c) Level 3 - inputs that are unobservable in the marketplace and significant to the valuation.
Subsequent measurement
The subsequent measurement of financial assets and financial liabilities depends on their classification
as follows:
a.
Financial assets and financial liabilities at FVPL
Financial assets or financial liabilities classified in this category are financial assets or financial
liabilities that are held for trading or financial assets and financial liabilities that are designated by
management as at FVPL on initial recognition when any of the following criteria are met:
 the designation eliminates or significantly reduces the inconsistent treatment that would otherwise
arise from measuring the assets or liabilities or recognizing gains or losses on them on a different
basis; or
 the assets and liabilities are part of a group of financial assets and financial liabilities, respectively,
or both financial assets and financial liabilities, which are managed and their performance is
evaluated on a fair value basis, in accordance with a documented risk management or investment
strategy; or
 the financial instrument contains an embedded derivative, unless the embedded derivative does not
significantly modify the cash flows or it is clear, with little or no analysis, that it would not be
separately recorded.
Financial assets are classified as held for trading if these are acquired for the purpose of selling in the
near term. Derivatives are also classified as held for trading unless they are designated as effective
hedging instruments.
Financial assets and financial liabilities at FVPL are recorded in the consolidated balance sheet at fair
value. Changes in fair value are recorded in profit or loss. Interest earned is recorded as interest
income, while dividend income is recorded in other income according to the terms of the contract, or
when the right of the payment has been established. Interest incurred is recorded as interest expense.
As at September 30, 2012 and December 31, 2011 and 2010, the Group has not designated any financial
asset or financial liability as at FVPL.
11
Embedded derivatives
An embedded derivative is separated from the host financial or nonfinancial contract and accounted for
as derivative if all the following conditions are met:
 the economic characteristics and risks of the embedded derivative are not closely related to the
economic characteristic of the host contract;
 a separate instrument with the same terms as the embedded derivative would meet the definition of
a derivative; and
 the hybrid or combined instrument is not recognized at FVPL.
The Group assesses whether embedded derivatives are required to be separated from host contract when
the Group first becomes a party to the contract. Reassessment only occurs if there is change in the
terms of the contract that significantly modifies the cash flows that would otherwise be required.
Embedded derivatives that are bifurcated from the host contracts are accounted for as financial asset at
FVPL. Changes in the fair values are included in profit or loss.
As at December 31, 2011, the Group has embedded derivatives on its long-term debt, the value of
which is insignificant. As at December 31, 2010, the Group has no embedded derivative.
b.
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 rate 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 profit or loss 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 end of reporting period.
As at September 30, 2012 and December 31, 2011 and 2010, financial assets included under this
classification are the Group’s cash in banks, cash equivalents, trade and other receivables, and
refundable deposits (presented as part of “Other noncurrent assets” in the consolidated balance sheet).
c.
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 rate
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 profit or loss when the investments
are derecognized or impaired, as well as through the amortization process.
As at September 30, 2012 and December 31, 2011 and 2010, the Group has no HTM investments.
d.
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 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 gain on AFS investments” until the AFS investments is derecognized,
at which time the cumulative gain or loss recorded in equity is recognized in profit or loss. Assets under
12
this category are classified as current assets if expected to be realized within 12 months from the end of
reporting period and as noncurrent assets if maturity date is more than a year from the end of reporting
period.
As at September 30, 2012 and December 31, 2011 and 2010, financial assets included as part of the
Group’s AFS investments are investment in quoted and unquoted shares of stock and club shares.
e.
Other financial liabilities
This classification pertains to financial liabilities that are not designated as at FVPL upon the inception of
the liability. Included in this category are liabilities arising from operations or borrowings.
The financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost,
taking into account the impact of applying the effective interest rate method of amortization (or accretion)
for any related premium (discount) and any directly attributable transaction costs.
As at September 30, 2012 and December 31, 2011 and 2010, financial liabilities included under this
classification are the Group’s loans payable, trade and other payables, long-term debt, obligations under
finance lease, redeemable preferred shares, and other noncurrent liabilities.
Classification of Financial Instruments between Debt and Equity
Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual
arrangement. Interest relating to a financial instrument or a component that is a financial liability is reported as
expenses.
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.
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 profit or loss. On issuance of the RPS, the fair value of the liability
component is determined using a market rate for an 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.
Day 1 Difference
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 profit or loss unless it qualifies for recognition as some other type
of asset. In cases where use is made of data which is not observable, the difference between the transaction
price and model value is only recognized in profit or loss when the inputs become observable or when the
instrument is derecognized. For each transaction, the Group determines the appropriate method of
recognizing the ‘Day 1’ profit or loss amount.
13
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.
Derecognition of Financial Assets and Liabilities
Financial asset
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 “pass-through” 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.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough agreement, 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. 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.
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.
Financial liability
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has
expired.
When an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the recognition of a new liability, and the difference in
the respective carrying amounts is recognized in profit or loss.
Impairment of Financial Assets
The Group assesses at the end of each reporting period whether a financial asset or group of financial assets
is impaired.
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 of the loss is recognized in profit or loss.
Interest income continues to be accrued on the reduced carrying amount based on the original effective
14
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 profit or loss, to the extent that the carrying value of the asset does not exceed its amortized
cost at the reversal date.
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 assesses at the end of each reporting period whether there is objective
evidence that an investment or group of investment is impaired.
In the case of equity investments classified as AFS investments, 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 profit or loss)
is removed from equity and recognized in profit or loss. Impairment losses on equity investments are not
reversed through profit or loss. Increases in fair value after impairment are recognized in other
comprehensive income.
In the case of debt instruments classified as AFS investments, 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 profit or loss. 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 profit or loss, the impairment loss is reversed
through profit or loss.
Inventories
Inventories are valued at the lower of cost or net realizable value (NRV). Cost comprises all cost of
purchase and other costs incurred in bringing the inventories to their present location or condition. Cost is
determined using the moving average method for materials, parts and supplies, flight equipment expendable
parts and supplies, the weighted average method for trading goods, and the first-in, first-out method for
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.
Asset Held for Sale and Discontinued Operation
Assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair
value less costs 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 12 months from the date of
classification.
Property and equipment 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
15
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 profit or loss 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 profit or loss used to present a gain or loss recognized, if any.
In the consolidated statement of income of the reporting period, and of the comparable period of the
previous year, income and expenses from discontinued operations are reported separately from normal
income and expenses down to the level of profit after taxes, even when the Group retains a non-controlling
interest in the asset after the sale. The resulting profit or loss (after taxes) is reported separately in profit or
loss.
Property and Equipment
Property and equipment, other than land, are carried at cost, less accumulated depreciation, amortization and
impairment losses, if any. The initial cost of property and equipment consists of its purchase price and costs
directly attributable to bringing the asset to its working condition for its intended use. 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. Land is carried at cost less
accumulated impairment losses.
Subsequent expenditures relating to an item of property and equipment that have already been recognized
are added to the carrying amount of the asset when the expenditure have resulted in an increase in future
economic benefits, in excess of the originally assessed standard of performance of the existing asset, will
flow to the Group. Expenditures for repairs and maintenance are charged to the operations during the year
in which they are incurred.
Drydocking costs, consisting mainly of engine overhaul, replacement of steel plate of the vessels’ hull and
related expenditures, are capitalized as a separate component of “Vessels in operations”. When significant
drydocking costs are incurred prior to the end of the amortization period, the remaining unamortized balance
of the previous drydocking cost is charged against profit or loss.
Vessels under refurbishment, if any, include the acquisition cost of the vessels, 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 vessels and construction of property and equipment are capitalized
during the refurbishment and construction period. Vessels under refurbishment and construction in progress
are not depreciated until such time the relevant assets are complete and available for use. Refurbishments of
existing vessels are capitalized as part of vessel improvements and depreciated at the time the vessels are put
back into operation.
Vessel on lay-over, if any, represents vessel for which drydocking has not been done pending availability of
the necessary spare parts. Such vessels, included under the “Property and equipment account in the
consolidated balance sheet is stated at cost less accumulated depreciation and any impairment in value.
Depreciation and amortization are computed using the straight-line method over the following estimated
useful lives of the property and equipment as follows:
Number of Years
Vessels in operation, excluding drydocking costs and
vessel equipment and improvements
Drydocking costs
Vessel equipment and improvements
Containers and reefer vans
Terminal and handling equipment
Furniture and other equipment
Land improvements
Buildings and warehouses
15-30
2-2 ½
3-5
5-10
5-7
3-5
5-10
5-20
16
Transportation equipment
5-10
Leasehold improvements are amortized over their estimated useful lives of 5-20 years or the term of the
lease, whichever is shorter. Flight equipment is depreciated based on the estimated number of flying hours.
Depreciation commences when an asset is in its location or condition capable of being operated in the
manner intended by management. Depreciation ceases at the earlier of the date that the item is classified as
held for sale in accordance with PFRS 5 and the date the asset is derecognized.
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 item) is included in profit or
loss in the year the item is derecognized.
The asset’s residual values, useful lives and depreciation methods are reviewed at each reporting period, 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 profit or loss.
Investment Property
Investment property, consisting of a parcel of land of 2GO EXPRESS INC., is measured at cost less any
impairment in value.
Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic
benefits associated with the asset will flow to the Group and the cost of the item can be measured reliably.
Derecognition of an investment property will be triggered by a change in use or by sale or disposal. Gain or
loss arising on disposal is calculated as the difference between any disposal proceeds and the carrying
amount of the related asset, and is recognized in the parent company statement of income. Transfers are
made to investment property when, and only when, there is change in use, evidenced by cessation of owneroccupation, commencement of an operating lease to another party or completion of construction or
development, transfers are made from investment property when, and only when, there is a change in used,
evidenced by commencement of owner-occupation or commencement of development with a view to sale.
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, excluding capitalized development costs, are not
capitalized and expenditure is reflected in profit or loss in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite.
17
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 reporting period. 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 profit or loss 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 profit or loss when the
asset is derecognized.
Impairment of Nonfinancial Assets
The Group assesses at the end of each reporting period 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 profit or loss in those expense categories
consistent with the function of the impaired asset.
For nonfinancial assets excluding goodwill, an assessment is made at the end of each reporting period 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
or amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is
recognized in profit or loss unless the asset is carried at revalued amount, in which case the reversal is
treated as a revaluation increase. After such a reversal, the depreciation expense or amortization 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.
The Group’s nonfinancial assets consist of creditable withholding taxes, input VAT, prepaid expense, other
current assets, assets held for sale, property and equipment, investment property, investments in associates,
software development cost, deferred input VAT and pension asset.
18
Goodwill
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be
impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of
CGU) to which the goodwill relates. Where the recoverable amount of CGU (or group of CGUs) is less
than their carrying amount, an impairment loss is recognized immediately in profit or loss of the CGU (or
the group of CGUs) to which goodwill has been allocated. Impairment losses relating to goodwill cannot be
reversed in future periods.
Provisions and Contingencies
Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of a
past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation.
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless
the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not
recognized in the consolidated financial statements but disclosed in the notes to consolidated financial
statements when an inflow of economic benefits is probable.
Equity
Share capital is measured at par value for all shares issued. When the Company issues more than one class
of stock, a separate account is maintained for each class of stock and the number of shares issued.
Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a
deduction from proceeds, net of tax.
Additional paid-in capital (APIC) is the difference between the proceeds and the par value when the shares
are sold at a premium. Contributions received from shareholders are recorded at the fair value of the items
received with the credit going to share capital and any excess to APIC.
Retained earnings (deficit) represent the cumulative balance of net income or loss, net of any dividend
declaration and other capital adjustments.
Treasury shares are owned equity instruments that are reacquired. Treasury shares are recognized at cost
and deducted from equity. No gain or loss is recognized in profit or loss on the purchase,
sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying
amount and the consideration, if reissued, is recognized as APIC. Voting rights related to treasury shares are
nullified for the Group and no dividends are allocated to them.
Other comprehensive income comprises items of income and expenses that are not recognized in profit or
loss for the year in accordance with PFRS.
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 consideration received,
excluding discounts, rebates, value-added 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 specific recognition criteria for each type of revenue are as follows:
Freight and passage revenue 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.
Service fees are recognized when the related services have been rendered. Service revenue are also
recognized when cargos are received by either shippers or consignee for export and import transactions.
These amounts are presented, net of certain costs which are reimbursed by customers.
19
Revenue from 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.
Revenue from sale of food and beverage is recognized upon delivery and acceptance by customers.
Charter revenues from short-term chartering arrangements are recognized in accordance with the terms of
the charter agreements.
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 fee is recognized when the related services are rendered.
Commissions are recognized as revenue in accordance with the terms of the agreement with the principal
and when the related services have been rendered.
Rental income arising from operating leases is recognized on a straight-line basis over the lease term.
Interest income. For all financial instruments measured at amortized cost and interest bearing financial
assets classified as AFS, interest income 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 is recognized when the shareholders’ right to receive the payment is established.
Costs and Expenses
Costs and expenses are recognized in profit or loss when decrease in future economic benefits related to a
decrease in an asset or an increase of a liability has arisen that can be measured reliably.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the
arrangement at inception date of 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 any of the following applies:
a.
b.
c.
d.
there is a change in contractual terms, other than a renewal or extension of the arrangement;
a renewal option is exercised and extension granted, unless the term of the renewal or extension was
initially included in the lease term;
there is a change in the determination of whether fulfillment is dependent on a specified asset; or
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).
The 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 recognized directly in profit or loss.
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.
20
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 profit or loss on a straight-line
basis over the lease term.
The 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.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use or sale,
are added to the cost of those assets, until such time as the assets are substantially ready for their intended use
or sale. All other borrowing costs are expensed as incurred.
Pension Benefits
The Group has 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
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.
Taxes
Current tax
Current tax assets and liabilities for the current periods are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those
that are enacted at the end of each reporting period, in the countries where the Group operates and generates
taxable income.
Current tax relating to items recognized directly in equity is recognized in equity and not in profit or loss.
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 tax
Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the
financial reporting date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
21
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are
recognized for all deductible temporary differences relating to carryforward benefits of the minimum
corporate income tax (MCIT) and the net operating loss carry over (NOLCO) to the extent that it is probable
that sufficient future taxable income will be available against which the deductible temporary differences,
carryforward benefits of the excess of the MCIT and NOLCO can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that
it is no longer probable that sufficient future taxable income will be available to allow all or part of the
deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each
reporting period and are recognized to the extent that it has become probable that sufficient future taxable
profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when
the asset is realized or the liability is settled, based on tax rate and tax laws that have been enacted or
substantively enacted at the end of the reporting period.
Deferred tax relating to items recognized in other comprehensive income or directly in equity is recognized
in the consolidated statement of comprehensive income and consolidated statement of changes in equity and
not in profit or loss.
Deferred tax assets and liabilities are offset, if there is a legally enforceable right to offset current income
tax assets against current income tax liabilities and they relate to income taxes levied by the same taxing
authority and the Group intends to settle its current income tax assets and liabilities on a net basis.
Value-added tax (VAT)
Revenue, expenses, assets and liabilities are recognized net of the amount of VAT, except where the VAT
incurred as a purchase of assets or service is not recoverable from the taxation authority, in which are the
VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable.
The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of
receivables or payables in the consolidated balance sheet.
Creditable withholding taxes
Creditable withholding taxes (CWT), included in “Other current assets” account in the consolidated balance
sheet, are amounts withheld from income subject to expanded withholding taxes (EWT). CWTs can be
utilized as payment for income taxes provided that these are properly supported by certificates of creditable
tax withheld at source subject to the rule on Philippine income taxation. CWTs which are expected to be
utilized as payment for income taxes within 12 months are classified as current asset.
Foreign Currency-denominated Transactions and Translations
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 functional currency rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the
functional currency rate of exchange ruling at the end of the reporting period. All differences are taken to
the profit or loss except for the exchange differences arising from translation of the balance sheets of
subsidiaries and associates which are considered foreign entities into the presentation currency of the Parent
Company (Peso) at the closing exchange rate at the end of the reporting period and their statements of
income translated using the weighted average exchange rate for the year. These are recognized in other
comprehensive income until the disposal of the net investment, at which time they are recognized in profit
or loss. 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 and are not retranslated. Non-monetary items
22
measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair
value was determined.
Related Party Relationships and Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making financial and operating decisions.
Parties are also considered to be related if they are subject to common control or
common significant influence. Related parties may be individuals or corporate entities. The key
management personnel of the Group and post-employment benefit plans for the benefit of the Group’s
employees are also considered to be related parties. In considering each related party relationships, attention
is directed to the substance of the transaction and not merely its legal form.
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 share equivalents. The Group has no potential dilutive common shares.
Dividends on Common Shares
Dividends on common shares are recognized as a liability and deducted from retained earnings when
approved by the respective shareholders of the Company and subsidiaries. Dividends for the year that are
approved after the balance sheet date are dealt with as an event after the balance sheet date.
Segment Reporting
The Company’s operating businesses are organized and managed separately according to the nature of the
products and services provided, with each segment representing a strategic business unit that offers different
products and serves different markets. Financial information on business segments is presented in Note 5.
Events After the Reporting Period
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.
3.
Significant Judgments, Accounting Estimates and Assumptions
The preparation of the consolidated financial statements in compliance with PFRS requires management to
make judgments, accounting estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. The judgments, estimates and assumptions are based on
management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial
statements. Actual results could differ from these estimates and assumptions used.
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:
Determination of functional currency
Based on the economic substance of the underlying circumstances relevant to the Group, the functional
currency is determined to be the Philippine Peso. It is the currency that mainly influences the sale of services
and the cost of rendering the services.
Determination if control exists in an investee company
Control is presumed to exist when the parent company owns, directly or indirectly through subsidiaries,
23
more than half of the voting power of an entity unless, in exceptional circumstances, it can be clearly
demonstrated that such ownership does not constitute control. Management has determined that despite
only having 50% ownership in STI, it has control by virtue of its power to cast the majority votes at
meetings of the BOD and control of the entity is by that BOD.
Classification of financial instruments
The Group classifies a financial instrument, or its component parts, on initial recognition as a financial asset,
a financial liability or an equity instrument in accordance with the substance of the contractual agreement
and the definitions of a financial asset, a financial liability or an equity instrument. The substance of a
financial instrument, rather than its legal form, governs its classification in the consolidated balance sheet.
The Group’s classification of financial instruments is presented in Note 35.
Classification of leases - the Group as lessee
The Group has entered into commercial property leases on its distribution warehouses, sales outlets,
trucking facilities and administrative office locations. Based on an evaluation of the terms and conditions
of the arrangements, management assessed that there is no transfer of ownership of the properties by the end
of the lease term and the lease term is not a major part of the economic life of the properties. Thus, the
Group does not acquire all the significant risks and rewards of ownership of these properties and so account
for it as an operating lease
The Group has also entered into a finance lease agreement covering certain property and equipment. The
Group has determined that it bears substantially all the risks and benefits incidental to ownership of said
properties based on the terms of the contracts (such as existence of bargain purchase option, present value of
minimum lease payments amount to at least substantially all of the fair value of the leased asset).
Classification of leases - the Group as lessor
The Group has entered into short-term leases or chartering arrangements, which provide no transfer of
ownership to the lessee. 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.
Classification of assets held for sale
In 2011, management assessed that some of the existing vessels met the criteria as assets held for the
following reasons: (1) the related assets are available for immediate sale; (2) preliminary negotiations with
willing buyers were executed; and (3) the sale is expected to be completed within 12 months from the end of
reporting period.
The Group classified as assets held for sale five of its existing vessels as at December 31, 2011 with total
carrying values of P
=692.6 million, net of impairment losses (see Note 10). During the first half of 2012, the
parent company sold two (2) cargo vessels with total carrying values of P
=301 million.
Classification of redeemable preferred shares (RPS)
The Group has RPS which is redeemable at any time, in whole or in part, within a period not exceeding 10
years from the date of issuance. If not redeemed, the RPS may be converted to a bond over prevailing
treasury bill rate to be issued by the Parent Company. As at September 30, 2012 and December 31, 2011,
the Group classified this RPS amounting to P
=25.9 million as liability.
Evaluation of legal contingencies
The Group is a party to certain lawsuits or claims arising from the ordinary course of business. The Group’s
management and legal counsel believe that the eventual liabilities under these lawsuits or claims, if any, will
not have material effect on the consolidated financial statements. Accordingly, no provision for probable
losses arising from legal contingencies was recognized in 2012 and 2011 (see Note 31).
Evaluation of events after the reporting period
Management exercises judgment in determining whether an event, favorable or unfavorable occurring
between the end of the reporting period and the date when the financial statements are authorized for issue,
is an adjusting event or non-adjusting event. Adjusting events provide evidence of conditions that existed at
the end of the reporting period whereas non-adjusting events are events that are indicative of conditions that
24
arose after the reporting period. Non-adjusting events that would require additional disclosure in the
consolidated financial statements are disclosed in Note 37.
Estimates and Assumptions
The following are the key assumptions concerning the future and other key sources of estimation
uncertainty, at the end of reporting period that have a significant risk of causing a material adjustment to the
carrying amount of assets and liabilities within the next financial year.
Determination of 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 36.
Estimation of allowance for doubtful receivables
The Group maintains an allowance 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 other 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 in two
levels: 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, non-moving 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 September 30, 2012 and December 31, 2011, trade and other receivables amounted to P
=2,526.9
million and =
P2,898.2 million, respectively, net of allowance for doubtful receivables of P
=318.4 million and
=309.1 million, respectively (see Note 7).
P
Determination of net realizable value of inventories
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 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 September 30, 2012 and December 31, 2011, the carrying values of inventories amounted to
=402.7 million and P
P
=407.4 million, net of allowance for inventory obsolescence of P
=0 and =
P70.7 million,
respectively (see Note 8).
25
Estimation of useful lives of property and equipment
The useful life of each of the Group’s item of property and equipment is estimated based on the period over
which the asset is expected to be available for use until it is derecognized. Such estimation is based on a
collective assessment of similar businesses, internal technical evaluation and experience with similar assets.
The estimated useful life of each asset is reviewed periodically and updated if expectations differ from
previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits
on the use of the asset. It is possible, however, that future results of operations could be materially affected by
changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned
above. A reduction in the estimated useful life of any item of property and equipment would increase the
recorded depreciation expenses and decrease the carrying value of property and equipment.
As at September 30, 2012 and December 31, 2011 property and equipment amounted to =
P4,496.8 million
and P
=4,651.1 million, net of accumulated depreciation and amortization of P
=6,094.8 million andP
=5,527.9
million (net of impairment loss), respectively (see Note 14).
Estimation of residual value of property and equipment
The residual value of the Group’s property and equipment 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.
There is no change in the estimated residual value of property and equipment in 2012 and 2011.
Estimation of 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 September 30, 2012 and December 31, 2011, the carrying value of software development costs
amounted to P
=10.4 million and P
=13.8 million, respectively (see Note 16).
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 12 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.
At September 30, 2012 and December 31, 2011, the carrying value of AFS investments amounted to =
P9.4
million (see Note 11). No impairment loss was recognized in 2012, 2011 and 2010.
Assessment of impairment of nonfinancial assets and estimation of recoverable amount
The Group assesses at the end of each reporting period whether there is any indication that the nonfinancial
assets listed below may be impaired. If such indication exists, the entity shall estimate the recoverable
amount of the asset, which is the higher of an asset’s fair value less costs
to sell and its value-in-use. In determining fair value less costs to sell, an appropriate valuation model is
used, which can be based on quoted prices or other available fair value indicators. In estimating the valuein-use, the Group is required to make an estimate of the expected future cash flows from the cash generating
unit and also to choose an appropriate discount rate in order to calculate the present value of those cash
flows.
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.
26
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.
Assets that are subject to impairment testing when impairment indicators are present (such as obsolescence,
physical damage, significant changes to the manner in which the asset is used, worse than expected
economic performance, a drop in revenues or other external indicators) are as follows:
Property and equipment - net (Note14)
Investment property (Note 15)
Investments in associates (Notes 12)
Software development cost (Note 16)
Sep-12
4,496,847
9,763
108,007
10,446
Dec-11
4,651,107
9,763
99,777
13,826
The Group recognized impairment loss on assets held for sale amounting to P
=223.6 million
in 2011 and on property and equipment amounting to P
=778.8 million in 2010 (see Notes 10 and
14). The significant assumptions used in the estimation of the value in use are disclosed in
Note 14.
As of September 30, 2012 and December 31, 2011, no impairment loss was recognized on the investment
property, as its carrying value is higher than its fair value, which was determined based on the valuation
performed by a qualified and independent appraiser. The valuation undertaken considered the sale of
similar property and related market data.
As of September 30, 2012 and December 31, 2011, no impairment loss was recognized on other
nonfinancial assets.
Estimation of probable losses
The Group makes an estimate of the provision for probable losses on its creditable withholding tax (CWT)
and input VAT.
Management’s assessment is based on historical experience and
other developments that indicate that the carrying value may no longer be recoverable.
The aggregate carrying values of CWT, input VAT and deferred input VAT amounting to
=1,059.6 million and P
P
=1,013.6 million as of September 30, 2012 and December 31, 2011, respectively, is
fully recoverable (see Notes 9 and 17).
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
significant assumptions used in the estimation of the recoverable amount of goodwill are described in Note
5.
As at September 30, 2012 and December 31, 2011, the carrying amount of goodwill amounted to P
= 250.5
million net of impairment loss of P
=6.0 million on goodwill in 2010 (see Note 5).
Estimation of retirement 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. Those assumptions were
described in Note 32 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.
27
The discount rate and the expected rate of return on plan assets are determined based on the market prices
prevailing on that date, applicable to the period over which the obligation is to be settled.
Recognition of deferred tax assets
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to
the extent that it is no longer probable that sufficient future taxable income will be available to allow all or
part of the deferred tax assets to be utilized. There is no assurance that sufficient taxable income will be
generated to allow all or part of the deferred tax assets to be utilized.
As at December 31, 2011 and 2010, the Group has recognized deferred tax assets on its temporary
differences, carryforward benefits of NOLCO and excess MCIT amounting to P976.6 million and P733.6
million, respectively (see Note 29). Tax effect of the temporary differences and carryforward benefits of
unused NOLCO and MCIT for which no deferred tax assets were recognized amounted to P67.7 million and
P111.7 million as at December 31, 2011 and 2010, respectively (see Note 29).
4.
Operating Segment Information
Operating segments are components of the Group: (a) that engage in business activities from which they
may earn revenue and incur expenses (including revenues and expenses relating to transactions with other
components of the Group); (b) whose operating results are regularly reviewed by the Group’s BOD to make
decisions about resources to be allocated to the segment and assess its performance; and (c) for which
discrete financial information is available. The Group’s Chief Operation Decision Maker is the Parent
Company’s BOD.
For purposes of management reporting, the Group is organized into business units based on their products
and services. The Group has the following segments:
a.
b.
c.
The shipping segment renders passage transportation and cargo freight services.
The supply chain segment provides logistics services and supply chain management.
The manpower services segment renders manning and personnel, particularly crew management
services.
The segment results for the period ended September 30, 2012 and for the year ended December 31, 2011
pertain to the shipping and supply chain segments. Segment results of the manpower services segment were
included until the date of its disposal in 2010 and presented as discontinued operations in the 2010 and 2009
segment information (see Note 30).
The Parent Company’s BOD regularly reviews 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. The Group financing (including finance costs and finance income) and
income taxes are managed on a group basis and are not allocated to operating segments.
The Group has only one geographical segment as all its assets are located in the Philippines. The Group
operates and devices principally all its revenue from domestic operations. Thus, geographical business
information is not required.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions
with third parties. Segment revenue includes transfer of goods and services between operating segments.
Such transfers are eliminated in the consolidation. Further, there were no revenue transactions with single
customer accounts to 10% of total revenue.
Further, the measurement of the segments is the same as those described in the summary of significant
accounting and financial reporting policies, except for NENACO retirement benefits where the related
actuarial gains or losses are recognized in the parent company financial statements.
Financial information about business segments follows:
28
For the period ended September 30, 2012:
Shipping
Revenue
Fuel, oil and lubricants
Operating expenses
Terminal expenses
Cost of goods sold
Overhead
Depreciation and amortization
Operating expenses
Terminal expenses
Overhead
Interest and financing charges
Share in equity earnings (losses) of associates
Provision for (benefit from) income tax
Segment assets
Segment liabilities
7,378,396
3,051,905
2,520,740
825,950
515,916
638,928
541,896
54,585
42,447
(264,544)
(248,395)
10,962,981
8,157,026
Supply chain
(In Thousands)
3,183,219
11,043
1,451,511
1,234,702
268,635
38,712
15,905
22,807
(34,534)
8,230
43,828
2,539,927
1,941,781
Eliminations/
Adjustments
(301,158)
(292,603)
(26,626)
(15,794)
(2,126,252)
(1,699,544)
Consolidated
Balances
10,260,458
3,062,948
3,679,648
799,325
1,348,429
768,757
677,640
558,295
54,585
65,254
(299,077)
8,230
(204,567)
11,376,656
8,399,264
For the period ended September 30, 2011:
Shipping
Balances
5,819,344
Fuel, oil and lubricants
2,520,486
1,329
Operating expenses
1,229,832
1,660,316
(175,475)
2,714,674
Terminal expenses
1,005,192
-
42,307
1,047,499.72
-
1,998,841
-
1,998,841
Overhead
579,166
222,576
Depreciation and amortization
754,074
614,251
41,350
15,297
-
795,424
Operating expenses
-
629,548
Terminal expenses
67,401
-
-
67,401
Overhead
72,422
26,053
-
(79,687)
(2,666)
(36,346)
(320,099)
10,988
36,895
11,426,574
2,579,036
(1,423,358)
12,582,251
7,991,674
1,982,395
(1,061,180)
8,912,889
Interest and financing charges
Share in equity earnings (losses) of associates
Provision for (benefit from) income tax
Segment assets
Segment liabilities
3,932,527
Consolidated
Adjustments
Revenue
Cost of goods sold
5.
Supply chain
(In Thousands)
Eliminations/
(269,920)
-
(70,663)
(214,041)
9,481,951
2,521,815
731,080
98,475
(296,394)
-
(25,358)
-
(283,204)
Business Combinations
Acquisition of SOI
On June 3, 2008, 2GO Express Inc. (formerly ATS Express Inc.) acquired 100% ownership in SOI in line
with the Group’s business strategy to provide total supply chain solutions to clients and to further improve
the effectiveness and efficiency of its delivery services. Goodwill resulting from this acquisition amounted
to P
=250.5 million.
29
Impairment testing of goodwill
The amount of goodwill acquired from the acquisition of SOI has been attributed to each cash-generating
unit. The recoverable amount of goodwill has been determined based on a VIU 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 15.20% in 2011 and 2010. Cash flows beyond the five-year
period are extrapolated using a zero percent growth rate.
Key assumptions used in value in use calculations
The following describes each key assumption on which management has based its cash flow projections to
undertake impairment testing of goodwill.
a.
Budgeted EBITDA has been based on past experience adjusted for the following:
 Revenue growth rate. Management expects a 7% decline in revenue in 2012 and a 5% constant
growth in subsequent years. The decline in revenue is in line with the ongoing integration of the
Group’s supply chain segment and the expected growth from the second year is based on
management’s strategic plan to expand its supply chain operation.
 Variable expenses. Management expects variable expenses to decrease by 9% in 2012 due to the
decline in revenue. Budgeted increase in variable expenses in 2013 is 10% and 5% in subsequent
years.
 Fixed operating expenses. Management expects an increase in fixed operating expenses of 17% in
2012 and 4% to 5% increase in subsequent years.
 Foreign exchange rates. The assumption used to determine foreign exchange rate is a fluctuating
Philippine peso exchange rate of P
=43 to a dollar starting 2012 until the fifth year.
 Materials price inflation. The assumption used to determine the value assigned to the materials
price inflation is 4.45%, which then increased by 0.20% on the second year, another increase of
0.40% on the third year and remains steady until the fifth year. The starting point of 2011 is
consistent with external information sources.
b.
Budgeted capital expenditure is based on management’s plan to expand the Group’s supply chain
segment.
c.
Sensitivity to changes in assumptions
Other than as disclosed above, management believes that any reasonably possible change in any of the
above key assumptions would not cause the carrying value of any cash generating unit to exceed its
recoverable amount.
As at September 30, 2012 and December 31, 2011, the Group has not recognized any impairment in
goodwill on SOI.
Mergers of ZIP, RVSI and the Parent Company
On July 7, 2010, the SEC approved the merger of ZIP and the Parent Company, with the latter as the
surviving entity, effective July 7, 2010. ZIP is a wholly owned subsidiary of the Parent Company.
Consequently, by operation of law, the separate corporate existence of ZIP ceased as provided under the
Corporation Code. Thus, upon the implementation of the merger, all outstanding shares of capital stocks of
ZIP were cancelled.
On August 16, 2010, the SEC approved the merger of RVSI and the Parent Company, with the latter as the
surviving entity, effective September 1, 2010. RVSI is a wholly owned subsidiary of 2GO Group Inc.
Consequently, by operation of law, the separate corporate existence of RVSI ceased as provided under the
Corporation Code. Thus, upon the implementation of the merger, all outstanding shares of capital stocks of
RVSI were cancelled. Goodwill arising from the acquisition of RVSI amounting to P
=6.0 million fully was
impaired in 2010.
The mergers of ZIP and RVSI with the Parent Company are part of the integration of the 2GO business to
further improve the effectiveness and efficiency of the delivery of the Group’s services to their customers.
30
Sale of KLN Investment Holdings Philippines, Inc.
On January 22, 2009, 2GO Express Inc. 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, 2GO Express Inc. invested P
=4.8 million in a wholly owned subsidiary, KLN Investment
Holdings Philippines, Inc. (KLN Investment) on February 26, 2009.
On August 1, 2009, 2GO Express Inc. subsequently sold its investment in KLN Investment to Kerry Freight
Services (Far East) Pte. Ltd (Kerry freight), a subsidiary of KLN, which resulted in a gain of P
=52.5 million.
6.
Cash and Cash Equivalents
Cash on hand and in banks
Cash equivalents
Sept-2012
541,372
96,851
638,223
Dec-11
775,542
130,721
906,263
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 P
=3.6
million and =
P5.5 million in September 2012 and 2011, respectively.
7.
Trade and Other Receivables
Sept-2012
Trade
Freight
Service fees
Passage
Distribution
Others
Nontrade
Advances to officers and employees
Insurance and other claims
Less allowance for doubtful accounts
1,171,331
406,156
140,192
318,699
380,509
229,670
29,348
169,488
2,845,393
318,440
2,526,953
Dec-11
1,228,008
131,161
87,988
390,329
271,009
975,775
18,171
104,817
3,207,258
309,065
2,898,193
Trade receivables are non-interest bearing and are generally on 30 days’ terms. Insurance and other claims
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.
Trade and other receivables that are individually determined to be impaired at the end of reporting period
relate to debtors that are in significant financial difficulties and have defaulted on payments and whose
accounts are under dispute and legal proceedings. These receivables are not secured by any collateral or
credit enhancements.
Freight and passage receivables amounting to P
=1,116.2 million as of December 31, 2011were assigned to
secure long-term debt obtained by the Company under the omnibus loan and securities agreement (see Note
20).
31
8.
Inventories
At cost, Fuel and lubricants
At Net Realizable Value:
Trading goods
Materials, parts and supplies
Sept-2012
112,109
Dec-11
108,122
180,980
109,617
402,706
151,726
147,593
407,441
The allowance for inventory obsolescence as at September 30, 2012 and December 31, 2011 is =
P0 and P
=70.7
million, respectively.
The cost of inventories recognized as “Cost of goods sold” in the consolidated statements of income
amounted to P
=1,348.4 million and P
=2,601.5 million in September 30, 2012 and December 31, 2011,
respectively.
9.
Other Current Assets
Prepaid Expenses
Creditable Withholding Tax
Input value-added tax
Others
Sept-2012
134,272
849,186
109,183
18,557
1,111,197
Dec-11
103,736
748,264
130,594
13,635
996,229
Outstanding CWT pertains mainly to the amounts withheld from income derived from freight, sale of goods
and service fees for logistics and other services.
10. Assets Held for Sale
On December 5, 2011, as a result of the Group’s integration and vessels’ route rationalization,
the Group’s BOD approved the sale of certain vessels within the next 12 months, namely M/V SuperFerry 1,
M/V SuperFerry 5, M/V 2GO1, M/V 2GO2 and SuperCat 23. Accordingly, the net carrying values of these
vessels amounting to P
=916.2 million were reclassified from property and equipment (see Note 14). The
recoverable values of these vessels based on quotations obtained from prospective
buyers, net of estimated costs to sell, amounted to P
=692.6 million as at December 31, 2011. As a result, the
Group recognized impairment losses amounting to =
P223.6 million for M/V 2GO1 and M/V 2GO2,
representing the excess of carrying value over the fair value less cost to sell of the vessels.
In June 2012, the shipping vessels, M/V 2GO1 and M/V 2GO2, were sold for net cash proceeds of P
=154.6
million, which resulted to a loss on sale of assets amounting to P
=201.7 million and which is included under
Other Income (Charges) in the consolidated statements of income.
32
11. AFS Investments
As of September 30, 2012 and December 31, 2011, AFS investments amounted as follows:
Quoted Equity Investments - listed shares of stocks
Unquoted Equity Investments - at cost
Classified as part of Other Current Assets (Note 9)
Amount
486
9,311
9,797
420
9,377
Listed shares of stocks are carried at market value. Unrealized gains or losses on AFS investments are
recognized in the consolidated statement of comprehensive income and included in the “Equity” section of the
consolidated balance sheet.
Unquoted shares of stocks pertain to fixed number of shares that are subject to mandatory redemption every
year.
12. Investments in Associates
The Group has the following investments in associates which are accounted for under equity method:
MCCP
HATS
Sept-2012
49,558
58,449
108,007
Dec-11
41,328
58,449
99,777
In 2010, the Parent Company sold its 50% ownership in Jebsen People Solutions AS (JPS) and this formed
part of discontinued operations (see note 30). MCCP and HATS are both incorporated in the Philippines
while JPS is incorporated in Norway.
Acquisition cost:
Balances at beginning of year
Discontinued operations
Balances at end of year
Accumulated equity in net earnings:
Balances at beginning of year
Equity in net earnings (losses) during the year
Discontinued operations
Balances at end of year
Share in cumulative translation adjustment of associates
Changes in cumulative translation adjustment
2012
2011
=20,649
P
–
20,649
=20,649
P
–
20,649
73,834
8,230
82,064
5,294
=108,007
P
88,359
(14,525)
–
73,834
5,294
=99,777
P
=-0P
(P
=647)
13. Interests in Joint Ventures
On March 18, 2009, 2GO Express Inc. and KLN Investments formed KLN Holdings, a jointly controlled
entity. In accordance with the Agreement, 2GO Express Inc. 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,
2011 and 2010, 2GO Express Inc.’s investment in KLN Holdings amounted to P
=7.5 million.
33
On March 30, 2009, KLN Holdings and KLN Investments formed another jointly controlled entity, KerryATS Logistics, Inc. (KALI, formerly Kerry-Aboitiz Logistics, Inc.), 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 Agreement also
requires unanimous consent over decisions concerning financial and operating policies of KALI. As at
December 31, 2011 and 2010, KLN Holdings’ investment in KALI amounted to P
=9.6 million.
On August 1, 2009, 2GO Express Inc. sold all of its investments in KLN Investments to Kerry Freight (see
Note 5)
In accordance with the Agreement, 2GO Express Inc. 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 2GO EXPRESS INC.
using the latter’s 78.4% share.
The Group’s share of the assets and liabilities of KALI and KLN Holdings as at
December 31, 2011 and 2010 and the income and expenses in the jointly controlled entities for
the years ended December 31, 2011 and 2010, which are proportionately consolidated in the consolidated
financial statements, are as follows:
Amounts consolidated in the consolidated balance sheets:
2010
2011
(In Thousands)
Assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Property and equipment
Deferred tax assets - net
Total Assets
Liabilities and Equity
Trade and other payables
Retirement benefit liability
Share capital
Retained earnings
Total Liabilities and Equity
P12,741
=
45,532
2,203
1,489
770
=62,735
P
P2,667
=
42,485
2,738
896
640
49,426
=41,284
P
1,022
42,306
7,557
12,872
20,429
=62,735
P
=36,596
P
315
36,911
7,557
4,958
12,515
=49,426
P
Amounts consolidated in the consolidated statements of income:
=183,053
P
2010
(In Thousands)
=132,941
P
146,322
24,954
449
171,725
11,328
3,394
=7,934
P
103,554
22,806
321
126,681
6,260
3,394
=2,866
P
2011
Service fees
Cost and Expenses
Operating
Overhead
Other income (charges)
Income before income tax
Provision for income tax
Net income (loss)
1
14. Property and Equipment
As of September 30, 2012:
Ships in
Operation and
Improvements
Cost
At January 1
Additions
Disposals
Transfers/Reclassifications
Balance, end
Accumulated Depreciation
and Amortization
At January 1
Depreciation and amortization
Disposals
Transfers/Reclassification
Balance, end
Impairment Loss
At January 1
Reversal of impairment loss
Net Book Value
Containers
Handling
Equipment
5,481,092
347,608
(3,129)
(5,838)
5,819,733
1,502,549
5,437
(18)
1,507,968
1,271,824
10,967
1,282,791
1,780,764
531,654
(68,877)
44,697
2,288,238
1,313,763
15,888
(4,955)
866
1,325,562
1,159,319
30,840
(4,194)
(1)
1,185,965
3,531,494
182,406
96,826
Flight
Equipment
Furniture
and
Equipment
Buildings
Land and
and
Improvements Warehouses
Leasehold
Improvements
Transportation
Equipment
Ships under
Refurbishment and
Construction
in Progress
25,221
169
(18,047)
(2,372)
4,971
741,461
20,946
(10,590)
11,206
763,023
428,483
557
(17,969)
411,072
254,651
20,395
(8,896)
(10,036)
256,114
363,333
5,876
(3,171)
(14)
366,024
110,369
9,833
(27,718)
92,484
7,560
241
(789)
(2,362)
4,650
637,596
37,414
(12,168)
194
663,035
101,717
7,448
(7,266)
101,899
177,540
11,577
(6,234)
1,244
184,126
271,744
19,135
(2,703)
(7)
288,169
60,531
15,714
(16,856)
(6,254)
53,135
-
17,341
(17,341)
321
99,988
309,173
87,446
87,446
-
-
-
-
71,988
77,855
39,349
87,446
Total
10,178,983
509,235
(89,536)
(7,054)
10,591,627
5,510,534
669,911
(124,042)
38,377
6,094,780
17,341
(17,341)
4,496,847
35
As of December 31, 2011:
Vessels in
Operation
(Notes 20
and 21)
Containers Terminal and
(Note 21)
Handling
Equipment
Flight
Equipment
Furniture and
Other
Equipment
Land and
Improvements
Buildings and
Warehouses
Leasehold
Improvements
Transportatio
n
Equipment
Vessels Under
Refurbishment
and
Construction
in Progress
Total
(In Thousands)
Cost
Beginning
Additions
Disposals
Retirements/reclassifications
Reclassification to assets held for sale
(Note 10)
Ending
Accumulated
Depreciation
and Amortization
Beginning
Depreciation and amortization (Note 25)
Disposals
Retirements/Reclassifications
Reclassification to assets held for sale
(Note 10)
Ending
Impairment Loss
Beginning
Disposal
Reclassification to assets held for sale
Ending
Net Book Value
= 5,481,092
P
478,673
(1,052,577)
(204,414)
(2,465,258)
= 1,564,773
P
10,399
(85,436)
12,813
–
= 1,278,953
P
18,326
(27,029)
1,574
–
= 62,813
P
= 630,746
P
75
(37,790)
123
–
33,750
(41,044)
118,009
–
= 421,089
P
7,582
–
(188)
–
= 258,472
P
12,721
(1,046)
(15,496)
–
= 361,445
P
1,490
(2,606)
3,004
–
= 245,141
P
18,908
(51,599)
(102,081)
–
= 2,873
P
(14,534)
–
11,661
–
= 13,550,973
P
567,390
(1,299,127)
(174,995)
(2,465,258)
5,481,092
1,502,549
1,271,824
25,221
741,461
428,483
254,651
363,333
110,369
–
10,178,983
2,789,680
836,894
(582,250)
(122,987)
(1,140,573)
1,395,445
17,629
(84,692)
(14,619)
–
1,141,554
44,606
(18,013)
(8,828)
–
28,659
346
(21,475)
30
–
534,421
55,092
(20,846)
68,929
–
89,781
11,936
–
–
–
163,644
15,018
(672)
(450)
–
242,376
31,957
(2,582)
(7)
–
156,884
32,710
(49,010)
(80,053)
–
–
–
–
–
–
6,542,444
1,046,188
(779,540)
(157,985)
(1,140,573)
1,780,764
1,313,763
1,159,319
7,560
637,596
101,717
177,540
271,744
60,531
778,830
(370,406)
(408,424)
–
= 3,700,328
P
–
–
–
–
= 188,786
P
–
–
–
–
= 112,505
P
33,606
(16,264)
–
17,342
= 319
P
–
–
–
–
= 103,865
P
–
–
–
–
= 326,766
P
–
–
–
–
= 77,111
P
–
–
–
–
= 91,589
P
–
–
–
–
= 49,838
P
–
–
–
–
–
–
=–
P
5,510,534
812,436
(386,670)
(408,424)
17,342
= 4,651,107
P
Noncash additions - property and equipment under finance lease
Vessels in operations and containers include units acquired under finance lease arrangements
(see Note 21). In 2011, noncash additions include costs of those leased assets amounting to
=169.4 million. The related depreciation of the leased containers amounting to P
P
=16.3 million in 2011, P
=5.4
million in 2010 and P
=24.4 million in 2009 were computed on the basis of the Group’s depreciation policy
for owned assets.
Disposal and retirement of property and equipment
In 2012, the Group disposed of a real property located in Lapuz, Iloilo City and two (2) aircraft for a net
cash proceeds of P93.3 million and P3.0 million, respectively.
In 2011, the Parent Company sold passenger/cargo vessels for a net cash proceeds of
=103.7 million, resulting to a gain from sale amounting to P
P
=4.6 million. The Group also disposed certain
property and equipment which includes vessel parts, containers, freight equipment, and transportation and
handling equipment for net proceeds of P
=58.2 million, resulting to gain from sales of P
=6.8 million (see Note 26).
In 2010, the Parent Company’s disposal of Our Lady of Good Voyage, Our Lady of Rule and Our Lady of
Mt. Carmel resulted to a net loss of P
=39.1 million (see Note 26).
In 2009, the Parent Company’s disposal of Our Lady of Medjugorje and containers resulted in a net gain of
=19.7 million. The retirement of SuperFerry 9 due to the incident that happened in September 2009 resulted
P
in a net gain from insurance proceeds on marine hull of P
=79.5 million which was presented as “Other
income” in profit or loss (see Note 26). The net book value of SuperFerry 9 that was retired amounted to =
P
255.5 million.
Capitalization of drydocking costs
Vessels in operation include capitalized dry docking costs in 2012 amounting to P
=295.7 million. No
drydrocking cost was incurred and capitalized in 2011.
Impairment of property and equipment
In 2010, based on internal reporting indications on the economic performance of certain vessels and their
ultimate disposal proceeds, the Parent Company recorded impairment loss on vessels in operations
amounting to =
P778.8 million with corresponding deferred income tax effect of
=233.6 million (see Note 29). The estimated recoverable amounts were based on fair value less cost to sell
P
on the basis of a third party offer to buy, as well as the value in use. Significant assumptions used in
estimating value in use includes discount rate of 10.64%, passage and cargo volume of 3% to 5%, freight
rate increase of 12%, and fuel price increase of 5% each year.
Depreciation and amortization
Depreciation and amortization were recognized and presented in the following accounts in the consolidated
statements of income (see Note 25):
Ships in operation and improvement
Other property and equipment
Software development costs
Sept-2012
558,295
54,585
65,254
678,134
Sept-2011
629,548
67,401
98,475
795,424
Property and equipment as collateral
As of September 30, 2012 and December 31, 2011, the Group’s vessels in operations and assets held for sale
with total carrying value of P
=4,214.3 million P
=4,327.2 million, respectively, are mortgaged to secure certain
obligations (see Note 20). As of December 31, 2011 and 2010, containers held as collateral for finance
lease amounted to P
=91.9 million and =
P54.3 million, respectively (see Note 21).
37
Fair value of vessels in operation
The Group’s vessels in operation were appraised for the purpose of determining their market values. Based
on the latest appraisal with various dates from December 2010 to January 2011 made by Eagle Marine
Consultants Inc., the related vessels in operation have an aggregate market value of P
=5,785.0 million against
net book value of P
=5,116.8 million as of December 31, 2011.
15. Investment Property
The Group’s investment property amounting to =
P9.8 million pertains to a parcel of land not currently being
used in operations. As of December 31, 2011, the fair value of the investment property amounted to P
=66.9
million. This was determined based on valuation performed by a qualified and independent appraiser. The
valuation undertaken considered the sale of similar properties and related market data.
16. Software Development Cost
Cost:
Balances at beginning of the year
Additions
Disposal/reclassifications
Balances at end of the year
Accumulated amortization:
Balances at beginning of the year
Amortization
Disposals and Reclassifications
Accumulated amortization from acquired subsidiaries
Balances at end of the year
Net Book Values
Sept-2012
Dec-11
575,348
4,928
719
580,995
569,041
6,333
(26)
575,348
561,522
8,282
745
570,549
10,446
523,818
37,683
21
561,522
13,826
17. Other Noncurrent Assets
Deferred input VAT
Pension assets
Refundable deposits/others
Sept-2012
101,258
7,303
99,108
207,669
Dec-11
134,708
7,082
91,150
232,940
Deferred input VAT relates mainly to the acquisition of vessels and related parts.
18. Loans Payable
As at September 30, 2012 and December 31, 2011, the peso loans amounting to P
=1,229.5 million and P
=
1,215.4 million, respectively, pertain to unsecured short-term notes payable obtained by the Group from
local banks with annual interest rates ranging from 5.0% to 7.0% in 2011 and 4.50% to 7.92% in 2010.
38
19. Trade and Other Payables
Trade
Accrued expenses
Nontrade
Unearned revenue- net of deferred discounts
Dividends payable
Sept-2012
1,325,156
1,639,220
577,019
73,979
1,834
3,617,208
Dec-11
1,307,798
1,226,541
815,373
80,456
2,040
3,432,208
Trade and other payables are non-interest bearing and are normally on 30 days’ term.
Accrued expenses include accrual for fuel and lube, drydocking costs and freight expenses.
20. Long-term Debt
Omnibus Loan and Security Agreement
Banco de Oro Unibank, Inc. (BDO)
Unamortized debt arrangement fees
Current portion
Sept-2012
3,350,000
Dec-11
4,000,000
(24,709)
3,325,291
(985,716)
2,339,576
(36,257)
3,963,743
(785,716)
3,178,028
As at September 30, 2012, 2GO paid P650 million of the principal of the loan in accordance with the terms
of the OLSA.
Notes Facility Agreement
On May 6, 2010, the Parent Company signed a Notes Facility Agreement with SB Capital Investment
(SBCI) and BPI Capital Corporation (BCC) as Joint Lead Managers for the issuance of five-year pesodenominated corporate fixed rate notes (“Notes”) in the aggregate amount of P
=2.0 billion.
The Notes were issued through a private placement to several financial institutions. The proceeds of the
notes issuance were used to finance vessel acquisitions as well as for working capital purposes.
The loan agreement with SBCI and BCC requires the Parent Company among others, to seek prior approval
for any merger, consolidation, change in ownership, suspension of business operations, disposal of assets,
and maintenance of financial ratios. They also prohibit the Parent Company to purchase, redeem, retire or
otherwise acquire for value any of its capital stock now or hereafter outstanding (other than as a result of the
conversion of any share of capital stock into any other class of capital stock), return any capital to the
stockholders (other than distributions payable in shares of its capital stock), declare or pay dividends to its
stockholders if payment of any sum due to SBCI and BCC is in arrears.
Parent Company breached the negative covenant on “Ownership” with the sale of ACO’s and Aboitiz
Equity Venture’s equity ownership in Parent Company on December 28, 2010. Thus, the noncurrent portion
of long-term debt amounting to =
P1,782.6 million was presented as current liabilities since the Note Holders
have the right to call the Notes as at December 31, 2010 and thereafter.
The P2.0 billion long-term debt, together with another P2.0 billion short-term loan, were refinanced by BDO
and covered by the Omnibus Loan and Security Agreement (OLSA) executed on February 24, 2011.
39
Omnibus Loan and Security Agreement
On February 24, 2011, the Parent Company, NENACO, SFFC, and HLP entered into an Omnibus Loan and
Security Agreement (OLSA) with BDO, which consists of term loans of P
=4.0 billion and omnibus line of P
=
400.0 million. In March 2011, Parent Company availed the P
=4.0 billion term loans, which was used for the
refinancing of its short-term loans payable (see Note 18) and the early redemption of its long-term debt on
March 15, 2011 in accordance with the provision of the OLSA. The omnibus line, on the other hand,
amounting to =
P400.0 million shall be used by Parent Company and HLP for working capital requirements
and to secure their obligations with BDO.
The P
=4.0 billion term loans consist of Series A and Series B Term Loans amounting to P
=2.0 billion each.
The interest on each of the Series A and Series B Term Loans is a combination of fixed and floating rates.
Fifty percent (50%) of the principal amount of each of the Series A Term Loan and Series B Term Loan,
respectively, have a fixed interest rate, and the remaining fifty percent (50%) have a quarterly floating
annual interest rate, provided, such floating interest rate shall have a minimum of 5.0% per annum. The
principal of the loans is subject to 26 quarterly amortizations which commenced at the end of the third
quarter from the drawdown date until March 2016. As of September 30, 2012, the Parent Company paid
P650 million of the principal of the loan in accordance with the terms of the OLSA.
Suretyship agreement, mortgage trust indenture and assignment of receivables
In accordance with the OLSA dated February 24, 2011, the Parent Company and NENACO executed a
Continuing Suretyship in favor of BDO. As a result, upon the happening of an event of default, the creditor
shall have the right to set-off or apply to payment of the credit facility any and all moneys of the sureties which
may be in possession or control of the creditor bank. Further, the creditor bank shall likewise have the full
power against all the sureties’ properties upon which the creditor bank has a lien. The Continuing Suretyship
also applies with respect to the Facility Agreement entered by NENACO and the creditor bank on January 26,
2011.
The Parent Company, NENACO and SFFC also executed a Mortgage Trust Indenture (MTI) under the
OLSA whereby the Group creates and constitutes a first ranking mortgage on the collaterals for the benefit
of BDO. The Group shall at all times maintain the required collateral value, which is equivalent to 200% of
the obligations.
Further, as required by the OLSA, the Parent Company, NENACO and SFFC shall assigned customer
receivables sufficient to cover the availed credit facility in excess of P
=3.66 billion. Notwithstanding such
assignment, the Parent Company, NENACO and SFFC shall have the right to collect the assigned customer
receivables and appropriate the proceeds therefrom for their benefit, provided that the assignors shall replace
the collected receivables in accordance with the required terms and condition and there is no happening of
an event of default under the OLSA. The customer receivables shall refer to all outstanding receivables of
the assignors as of the date of the execution of the OLSA, and the future customer receivables of the
assignors, which shall be valued at 50% of their face value expressed in Philippine Peso.
As of December 31, 2011, the total carrying values of the vessels under MTI and outstanding customer
receivables of the Parent Company, NENACO and SFFC, held as collateral amounted to P
=4,826.7 million
and P
=1,302.5 million, respectively (see Notes 7 and 14).
Loan covenants
The OLSA are subject to certain covenants such as but not limited to:
a.
b.
c.
Maintenance of the following required financial ratios of the Parent Company: minimum quarterly
current ratio of 1:1; maximum quarterly debt-to-equity ratio of 2.5:1 for the first year and 2:1 for the
succeeding years; and, minimum yearly debt service coverage ratio (DSCR) of 1.2:1 for first and
second years and 1.5:1 for the succeeding years, provided, however, that the consolidated yearly DSCR
of ATSC and NENACO shall not fall below 1.5:1 for the first and second years, and 1.75:1 for the
succeeding years;
Prohibition on any change in control in the Parent Company or its business or majority ownership of its
capital stock (except with respect to the majority investors in the case of NENACO) or a change in the
Chief Executive Officer;
Prohibition to declare or pay any dividends to its common and preferred stockholder or make any other
40
d.
capital or asset distribution to its stockholders, unless the financial ratios above are fully satisfied;
Prohibition to sell, lease, transfer or otherwise dispose of its properties and assets, divest any of its
existing investments therein, or acquire all or substantially all of the properties or assets of any other
third party, except those in the ordinary course of business.
As of December 31, 2011, the Parent Company did not meet the maximum debt-to-equity ratio required
under OLSA. This constitutes an event of default on the long-term debt in accordance with the loan
facilities.
The Parent Company obtained a letter from BDO dated December 28, 2011 which states that the Parent
Company shall not be declared in default by BDO should there be breach in maximum debt to equity ratio
of 2.5 and that the Parent Company is given 12 months from December 31, 2012 to remedy the default. In
view of this, the noncurrent portion of the loans remains as noncurrent liability in the consolidated balance
sheet as of December 31, 2011.
Borrowing costs and debt transaction costs
Interests from long-term borrowings of the Parent Company recognized as expense amounted to P
=221.6
million for the period ending September 30, 2012 (see Note 26).
As of September 30, 2012 and December 31, 2011, unamortized transaction cost relating to the Parent
Company’s long-term debt amounted to P
=24.7 million and P
=36.3 million, respectively, which were
recognized as a reduction in the value of long-term debt. During the year under review, ATSC incurred
additional debt transaction costs amounting to P
=11.5 million (see Note 26).
21. Obligations under Finance Lease
The Group has various finance lease arrangements with third parties for the lease of vessels, containers and
reefer vans denominated in US dollars. The lease agreements provide for the transfer of ownership to the
Group at the end of the lease term, which among other considerations met the criteria for a finance lease.
Therefore, the leased assets were capitalized.
The future minimum lease payments under finance lease, together with the present value of minimum lease
payments as at September 30, 2012 and December 31 2011, 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
Sept-2012
75,973
35,757
0
111,730
8,896
102,834
73,006
29,827
Dec-11
36,407
95,374
2,492
134,273
12,163
122,110
30,174
91,936
Included in the current portion of obligations under finance lease is the maturing obligation of a chartered
fastcraft vessel owned by SFFC, a 100% subsidiary company of 2GO Group, Inc. The lease arrangement
provides a bargain purchase option at the end of the lease term, which is on January 21, 2013.
22. 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.
41
The RPS has the following features:
a.
b.
c.
d.
e.
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
=250,000 per calendar year;
P
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 June 15, 2006, the SEC approved the ATSC’s application for the amendment of its 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 ATSC. 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.
As at September 30, 2012 and December 31, 2011, 4,560,417 outstanding RPS with remaining carrying
value of P
=25.9 million are shown under “Current liabilities” and “Noncurrent liabilities” section of the
consolidated balance sheets, respectively, which are carried at amortized cost.
On October 25, 2012, the Board of Directors of the Parent Company approved the redemption of all
remaining outstanding redeemable preferred shares (RPS) held by each eligible stockholder of such shares at
a price of P
=6.00 per share. RPS shareholdings of eligible shareholders as of the close of business on
November 20, 2012 (“entitlement date”) shall be redeemed by the Parent Company on December 06, 2012
(“redemption date”) by crossing such shares through the facilities of the Philippine Stock Exchange.
23. Equity
a.
Capital stock
Authorized capital stocks
Date
May 26, 1949
December 10, 1971
October 21, 1975
September 3, 1982
August 18, 1989
December 29, 1993
September 8, 1994
November 21, 1994
October 26, 1998
December 6, 2002
November 18, 2003
September 6, 2004
November 22, 2004
October 24, 2005
October 24, 2005
August 7, 2008
Activity
Authorized capital stocks as of
incorporation date
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Reclassification of common shares to
preferred shares
Redemption of preferred shares
Increase in authorized capital stocks
Redemption of preferred shares
Increase in authorized capital stocks
Reclassification of preferred shares to
common shares
Reclassification of preferred shares to
common shares
Common
shares
Number of shares
Preferred shares
(Note 22)
Total
5,000
5,000
4,990,000
5,000,000
10,000,000
20,000,000
60,000,000
900,000,000
1,000,000,000
–
–
–
–
–
–
–
–
–
5,000
5,000
4,990,000
5,000,000
10,000,000
20,000,000
60,000,000
900,000,000
1,000,000,000
(375,000,000)
–
750,000,000
–
1,624,524,400
375,000,000
(224,712,374)
–
(74,904,026)
–
–
(224,712,374)
750,000,000
(74,904,026)
1,624,524,400
475,600
(475,600)
–
70,343,670
4,070,343,670
(70,343,670)
4,564,330
–
4,074,908,000
42
Issued and outstanding capital stocks
Date
May 26, 1949
December 10, 1971 to
October 26, 1998
December 6, 2002
February 10, 2003
November 18, 2003
September 6, 2004
November 22, 2004
December 31, 2004
October 24, 2005
August 22 to
13, 2006
October
December 31, 2001
Activity
Issued capital stocks as of
incorporation date
Increase in issued capital stocks
Issue
price
Number of shares
Preferred
Common
shares
shares
(Note 22)
Total
=1,000.00
P
1,000.00
1,002
1,496,597,636
–
–
1,002
1,496,597,636
1.00
40,000,000
374,520,535
414,520,535
P1.00
=
6.67
–
–
(48)
(224,712,374)
(48)
(224,712,374)
1.00
6.67
393,246,555
–
–
(74,904,026)
393,246,555
(74,904,026)
1.00
(756)
–
(756)
1.76
414,121,123
–
414,121,123
3.20
140,687,340
2,484,652,900
(38,516,500)
2,446,136,400
(70,343,670)
4,560,417
–
4,560,417
70,343,670
2,489,213,317
(38,516,500)
2,450,696,817
Reclassification of common shares
to preferred shares
Issuance of preferred shares
before redemption
Redemption of preferred shares
Issuance of common shares by way
of stock dividends
Redemption of preferred shares
Issuance of common shares
prior to reorganization
Issuance of common shares through
share swap transactions
Conversion of redeemable preferred
shares to common shares
Treasury shares*
1.50
* The carrying value of treasury shares is inclusive of =
P0.9 million transaction cost.
Issued and outstanding common shares are held by 1,965 and 1,976 equity holders as of September 30,
2012 and December 31, 2011, respectively.
a.
Retained earnings (deficit)
Retained earnings include undistributed earnings amounting to =
P508.1 million in 2011 and P
=427.7
million in 2010 representing accumulated equity in net earnings of subsidiaries and 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 and deferred tax asset recognized as of December 31, 2011 and 2010..
On December 1, 2010, the Parent Company’s BOD approved the declaration of a cash dividend
amounting to fifteen centavos (P
=0.15) for every common and preferred share outstanding as of
December 15, 2010 or a total dividend declaration of P
=367.6 million. The dividends were fully paid on
January 12, 2011.
b.
Excess of cost over net asset value of investments – net
The pooling of interest method was applied to account for the following acquisition since these involves
entities under common control:
a.
b.
On August 30, 2007, the Parent Company acquired SFFC from its affiliate, Accuria, Inc. for a total
consideration of P
=13.7 million. The excess of cost over SFFC’s net assets during the time of
acquisition, amounting to P
=11.7 million is recorded in equity as “Excess of cost over net asset value
of investments – net”.
On December 1, 2011, NALHMCI acquired from NENACO, six of its subsidiaries for a total
consideration of P
=29.4 million. These subsidiaries are JASC, RDC, NHTC, STI, SGF and SSI.
The excess of the combined net assets of NENACO’s subsidiaries at the time of acquisition over
the total cost of the investment amounted to P
=0.8 million and is presented under equity as “Excess
of cost over net assets value of investments – net”. Accordingly, the 2010 consolidated balance
sheet was restated to reflect the balances of these entities as if they had always been consolidated.
43
The excess of the combined net assets of NENACO’s subsidiaries as of December 31, 2011 is net
of dividend declaration of P
=2.0 million by SGF to NENACO in 2011.
24. Related Party Disclosures
In the normal course of business, the Group has transacted with the following related party:
Related Party
NENACO1
Relationship
Immediate parent
Negrense Marine Integrated Services, Inc. (Negrense)1
Under common control
Brisk Nautilus Dock Integrated Services, Inc. (Brisk)1
Under common control
Sea Merchants Inc. (SMI)
Under common control
Bluemarine Inc. (BMI)
Under common control
Astir Engineering Works Inc. (AEWI)
Associate of NENACO
KALI
Joint venture of 2GO EXPRESS
INC.
Associate
HATS
MCCP
1
related parties from December 28, 2010 onwards
Associate
Transactions with NENACO
Transactions with NENACO in 2011 include joint services and co-loading arrangements whereby the
Parent Company and NENACO share vessel space for the shipment of customer cargoes. Each of the
parties, whoever is the actual vessel-operating carrier, charged the other party for the shared space on a
per container basis. As of December 31, 2011, total co-loading revenue and expense recognized by the
Parent Company amounted to P
=200.1 million and P
=201.4 million, respectively. In 2012, there were no
more co-loading arrangements between the Parent Company and NENACO.
Effective December 1, 2011, the Parent Company entered into a vessel lease arrangement with
NENACO involving six of NENACO’s vessels at a fixed daily rate for a period of one year.
For the period ending September 30, 2012 and in December 2011, the Parent Company recognized
vessel lease expense amounting to P
=631.8 million and P
=57.5 million, respectively (see Note 25).
In 2011, the Parent Company has granted NENACO an interest-bearing loan amounting to
=657.5 million. This loan was eventually paid by NENACO in two tranches in 2012 i.e. August 31
P
(P500 million) and September 10 (P157 million). For the period ending September 30, 2012 and 2011,
total interest income charged by the Parent Company to NENACO amounted to P
=39 million and P
=49.9
million respectively, of which outstanding is nil as of September 30, 2012.
Transactions with associates and other related parties
Negrense charge agency fee to the Parent Company based on an agreed rate for its manpower services
and for its management of the Parent Company’s food and beverage business effective August 2011.
Negrense also provides housekeeping and manpower pooling services to the Parent Company and SFFC.
In September 30, 2012, total fees charged by Negrense to the Parent Company and SFFC amounted to P
=
107.1 million and P
=14.93 million in Dec 2011, respectively.
Brisk provides vessel and container repairs, cargo handling and trucking services to the Parent Company.
Total fees charged by Brisk amounted to P
=53.4 million as of September 30, 2012.
Transactions with other associates and related companies consist of shipping services, management
services, ship management services, purchases of steward supplies, availment of stevedoring, arrastre,
trucking, and repair services and rental.
The consolidated balance sheets include the following amounts with respect to the transactions with the
above related parties:
Transactions and balances with related parties eliminated during consolidation
44
 The Parent Company’s transactions with 2GO Express, Inc. (formerly ATS Express, Inc.) include
shipping and forwarding services, commission and trucking services. Total freight and service revenue
charged by 2GO Express, Inc. amounted to P
=20 million and P
=56.4 million in September 30, 2012 and
2011, respectively.
 The Parent Company provided management services to SFFC, 2GO Express, Inc., 2GO Distribution,
Inc. (formerly ATS Distribution, Inc.), HLP, KALI and SOI at fees based on agreed rates. Management
and other services provided by the Parent Company amounted to P
=31.4 million and P
=56.4 million in
September 30, 2012, and 2011, respectively.
 2GO Express Inc. provides management services to the Parent Company’s loose cargo business at fees
based on an agreed rate. Management service fees provided by 2GO Express Inc. to the Parent
Company amounted to P
=9 million and P
=7.6 million in September 2012 and 2011, respectively.
25. Costs and Expenses
Fuel and Lubricants
Cost of Sales and Services
Lease of vessels
Depreciation and amortization
Outside Services
Personnel
Repairs and maintenance
Insurance
Food and subsistence
Commissions
Steward supplies
Rentals
Communication, light and water
Sales Concession
Others
Sept-2012
3,062,948
237,007
631,758
558,295
1,290,765
292,336
256,372
122,019
64,335
63,963
85,133
202,210
86,064
41,241
306,446
7,300,891
Sept-2011
2,521,815
629,548
1,174,964
346,541
306,047
144,029
91,051
26,647
32,921
195,196
63,658
28,857
304,763
5,866,037
Terminal Expenses
Outside Services
Depreciation and amortization
Transportation and delivery
Repairs and maintenance
Personnel
Rent
Fuel and Lubricants
Others
(Forward)
Sept-2012
305,535
54,585
100,636
87,457
83,454
75,454
38,333
108,455
853,910
Sept-2011
304,481
67,401
393,471
77,929
99,781
47,952
34,931
88,955
1,114,900
45
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
Sept-2012
350,216
65,254
69,064
100,294
61,883
31,472
5,450
11,089
8,498
19,560
10,014
8,241
9,326
83,650
834,011
Sept-2011
433,340
98,475
26,345
49,094
41,646
26,506
8,233
7,044
8,096
16,297
8,337
5,446
13,382
87,313
829,555
26. Personnel Cost
Personnel Expenses
Salaries and wages
Crewing costs
Retirement benefits
Other employee benefits
Sept-2012
486,459
91,048
63,172
98,549
739,227
Sept-2011
576,110
193,044
34,488
76,020
879,662
In 2011, redundancy and retirement benefit cost included as part of integration cost amounted to P
=97.2
million. The remaining P
=25.8 pertains to the professional fees incurred relating to the integration of the
Group.
27. Retirement Benefits
The Group has funded defined benefit pension plans covering all regular and permanent employees. The
benefits are based on employees’ projected salaries and number of years of service.
The following tables summarize the funded (unfunded) status and amounts as included in the consolidated
balance sheet and the components of retirement benefit costs recognized by the Group as included in profit
and loss in 2011, 2010 and 2009, respectively.
The funded status and amounts recognized in the consolidated balance sheets include the retirement benefits
of 2GO Distribution, Inc., HLP and SGF as at December 31, 2011 and of the Parent Company, 2GO
Distribution, Inc. and SOI as at December 31, 2010.
2010
2011
(As restated)
(In Thousands)
Accrued retirement benefits
Pension asset
(P
=52,182)
7,082
(P
=45,100)
(P
=19,715)
61,005
=
P41,290
46
Retirement Plan Asset (Liability) – net
2010
(As restated)
(In Thousands)
2011
Beginning
Defined benefit obligation
Unfunded obligation
Unrecognized net actuarial gains
Attributable to discontinued operations (Note 30)
=70,145
P
(224,121)
(153,976)
108,876
(45,100)
–
(P
=45,100)
P224,602
=
(285,954)
(61,352)
119,992
58,640
(17,350)
=41,290
P
Movement in the present value of the defined benefit obligation is as follows:
2010
(As restated)
(In Thousands)
2011
Beginning
Interest cost
Current service cost
Separation cost
Transfers
Actuarial loss (gain)
Curtailment gain
Benefits paid
Balance from acquired subsidiaries
Attributable to discontinued operations (Note 30)
=285,954
P
25,562
30,034
–
(4,396)
28,689
(102,106)
(39,616)
–
224,121
–
=224,121
P
=412,204
P
41,954
40,963
16,995
198
(50,001)
(4,051)
(37,889)
991
421,364
(135,410)
=285,954
P
Movement in the fair value of plan assets is as follows:
2010
(As restated)
(In Thousands)
2011
Fair value of plan assets at January 1
Actuarial gain (loss) on plan assets
Actual contributions
Expected return
Transfers
Benefits paid
Balance from acquired subsidiaries
Attributable to discontinued operations (Note 30)
=224,602
P
(16,970)
22,735
15,354
(4,623)
(170,953)
–
70,145
–
=70,145
P
=224,299
P
69,147
68,142
23,068
198
(37,359)
886
348,381
123,779
=224,602
P
47
The major categories of plan assets are as follows:
2010
(As restated)
(In Thousands)
2011
Investments in:
Shares of stocks
Cash and cash equivalents
Common trust fund
Government securities and other debt securities
Others
P38,860
=
30,602
–
–
683
=70,145
P
=44,920
P
–
128,023
51,659
–
=224,602
P
The principal assumptions as of January 1 used in determining pension benefit obligations for the Group’s
plans are shown below:
Discount rate
Expected rate of return on assets
Future salary increases
2011
8.29% to 10.53%
7.00%
6.00% to 8.00%
2010
9.00% to 10.55%
7.00% to 10.00%
6.00% to 8.00%
2009
8.25 to 11.0%
8.53 to 11.0%
6.00 to 9.00%
As of December 31, 2011, the discount rate, expected rate of return on assets and future salary increases are
7.9% to 8.19%, 4.0% to 7% and 6.0% to 8.0%, respectively.
Retirement Benefit Costs
2011
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial loss recognized
Curtailment loss (gain) (Note 27)
Separation cost
Income recognized due to asset limit
Past service cost – nonvested benefits
Total net benefit expense
Net benefit expense attributable
to discontinued operations (Note 30)
P30,034
=
25,562
(15,354)
4,391
75,817
–
–
–
120,450
–
=120,450
P
Actual return on plan assets
(P
=1,616)
2010
(In Thousands)
2009
P40,963
=
41,954
(22,530)
8,700
(4,766)
16,995
–
–
81,316
(17,773)
P34,021
=
37,399
(19,084)
2,456
–
–
(5,856)
2,001
50,937
(24,814)
=63,543
P
=26,123
P
=91,458
P
(P
=11,603)
48
Amounts for the current and prior periods are as follows:
2011
Defined benefit obligation
Fair value of plan assets
Deficit
Experience adjustments
on plan liabilities
Experience adjustments on
plan assets
2010
(As restated)
2008
2009
(In Millions)
=224.1
P
70.1
154.0
(29.6)
P285.0
=
223.7
61.3
(9.7)
P412.2
=
224.3
187.9
18.3
P242.5
=
194.2
48.3
(69.8)
P220.9
=
216.8
4.1
(64.1)
(17.0)
68.9
(30.1)
(0.5)
12.7
The Group expects to contribute approximately P
=87.9 million to the defined benefit pension plan in 2011.
28. Income Tax
a.
The components of provisions for (benefit from) income tax are as follows:
2012
Current
RCIT
MCIT
Deferred
a.
2011
(In Thousands)
P42,221
=
11,687
(249,208)
(P
=195,300)
=44,732
P
(249,299)
(P
=204,567)
2010
=49,624
P
1,606
(472,697)
(P
=421,467)
The components of the Group’s recognized net deferred tax assets and liabilities are as follows:
2010
2011
Net Deferred Net Deferred Net Deferred Net Deferred
Tax Assets Tax Liabilities
Tax
Tax
Assets
Liabilities (As restated) (As restated)
(In Thousands)
Deferred income tax assets on:
Allowances for:
Fixed assets writedown
Impairment of receivables
Inventory obsolescence
Provision for integration cost
Investment in stock
NOLCO
MCIT
Accrued retirement costs and
others
Unrealized foreign exchange loss
Others
Deferred income tax liabilities:
Pension asset
Others
c.
=91,045
P
P82,377
=
21,210
–
75
732,308
624
27,792
=–
P
P47
=
–
–
–
–
–
863
P233,649
=
=73,353
P
21,979
10,500
75
351,069
624
276
=–
P
P44
=
–
–
–
–
–
978
145
19,877
975,453
–
262
1,172
1,471
39,440
732,436
–
124
1,146
(10,633)
(1,716)
(11,352)
(1,437)
(2,830)
(3,778)
–
(4)
(13,463)
(5,494)
(11,352)
(1,441)
=
P
718,973
(P
=
4,348)
=964,101
P
(P
=269)
Details of the Group’s NOLCO and MCIT which can be carried forward and claimed as tax credit
against regular taxable income and regular income tax due, respectively, are as follows:
49
NOLCO
Incurred in
2011
2010
2008
Available
Until
Amount
Applied
2014
2013
2011
P1,378,454
=
1,168,925
245,916
=2,793,295
P
P–
=
–
–
=–
P
Available
Until
Amount
Balances as of
Expired December 31,
Tax Effect
2011
(In Thousands)
=–
P
=1,378,454
P
=413,536
P
–
1,168,925
350,678
(245,916)
–
–
(P
=245,916)
=2,547,379
P
=764,214
P
MCIT
Incurred in
2011
2010
2009
2008
d.
2014
2013
2012
2011
(In Thousands)
=11,740
P
1,606
23,073
11,594
=48,013
P
Applied
Balances as of
Expired December 31,
2011
(In Thousands)
=–
P
=–
P
=–
P
=–
P
–
–
–
–
–
(11,594)
=–
P
(P
=11,594)
P11,740
=
=11,740
P
1,606
23,073
–
=36,419
P
The following are the Group’s NOLCO and MCIT for which no deferred income tax assets have been
recognized because management believes that it is not probable that sufficient future taxable income
will be available against which the deferred tax assets can be utilized:
2010
(In Thousands)
=247,003
P
=106,351
P
37,620
35,795
2011
NOLCO
MCIT
e.
Reconciliation between the income tax expense computed at statutory income tax rates of 30.0% in
2011, 2010 and 2009 and the provision for income tax expense as shown in profit or loss is as follows:
2011
Provision for (benefit from) income
tax at statutory tax rate
Income tax effects of:
Changes in unrecognized DTA
Income tax holiday (ITH)
incentive on registered
activities (Note 33)
Gain on sale of investment
already subjected to
final tax
Equity in net (earnings) losses of
associates
Interest income already
subjected to a lower
final tax
Dividend income
Changes in enacted tax rates
NOLCO derecognized
(P
=246,271)
2010
(In Thousands)
(P
=460,767)
2009
=203,693
P
46,571
7,093
–
(32,318)
3,187
(25,125)
(5,299)
(22,807)
4,358
(12,062)
(17,138)
(1,944)
(1,360)
(18,473)
(84)
–
–
(398)
–
73,775
(1,984)
2,025
16,730
–
50
MCIT derecognized
Others
–
276
(P
=195,300)
59,093
(24,623)
(P
=421,467)
9,161
(4,739)
=167,337
P
In computing deferred income tax assets and liabilities as at December 31, 2011 and 2010, the rate used was
30% which is the rate expected to apply to taxable income in the years in which the deferred tax assets and
liabilities are expected to be recovered or settled.
29. Provisions and 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 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. The collection of which is virtually certain. As of
December 31, 2011, proceeds from this claim amounted to P
=33.6 million and 117.0 million.
As at December 31, 2011 and 2010, the Parent Company has provided guarantees on the bank loans of AOI,
AODI, RVSI and ZIP amounting to P
=183.3 million and P
=38.4 million, respectively.
30. Earnings (Loss) per Common Share
Basic and diluted earnings per common share were computed as follows:
There are no potentially dilutive common shares as at December 31, 2011, 2010 and 2009.
Net income attributable to equity holders
of the parent (a)
Weighted average number of common shares outstanding
for the year (b):
Basic Earnings (loss) per share (a/b)
Sept-2012
Sept-2011
(342,017)
(257,502)
2,446,136
(0.14)
2,446,136
(0.11)
31. Registration with the Board of Investments (BOI)
a.
With the effectivity of the merger of the Parent Company and ZIP, the Parent Company assumed ZIP’s
outstanding BOI registration as an expanding operator of logistics service facility on a non-pioneer
status under Certificate of Registration No. 2008-179. The ITH incentive for a period of three years,
which expired in July 2011, provided that for purpose of availment, a base figure of P
=924.1 million will
be used in the computation of the ITH for the said expansion.
b.
On January 27, 2011, BOI approved the Parent Company’s application for registration of the
modernization of two (2) second-hand RORO vessels, St. Gregory the Great (formerly SuperFerry 20)
and St. Leo the Great (formerly SuperFerry 21). The Parent Company was granted ITH incentive for a
period of three years from March 2011 or actual start of operations. The ITH incentive shall be limited
only to the sales/revenues generated by the registered project.
c.
SFFC is registered with BOI as a New Operator of Domestic Shipping (Passenger Vessel) on a NonPioneer status. The Company is entitled to four years ITH from date of registration until February 2012.
51
32. Commitments and Other Matters
a.
The Parent Company has a Memorandum of Agreement (Agreement) with Asian Terminals, Inc. (ATI)
for the use of 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, P
=197.5 million, P
=196.3 million and P
=128.8 million in 2011, 2010 and 2009,
respectively (see Note 25).
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
437.4 million in 2010 and P
=400.0 million in 2009.
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 amounting to =
P1,001.1 million and P
=529.4 million in 2010 and 2009, respectively.
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
e.
2011
P172,682
=
320,857
1,366
=494,905
P
2010
P79,804
=
171,877
5,947
=257,628
P
The Parent Company entered into several vessel chartering agreements for a period ranging from three to 15
months. Charter fees are based on an agreed daily rate of $3,125 to $9,400.
33. Financial Risk Management Objectives and Policies
Risk Management Structure
The Group’s overall risk management program focuses on the unpredictability of financial markets and
seeks to minimize potential adverse effects on the Groups financial performance. It is, and has been
throughout the year under review, the Group’s policy that no trading in financial instruments shall be
undertaken.
Financial Risk Management
The Group’s principal financial instruments comprise of cash and cash equivalents, loans payable, long-term
debt, obligations under finance lease, restructured debts and redeemable preferred shares. The main purpose
of these financial instruments is to raise financing for the Groups operations. The Group has other various
52
financial assets and liabilities such as trade and other receivables and trade and other payables, which arise
directly from operations.
The main risks arising from the Group’s financial instruments are credit risk involving possible exposure to
counter-party default, primarily, on its short-term investments and trade and other receivables; liquidity risk
in terms of the proper matching of the type of financing required for specific investments and maturing
obligations; foreign exchange risk in terms of foreign exchange fluctuations that may significantly affect its
foreign currency denominated placements and borrowings; and interest rate risk resulting from movements
in interest rates that may have an impact on interest bearing financial instruments.
Credit risk
To manage credit risk, the Group has policies in place to ensure that all customers that wish to trade on
credit terms are subject to credit verification procedures and approval of the Credit Committee. In addition,
receivable balances are monitored on an ongoing basis to reduce the Group’s exposure to bad debts. The
Group has policies that limit the amount of credit exposure to any particular customer.
The Group does not have any significant credit risk exposure to any single counterparty. The Group’s
exposures to credit risks are primarily attributable to cash and collection of trade and other receivables with
a maximum exposure equal to the carrying amount of these financial instruments.
The credit quality per class of financial assets that are neither past due nor impaired is as follows:
As at December 31, 2011
Neither past due nor impaired
High
Loans and receivables
Cash in banks
=754,151
P
Cash equivalents
130,721
Trade and other receivables:
Freight
372,778
Service fees
45,144
Passage
87,988
Distribution
238,793
Others
186,396
NNontrade receivables
178,045
DDue from related parties
92,437
Insurance and other claims
35,468
Advances to officers and
Employees
17,925
AFS investments
9,797
Total
P2,149,643
=
Past due or
individually
Medium
Low
impaired
(In Thousands)
Total
P–
=
–
P–
=
–
P–
=
–
P754,151
=
130,721
–
18,250
–
–
–
–
–
–
–
2,751
–
–
–
–
–
–
855,230
65,016
–
151,536
84,613
–
705,293
69,349
1,228,008
131,161
87,988
390,329
271,009
178,045
797,730
104,817
–
–
=18,250
P
–
–
=2,751
P
246
–
=1,931,283
P
18,171
9,797
=4,101,927
P
Past due or
individually
impaired
Total
=–
P
=566,564
P
As at December 31, 2010
Neither past due nor impaired
High
Loans and receivables
=566,564
P
Medium
Low
(In Thousands)
=–
P
=–
P
53
Cash in banks
Cash equivalents
Trade receivables
Freight
Service fees
Passage
Distribution
Others
Nontrade receivables
Due from related parties
Insurance and other claims
Advances to officers and
employees
AFS investments
Total
196,656
–
–
–
196,656
176,464
10,908
25,826
285,921
157,466
646,695
14,118
9,819
24,335
155,210
697
–
–
–
2,508
–
1,050
427,725
11,042
–
–
–
481
–
–
–
488,467
39,618
312
148,076
52,528
12,830
–
109,640
4,750
1,247,866
62,265
26,138
433,997
209,994
662,514
14,118
120,509
29,085
–
=439,248
P
–
=856,221
P
29,838
=3,599,544
P
29,838
=2,144,610
P
–
–
=159,465
P
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. It also evaluated its advances to officers and
employees as high grade since these are deductible from their salaries.
The aging per class of financial assets that were past due but not impaired is as follows:
As at December 31, 2011
Neither
past
due nor
impaired
Past due but not impaired
Less than 30
days
Loans and
receivables:
Cash in banks
P754,151
=
Cash equivalents
130,721
Loans and
receivables:
Trade receivables:
Freight
372,778
Passage
87,988
Service fees
66,145
Distribution
238,793
Others
186,396
Nontrade
178,045
receivables
Due from related
92,437
parties
Insurance and other
35,468
claims
31 to 60
days
Impaired
financial
assets
Total
61 to 90
Over 90
days
days
(In Thousands)
P–
=
–
P–
=
–
P–
=
–
P–
=
–
P–
=
–
P754,151
=
130,721
147,777
–
25,682
118,471
25,742
–
33,426
–
8,630
4,562
20,860
–
26,770
–
6,251
5,151
25,190
–
440,882
–
3,102
6,663
–
–
206,375
–
21,351
16,689
12,821
–
1,228,008
87,988
131,161
390,329
271,009
178,045
2,484
99,071
5,233
797,730
–
22,753
46,596
104,817
2,242
–
596,26
3
–
54
Neither
past
due nor
impaired
Past due but not impaired
Less than 30
days
–
17,925
Advances to officers
and employees
AFS investments
9,797
Total
=2,170,644
P
–
=319,914
P
31 to 60
days
45
–
=70,007
P
61 to 90
days
201
–
=185,387
P
Over 90
days
–
–
=1,046,910
P
Impaired
financial
assets
Total
–
18,171
–
9,797
=309,065 P
P
=4,101,927
As at December 31, 2010
Neither
past
due nor
impaired
Past due but not impaired
Less than 30
days
Loans and
receivables:
Cash in banks
=566,564
P
Cash equivalents
196,656
Trade receivables:
Freight
759,399
Service fees
22,647
Passage
25,826
Distribution
285,921
Others
157,466
Nontrade
649,684
receivables
Due from related
14,118
parties
Insurance and other
10,869
claims
Advances to officers
24,335
and employees
AFS investments
29,838
Total
P2,743,323
=
31 to 60
days
Impaired
financial
assets
Total
61 to 90
Over 90
days
days
(In Thousands)
P–
=
–
P–
=
–
P–
=
–
P–
=
–
P–
=
–
P566,564
=
196,656
133,736
12,162
–
98,207
35,475
571
65,917
6,191
162
20,504
7,250
153
34,858
2,078
46
6,908
4,132
243
44,389
4,464
104
7,823
4,724
5,313
209,567
14,723
–
14,634
947
6,550
1,247,866
62,265
26,138
433,997
209,994
662,514
–
–
–
–
–
14,118
–
–
72,990
–
36,650
120,509
501
317
3,360
572
–
=280,652
P
–
=100,494
P
–
=124,615
P
–
=67,389
P
29,085
–
–
=283,071
P
29,838
=3,599,544
P
Liquidity risk
The Group manages its liquidity profile to be able to finance its capital expenditures and service its maturing
debt by maintaining sufficient cash during the peak season of the passage business. The Group regularly
evaluates its projected and actual cash flow generated from operations.
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.
55
The following table summarizes the maturity profile of the Group’s financial assets and financial liabilities
based on contractual repayment obligations and the Group’s cash to be generated from operations and the
Group’s financial assets as at December 31:
2011
Less than 1 to 5 years More than
1 year
5 years
Financial assets
Cash and cash
equivalents
Trade and other
receivables
Total undiscounted
financial assets
Financial liabilities
Trade and other
payables*
Loans payable
Redeemable preferred
shares
Long-term debt
Obligation under
finance lease
Other noncurrent
liabilities
Total undiscounted
financial liabilities
Less than
1 year
(In Thousands)
Total
2010
1 to 5 years
More than
5 years
Total
= 884,872
P
=–
P
=–
P
884,872
=763,220
P
=–
P
=–
P
=763,220
P
2,898,193
–
–
2,898,193
2,523,415
–
–
2,523,415
3,783,065
–
–
3,783,065
3,286,635
–
–
3,286,635
2,971,510
–
–
2,971,510
4,471,976
–
–
4,471,976
1,220,454
27,363
–
–
–
–
1,220,454
27,363
2,011,594
–
–
27,363
–
–
2,011,594
27,363
1,185,628
36,407
3,639,897
95,374
–
2,492
4,825,525
134,273
2,414,767
12,511
–
39,823
–
6,778
2,414,767
59,112
–
8,409
–
8,409
–
6,041
–
6,041
5,441,362
3,743,680
2,492
9,187,534
8,910,848
73,227
6,778
8,990,853
Total net
(P
= 1,658,297) (P
= 3,743,680)
undiscounted
financial liabilities
=5,624,213)
(P
= 2,492) (P
= 5,404,469) (P
(P
=73,227)
(P
=6,778) (P
=5,704,218)
*Excudes nonfinancial liabilities amounting toP
=460,698 and =
P 70,570 as of December 31, 2011 and 2010.
Foreign exchange risk
Foreign currency risk arises when the Group enters into transactions denominated in currencies other than
their functional currency. 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 Group’s significant foreign currency-denominated financial assets and financial liabilities as of
December 31 are as follows:
Financial Asset
Cash in bank
Trade receivables
Financial Liabilities
Trade payables
Obligations under finance
lease
Net foreign currency
denominated assets
(liabilities)
1
$1 = P
=44.3234 4€1 = P
=33.7752
2
Kr = P
=7.6471 5$1 = P
=43.84
2011
EUR3 NZD4
AUD1
DKK2
$2
–
2
Krl
–
1
€2
–
2
$1
–
1
$434
251
685
P19,270
=
11,004
30,274
372
–
1,757
–
313
–
83
–
83
882
(54,158)
(38,667)
313
(€311)
83
($82)
965
($280)
(92,825)
(P
=62,551)
372
($372)
1,757
(Kr1,757)
USD5 Total Peso
Equivalent
56
3
$1 = P
=56.8428
Financial Assets
Cash
Trade receivables
Total Financial Assets
Financial Liabilities
Trade payables
Obligations under finance
lease
Total Financial Liabilities
Net foreign currency
denominated assets
(liabilities)
1
$1 = P
=44.6398 3$1 = P
=33.5281
2
€1 = P
=58.0335 4$1 = P
=43.8400
AUD1
EUR2
2010
NZD3
USD4
Total Peso
Equivalent
$–
–
–
€2
–
2
$2
–
2
1,034
2,193
3,227
P45,523
=
96,126
141,649
374
–
347
–
27
–
1,211
1,042
90,873
45,686
374
($374)
347
(345)
27
($25)
2,253
$974
136,559
=5,090
P
The Group has recognized in its other income, foreign exchange revaluation gain amounting to
=5.3 million in 2011 and losses of P
P
=12.9 million and P
=9.1 million in 2010 and 2009, respectively.
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,
2011 and 2010.
Appreciation/
(Depreciation) of
Foreign
Currency
Effect on Income Before Tax
2011
(In Thousands)
(P
=835)
(P
=)
823
(886)
()
886
(140)
()
140
(613)
613
(672)
672
2012
Australian Dollar (AUD)
Euro (EUR)
New Zealand Dollar (NZD)
US Dollar (USD)
Danish Kroner (DKK)
+5%
-5%
+5%
-5%
+5%
-5%
+5%
-5%
+5%
-5%
There is no other impact on the Group’s equity other than those already affecting profit or loss.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will
fluctuate because of changes in market interest rates.
The Group has no borrowings issued at variable rates, thus, the Group is not subject to cash flow interest
rate risk. However, borrowings issued at fixed rates exposes the Group to fair value interest rate risk. The
Group’s borrowings are subject to fixed interest rates ranging from 2.5% to 10.25% for 10 years in 2011 and
2.5% to 10.0% for 10 years in 2010.
In March 2011, as a result of the availments of the P
=4.0 billion loan under the OLSA, P
=2.0 billion of the
outstanding loans of the Group which carries variable interest rates are exposed to cash flow interest rate
57
risk.
The sensitivity of the consolidated statement of income is the effect of the assumed changes in interest rates
on the consolidated income before income tax for one year, based on the floating rate non-trading financial
liabilities held at December 31, 2011 with other variables held constant:
Changes in
interest rates
(In Thousands)
+80 basis points
-80 basis points
For more than one year
Effect on income
before tax
(P
=15,710)
15,710
As at December 31, 2010, the Group has no borrowings issued at variable rates, thus, the Group is not
subject to cash flow interest rate risk.
Shown below are the carrying amounts, by maturity, of the Group’s interest bearing financial instruments:
Within
one year
2011
1 to 5 years Over 5 years
Total
(In Thousands)
Financial Assets
Cash in banks and cash equivalents
AFS investments
Financial Liabilities
Loans payable
Long-term debt
Obligation under finance lease
Redeemable preferred shares
=884,872
P
–
=884,872
P
=–
P
9,797
=9,797
P
P–
=
–
=
P
=884,872
P
9,797
=894,669
P
=1,215,440
P
785,716
30,174
25,938
=2,057,268
P
=–
P
3,178,027
89,444
–
=3,267,471
P
P–
=
–
2,492
–
=2,492
P
P1,215,440
=
3,963,743
122,110
25,938
=5,327,231
P
2010
1 to 5 years
Over 5 years
Total
Within
one year
(In Thousands)
Financial Assets
Cash in banks and cash equivalents
AFS investments
=763,220
P
–
=763,220
P
=–
P
29,838
=29,838
P
P–
=
–
=–
P
=763,220
P
29,838
=793,058
P
2010
1 to 5 years
Over 5 years
Total
(Forward)
Within
one year
(In Thousands)
Financial Liabilities
Loans payable
Long-term debt
Obligation under finance lease
Redeemable preferred shares
P1,992,900
=
1,979,107
8,229
–
=3,980,236
P
P–
=
–
30,679
22,882
=53,561
P
P–
=
–
6,778
–
=6,778
P
P1,992,900
=
1,979,107
45,686
22,882
=4,040,575
P
Equity price risk
Equity price risk is the risk that the fair value of traded equity instruments decreases as the result of the
changes in the levels of equity indices and the value of the individual stocks.
58
As at December 31, 2011 and 2010, the Group’s exposure to equity price risk is minimal.
The effect on equity (as a result of a change in fair value of equity instruments held as AFS investments as
of December 31, 2011 and 2010) due to reasonably possible change in equity indices, with all other
variables held constant, follows:
The impact on the Group’s equity excludes the impact of transactions affecting the consolidated statements
of comprehensive income.
Increase (decrease)
in PSE index
Effect on equity
2012
AFS investments
32%
(32%)
P156
=
(156)
2011
P156
(156)
The impact on the Group’s equity excludes the impact of transactions affecting the consolidated statements
of comprehensive income.
Capital Risk Management Objectives and Procedures
The Group’s capital management objectives are to ensure the Group’s ability to continue as a going concern,
so that it can continue to provide returns for shareholders and benefits for others stakeholders and produce
adequate and continuous opportunities to its employees; and to provide an adequate return to shareholders
by pricing products/services commensurately with the level of risk.
The Group sets the amount of capital in proportion to risk. It manages the capital structure and makes
adjustments in the light of changes in economic conditions and the risk characteristics of the underlying
assets, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders,
issue new shares, or sell assets to reduce debt.
The Group monitors capital on the basis of the carrying amount of equity as presented on the face of the
balance sheet.
34. Fair Value of Financial Instruments
The table below presents a comparison by category of the carrying amounts and fair values of the Group’s
financial instruments as at December 31, 2011 and 2010. Financial instruments with carrying amounts
reasonably approximating their fair values are no longer included in the comparison.
Carrying
Amount
Financial Liabilities
Other financial liabilities:
Long-term debt
Obligations under finance
lease
Redeemable preferred shares
2010
2011
Fair Value
Carrying
Amount
(In Thousands)
Fair Value
=3,963,743
P
122,110
=3,590,354
P
117,427
=1,979,107
P
45,686
=1,979,107
P
51,400
25,938
=4,111,791
P
25,938
=3,733,719
P
22,882
=2,047,675
P
26,190
=2,056,697
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
59
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 and trade and other payables
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 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
As of December 31, 2011, the carrying value of the RPS approximates its fair value since the entire balance
is due for redemption within one year. As of December 31, 2010, 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% were used in calculating the fair value of the Group’s in
2010.
Refundable deposits
As of December 31, 2011, the carrying value of refundable deposits approximates fair value due to the
relatively short-term maturity of this financial statement.
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.
Long term debt
As of December 31, 2011, discount rate of 4.7% was used in calculating the FV of the long-term debt. As of
December 31, 2010, the carrying amounts of long-term debt approximate fair value as the debt is already
due and demandable due to breach of loan covenants.
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 1.75% to 5.27% as at December 31, 2011 and 6.79% to 9.03% as at December 31,
2010.
Fair Value Hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not
based on observable market data.
Only the Group’s AFS investments, which are classified under Level 1, are measured at fair value. During
the reporting period ending December 31, 2011 and 2010, there were no transfers between Level 1 and
Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
60
35. Events After The Reporting Period
a.
In February and March 2012, the Philippine SEC approved the application of the Parent Company and
its subsidiaries to change their Articles of Incorporation and By-laws, which include, among others, the
change in their corporate names to 2GO (formerly ATSC), 2GO Express, Inc. (formerly ATSEI), and
2GO Logistics, Inc. (formerly ATSDI).
b.
On March 9, 2012, the Philippine SEC approved the registration of Special Container and Value Added
Services, Inc., a newly formed company under the Parent Company, which has a primary purpose of
engaging in domestic and/or international business of transporting any and all kinds of goods and
cargoes, by sea, air and land, functioning as non-vessel operating common carrier, engaging in cargo
forwarding including acting as cargo consolidator and breakbulk agent, and courier for mails, letters,
pouches, other cargoes and personal effects of any and all kinds, types and nature.
2GO GROUP, INC.
FORMERLY ATS CONSOLIDATED (ATSC), INC.
12/F TIMES PLAZA BUILDING., COR. TAFT AVENUE , U.N. AVENUE, ERMITA, MANILA
STATEMENTS OF RETAINED EARNINGS AVAILABLE
FOR DIVIDEND DECLARATION
SEPTEMBER 30, 2012 and DECEMBER 31, 2011
(Amount in PHP'000 )
2012
2011
Unappropriated Retained Earnings, Beginning, as adjusted to available for
dividends distribution
(918,077)
(42,773)
(736,243)
(506,297)
(734,336)
(1,470,578)
(237,003)
(743,300)
3,056
3,056
3,056
3,056
Dividend declarations
-
-
Appropriations of Retained Earnings
-
-
Reversals of appropriations
-
-
Treasury shares
-
-
-
-
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
Unrealized foreign exchange gain - net (except those attributable to C ash and
C ash Equivalents)
Tax benefit (Deferred Tax Asset) during the period
Sub-total
Add: Non-actual losses
Adjustment due to deviation from PFRS/GAAP - loss
Fair value adjustment (M2M gains), biological assets, in 2004 offset against
losses in 2005.
Accretion of interest on RPS under PAS 39
Sub-total
Add(Less): Movement during the period
TOTAL RETAINED EARNINGS, END, AVAILABLE FOR DIVIDEND
(2,385,600)
(783,017)
2GO GROUP, INC. [FORMERLY ATS CONSOLIDATED (ATSC), INC.] AND SUBSIDIARIES
AGING OF RECEIVABLES
AS OF SEPTEMBER 30, 2012
IN PHP'000
Aging of Receivables
Particulars
30 Days
60 Days
90 Days
Over 90 Days
Items Under
Litigation
Total
A/R - Trade
685,258
112,448
51,015
1,568,167
2,416,887
A/R - Non Trade/Others
140,379
8,199
4,613
76,479
229,670
14,825
4,060
4,369
6,094
29,348
1,731
1,991
-
165,766
169,488
-
-
-
(192,576)
(192,576)
Advances to Officers/Employees
Receivable from insurance and other claims
Allowance for Doubful Accounts
Items Under Litigation
TOTAL
842,192
126,698
59,997
1,623,930
(125,864)
(125,864)
(125,864)
2,526,953
2G O G RO UP, INC. [FO RMERLY ATS CO NS O LIDATED (ATS C), INC.] AND S UBS IDIARIES
FINANCIAL S O UNDNES S INDICA TO RS
S EPTEMBER 30, 2012 and DECEMBER 31, 2011
S ept-2012
Dec-2011
1 Debt-to-Equity
Total Liabilities
Total S tockholders' E quity
Debt-to-Equity Ratio
8,399,264
2,977,392
2.82
8,825,800
3,306,284
2.67
2 Current Ratio
Total Current Assets
Total Current Liabilities
Current Ratio
5,070,696
5,969,847
0.85
5,900,743
5,494,977
1.07
3 Equity-to-Asset Ratio
Total S tockholders' E quity
Total Assets
Equity-to-Asset Ratio
2,977,392
11,376,656
0.26
3,306,284
12,132,084
0.27
4 Return O n Assets or "RO A"
O perating Income
Average Total A ssets
RO A
(76,783)
11,754,370
(0.01)
(352,030)
12,353,726
(0.03)
(76,783)
3,141,838
(0.02)
(352,030)
3,631,197
(0.10)
(236,065)
299,077
(0.79)
(413,356)
407,548
(1.01)
5 Return on Equity or "RO E"
O perating Income
Average Total S tockholders' Equity
RO E
6 Interest Coverage Ratio
EBIT
Interest Expense
Interest Coverage Ratio
CORPORATE STRUCTURE AS OF SEPTEMBER 30, 2012