Annual Report for the year ended 31 December 2010 - I

Transcription

COVER SHEET
A 2 0 0 1 0 1 6 3 1
SEC Registration Number
I - R E M I T ,
I N C .
A N D
S U B S I D I A R I E S
(Company’s Full Name)
2 6 / F
D i s c o v e r y
n u e ,
O r t i g a s
C e n t r e ,
C e n t e r ,
2 5
P a s i g
A D B
A v e
C i t y
(Business Address: No. Street City/Town/Province)
Mr. HARRIS EDSEL D. JACILDO
(02) 706 – 9999 Local 100/105/109
(Contact Person)
(Company Telephone Number)
1 2
3 1
Month
Day
(Fiscal Year)
1 7 - A
0 7
(Form Type)
Month
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
Foreign
SEC Number
PSE Code
File Number
I-REMIT, INC.
AND SUBSIDIARIES
(Company’s Full Name)
26/F Discovery Centre, 25 ADB Avenue,
Ortigas Center, Pasig City, 1605 Metro Manila
(Company’s Address)
(02) 706 – 9999 Local 100 / 105 / 109
(Telephone Number)
December 31
(Fiscal Year Ending)
(Month and Day)
SEC FORM 17-A
Form Type
Amendment Designation (if applicable)
December 31, 2010
Period Ended Date
(Secondary License Type and File Number)
A200101631
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference in any part of this report:
2010 Audited Parent Company and Consolidated Financial Statements of
I-Remit, Inc. and Subsidiaries
(incorporated as reference for Items 1, 6, 7 and 8 of SEC Form 17-A)
TABLE OF CONTENTS
PART I
BUSINESS AND GENERAL INFORMATION
Item 1
Item 2
Item 3
Item 4
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II
OPERATIONAL AND FINANCIAL INFORMATION
Item 5
Item 6
Item 7
Item 8
Market for Issuer’s Common Equity and Related Stockholder Matters
Management’s Discussion and Analysis or Plan of Operation
Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
PART III
CONTROL AND COMPENSATION INFORMATION
Item 9
Item 10
Item 11
Item 12
Directors and Executive Officers of the Issuer
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Party Transactions
54
65
66
68
PART IV
Item 13
CORPORATE GOVERNANCE
Corporate Governance
69
PART V
EXHIBITS AND SCHEDULES
Item 14
a.
b.
Exhibit
Reports on SEC Form 17-C
SIGNATURES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
INDEX TO EXHIBIT
1
30
32
32
33
38
51
51
74
74
PART I. BUSINESS AND GENERAL INFORMATION
Item 1. Business
(A)
Description of Business
(1)
Business Development
I-Remit, Inc. (“I-Remit”, “Parent Company”, or “Company”) is a company in the Philippines
engaged in the business of servicing the remittance needs of overseas Filipino workers
(OFWs) and other migrant workers. The Parent Company was duly registered with the
Securities and Exchange Commission (SEC) on March 5, 2001 with SEC Registration No.
A200101631. It started commercial operations on November 11, 2001.
The Parent Company and its subsidiaries (“Group”) are primarily engaged in the business of
fund transfer and remittance services, from abroad into the Philippines or otherwise, of any
form or kind of currencies or monies, either by electronic, telegraphic, wire or any other mode
of transfer; as well as in undertaking the delivery of such funds or monies, both in the domestic
and international market, by providing courier or freight forwarding services; and conducting
foreign exchange transactions as may be provided by law and other allied activities relative
thereto; provided that the foreign exchange transactions of the Parent Company shall be
limited to ordinary money changing activity or “spot” foreign currency transaction; provided
further that the Parent Company shall not engage in the business of being a commodity future
broker or otherwise shall engage in financial derivatives activities such as foreign currency
swaps, forwards, options or other similar instruments as defined under Bangko Sentral ng
Pilipinas (BSP) Circular No. 102, Series of 1995.
The Parent Company is duly registered as a Remittance Agent (RA) subject to applicable
provisions of law and BSP rules and regulations, as well as the provisions of the Anti-Money
Laundering Act of 2001 (Republic Act. No. 9160, as amended by Republic Act. No. 9194) and
the implementing rules and regulations, with Certificate No. FX-2005-000364 issued by the
BSP on May 10, 2005.
The Parent Company’s list of services also includes auxiliary services such as liaising and
coordinating with, and accepting and distributing membership contributions, loan amortization
payments, and premium payments to various government and non-government entities such
as the Social Security System (SSS), the Home Development Mutual Fund (HDMF or PagIBIG), the Philippine Retirement Authority (PRA) and the Philippine Health Insurance
Corporation (PhilHealth), as well as various insurance, pre-need, and real estate companies.
The Parent Company is to exist for fifty (50) years from and after the date of incorporation.
The registered office and principal place of business of the Parent Company is 26/F Discovery
Centre, ADB Avenue, Ortigas Center, Pasig City, 1605 Metro Manila, Philippines.
The Company also operates in various countries through subsidiaries, associates, or affiliates,
and via tie-ups and strategic partnerships. Tie-up and partnership arrangements are utilized
when the potential volume of remittances do not justify the investment of equity.
1
I-Remit currently operates in 26 countries and territories worldwide.
Lucky Star Management Limited, the first international office of I-Remit, opened in Hong Kong
in May 2001. In the same year, I-Remit started its aggressive global expansion by forging
alliances in other countries with high concentrations of overseas Filipino workers (OFWs) and
Filipino migrants. In July 2001, I-Remit forged a tie-up with its Canadian partner International
Remittance (Canada) Ltd., and established operations in three (3) major provinces of Canada:
British Columbia, Alberta, and Ontario. In 2005, I-Remit acquired 65% ownership in the said
company, and which was subsequently increased to 95% in 2006, and further consolidated to
100% by the end of June 2007. Also, in July 2001, I-Remit entered into its first European
partnership in the United Kingdom (UK), and eventually started the operation of its subsidiary,
IRemit Global Remittance Limited, in January 2003. It was sold by the Company in 2004 and
was repurchased in June 2007. I-Remit started its second Asian operation in Singapore
through IRemit Singapore Pte Ltd, which commenced its commercial operations in October
2001. I-Remit acquired 49% ownership in the said company in June 2007. I-Remit further
expanded in Asia through a tie-up in Taiwan, Hwa Kung Hong & Co., Ltd., which became
operational in 2001. I-Remit acquired 49% ownership in the said tie-up in July 2009. I-Remit
forged a tie-up in Australia that began its operations in September 2002. I-Remit Australia Pty
Ltd (“IAPL”) was incorporated in December 2002 and in June 2007 ownership has been
consolidated to 100%. Worldwide Exchange Pty Ltd (“WEPL”) in Australia started commercial
operations in September 2003. The Company acquired 20% ownership of WEPL in June 2007
and additional 15% ownership in September 2007. On March 31, 2011, I-Remit acquired the
35% interest of minority shareholders in WEPL. With its 30% indirect voting interest through
IAPL, I-Remit effectively owns 100.00% of WEPL. On July 25, 2007, the Financial Monetary
Authority of Austria granted the remittance license of IREMIT EUROPE Remittance Consulting
AG in which the Company has 74.9% equity interest. It started commercial operations on
September 16, 2007. In November 2009, IREMIT EUROPE Remittance Consulting AG was
registered by Banca D’Italia Eurosistema in the general list of financial intermediaries as a
provider of money transfer services under Article 106 of the legislative decree 385/1993 of
Italy’s Banking Law. I-Remit New Zealand Limited, a wholly-owned subsidiary was
incorporated and its registration was approved by the New Zealand Ministry of Economic
Development on September 11, 2007. It started commercial operations on February 13, 2008.
On November 28, 2008, I-Remit’s Board of Directors (“Board”) ratified the acquisition of the
100.00% ownership interest in Power Star Asia Group Limited, a company based in Hong
Kong which is engaged in foreign currency trading. On January 9, 2009, the Board of I-Remit
authorized the acquisition of up to 49% of the outstanding capital stock of Hwa Kung Hong &
Co., Ltd., a company engaged in the remittance business in Taiwan with offices in Taipei and
Kaohsiung. The acquisition of the shares was completed on July 1, 2009.
The Company’s presence in various countries hosting overseas Filipino workers (OFWs) and
Filipino migrants and several strategic partnerships and tie-ups with various local and
international banks, pawnshops, couriers, and telecommunications companies makes it the
largest independent local remittance company.
The Company was also the first remittance company registered with the Board of Investments
(BOI) as a New Information Technology (IT) Service Firm in the Field of Information
Technology Services (Remittance Infrastructure System) on a Non-Pioneer Status under the
Omnibus Investments Code of 1987 which entitled the Company to Income Tax Holiday (ITH)
Incentive for four (4) years and which was later extended to two (2) years and which expired
on November 11, 2007.
2
I-Remit’s vision is to become the ultimate choice remittance service provider globally and to
capture a significant share of the huge annual inward remittances of OFWs around the world.
It will achieve these by using the latest in information technology and communication
technology through the Internet platform in delivering its products and services to its target
customers.
The Company was initially incorporated with a capital stock of two hundred million pesos (PHP
200,000,000) divided into two million shares with a par value of one hundred pesos (PHP 100)
per share.
The subscribers at incorporation are the following:
Name
Nationality
iVantage Corporation
Ben C. Tiu
Wilson L. Sy
Willy N. Ocier
William L. Chua
Juan G. Chua
David R. de Leon
Randolph C. de Leon
TOTAL
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
No. of Shares
Subscribed
999,993
1
1
1
1
1
1
1
1,000,000
Amount of Capital
Stock Subscribed
(PHP)
99,999,300.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100,000,000.00
Amount Paid on
Subscription (PHP)
49,999,300.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
50,000,000.00
On August 15, 2001, iVantage Corporation sold all its titles, rights, interests and obligations in
and to all its subscribed shares in the Company to the following:
Name
Nationality
JTKC Equities, Inc.
Surewell Equities, Inc.
JPSA Global Services Co.
TOTAL
Filipino
Filipino
Filipino
No. of Shares
Subscribed
650,000
300,000
50,000
1,000,000
Amount of Capital
Stock Subscribed
(PHP)
65,000,000.00
30,000,000.00
5,000,000.00
100,000,000.00
Amount Paid on
Subscription (PHP)
32,500,000.00
15,000,000.00
2,500,000.00
50,000,000.00
The new shareholders assumed pro rata the subscription payable to I-Remit, Inc. of iVantage
Corporation amounting to fifty million pesos (PHP 50,000,000).
On February 8, 2005, JTKC Equities, Inc. assigned all of its rights, interests and obligations in
and to its entire subscription consisting of 650,000 shares in the Company unto Deighton
Limited, a corporation organized and existing under the laws of Hong Kong.
On June 27, 2007, JTKC Equities, Inc. bought back the 650,000 shares in the Company from
Deighton Limited.
3
On June 29, 2007, the Board and the stockholders of the Company approved the following
amendments to the Articles of Incorporation and By-Laws:
On the Articles of Incorporation
1.
2.
3.
4.
Reduction of par value per share from PHP 100.00 to PHP 1.00 per share;
Increase in authorized capital stock from PHP 200 million to PHP 1.0 billion;
Denial of pre-emptive rights;
Authority of the Board of Directors to grant stock options, issue warrants or enter into
stock purchase or similar agreements;
On the By-Laws
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Period for closing of stock and transfer book or fixing of record date;
Period for notice of stockholders’ meeting;
Deadline for the submission / revocation of proxies;
Number, term of office, qualifications, and disqualifications;
Additional requirements for independent directors;
Election of directors;
Place of meeting of the Board of Directors;
Vacancies;
Constitution of a Nomination Committee; and
The addition of one or more Vice Chairmen to the list of officers of the Company.
On July 20, 2007, the Board approved a Special Stock Purchase Program (“SSPP”) for its
directors, the officers and employees of the Company who have been in service for at least
one (1) calendar year as of June 30, 2007, and the Company’s resource persons and
consultants. A total of fifteen million (15,000,000) shares of the Company, at a par value of
one peso (PHP 1.00) per share, was allocated under the SSPP. The shares were allocated to
those eligible to avail of the shares based on a formula developed by the Company’s SSPP
Committee and approved by the Board of Directors.
The Board of Directors of the Company also declared stock dividends worth PHP
43,000,000.00 to its shareholders on July 20, 2007, which declaration was subsequently
ratified and confirmed by the Company’s shareholders during their annual meeting held on the
same day, immediately after the Board meeting. The Record Date was set on August 19,
2007, thirty (30) days from the date of approval of the Company’s shareholders.
On August 22, 2007, the Securities and Exchange Commission (“SEC”) approved the
Amended Articles of Incorporation and By-Laws of the Company.
The shares subscribed and paid-up subsequent to the increase in capital stock were as
follows:
Name
Star Equities Inc.
JTKC Equities, Inc.
TOTAL
Nationality
Filipino
Filipino
Filipino
Filipino
No. of Shares
Subscribed
158,418,225
119,100,000
99,631,775
19,850,000
397,000,000
Amount of Capital
Stock Subscribed
(PHP)
158,418,225.00
119,100,000.00
99,631,775.00
19,850,000.00
397,000,000.00
Amount Paid on
Subscription (PHP)
158,418,225.00
119,100,000.00
99,631,775.00
19,850,000.00
397,000,000.00
On September 13, 2007, the SEC granted to the Company an exemption from registration of
the SSPP shares under Section 10.2 of the SRC. On September 20, 2007, the Company
issued to the directors, officers and employees eligible to avail of the SSPP their respective
shares under the program. Notwithstanding the aforesaid confirmation of the exempt status of
the SSPP shares, the SEC nonetheless required the Corporation to include the SSPP shares
among the shares of iRemit which were registered with the Commission prior to the conduct of
its Initial Public Offering (IPO) in October 2007. The registration of the I-Remit shares, together
with the SSPP shares, was rendered effective on October 5, 2007.
4
All 15,000,000 shares were subscribed. The shares subject of the SSPP were sold at par
value or PHP 1.00 per share payable in full and in cash and subject to a lock-up period of two
(2) years from date of issue which ended on September 19, 2009. The sale is further subject
to the condition that should an officer or an employee resign from the Company prior to the
expiration of the lock-up period, the shares purchased by such resigning employee or officer
shall be purchased at cost by the Company’s Retirement Fund (“Retirement Fund”) for the
benefit of retiring employees or officers. Total share purchases amounting to PHP11.74 million
were paid in full while the difference amounting to PHP3.26 million were paid by way of salary
loan. The shares acquired through the SSPP were subject to a lock-up period of two (2) years
from the date of issue which ended on September 19, 2009.
On May 18, 2007, the Board of Directors of the Company approved the listing of its shares with
the Philippine Stock Exchange (“PSE”) in an initial public offering (IPO).
The Board of Directors of the PSE, in its regular meeting on September 27, 2007, approved
the Company’s application to list its common shares with the PSE. On October 5, 2007, the
Securities and Exchange Commission declared the Company’s Registration Statement in
respect of the IPO effective and issued the Certificate of Permit to Offer Securities for Sale in
respect of the offer shares.
The Company offered for subscription a total of 140,604,000 common shares each with par
value of PHP 1.00 per share consisting of (i) 107,417,000 new common shares issued and
offered by the Company by way of a primary offer and (ii) a total of 33,187,000 existing shares
offered by selling shareholders, JTKC Equities, Inc. (21,571,550 common shares issued),
Surewell Equities (9,956,100 common shares offered), and JPSA Global Services Co.
(1,659,350 common shares offered) pursuant to a secondary offer.
On October 17, 2007, the Company completed its IPO of 140,604,000 common shares,
representing slightly above 25% of the total outstanding capital stock of 562,367,000 (net of
50,000 treasury shares) at an offer price of PHP 4.68 per share for total gross proceeds of
PHP 658,026,720.00.
The net proceeds from the primary offer of PHP 466,198,457.05, determined by deducting
from the gross proceeds of the primary offer the Company’s pro-rated share in the professional
fees, underwriting and selling fees, listing and filing fees, taxes and other related fees and
expenses, is intended to be used by the Company to finance, in part, its expansion in other
countries and to partially retire some of the Company’s short term interest-bearing loans.
On August 16, 2008, the Board of the Company authorized the buy-back from the market of up
to 10 million shares, representing approximately 1.78% of I-Remit’s outstanding common
shares. The program was adopted with the objective of preserving the value of the Company’s
shares, which was grossly undervalued at that time. The program also sought to boost
investor confidence in the Company. A total of 9,329,000 shares have been purchased and
lodged as treasury shares.
As of March 31, 2011, the Company’s capital structure is as follows:
Name
Star Equities Inc.
JTKC Equities, Inc.
Public
Total, March 31, 2011
Nationality
Filipino
Filipino
Filipino
Filipino
Various
No. of Shares
Subscribed
158,418,225
122,043,900
106,010,225
20,340,650
146,275,000
553,088,000
Amount of Capital
Stock Subscribed
(PHP)
158,418,225.00
122,043,900.00
106,010,225.00
20,340,650.00
146,275,000.00
553,088,000.00
% to Total
Number of
Shares
28.64%
22.07%
19.17%
3.68%
26.44%
100.00%
The Company’s general expansion plans in 2011 include the opening of new and/or additional
offices or the engagement of new tie-ups and partners in Australia, Canada, Italy, Ireland,
Macau SAR, Japan, Saudi Arabia, and Switzerland.
5
(2)
Business of Issuer
(a)
Description of Registrant
The Parent Company and its subsidiaries are primarily engaged in the business of fund
transfer and remittance services of any form or kind of currencies or monies, either by
electronic, telegraphic, wire or any other mode of transfer and undertakes the delivery
of such funds or monies, both in the domestic and international market, by providing
either courier or freight forwarding services; and conducts foreign exchange
transactions as may be allowed by law and other allied activities relative thereto.
The Company’s subsidiaries are as follows:
International Remittance (Canada) Ltd., a wholly-owned subsidiary, was incorporated
on July 16, 2001. It started initially as a tie-up and partner of I-Remit, establishing its
operations in three (3) major provinces in Canada, namely: British Columbia, Alberta
and Ontario. In 2005, I-Remit acquired 65% ownership in the company that
subsequently increased to 95% in 2006, and eventually consolidated to 100% on June
29, 2007. International Remittance (Canada) Ltd. has seven (7) offices in Canada: two
(2) in British Columbia; three (3) in Ontario; and two (2) in Alberta. The Filipino
community is the third largest minority group in Canada. There are 350,000 Filipino
migrant families and about 500,000 Filipinos in Canada mostly in Toronto, Montreal,
and Vancouver. However, the Commission on Filipinos Overseas in its Stock Estimate
of Overseas Filipinos (December 2009) estimates that there are 639,686 Filipinos in the
country.
I-Remit Australia Pty Ltd, a wholly-owned subsidiary, is a company organized under the
Australian Corporations Act 2001 and registered with the Australian Securities and
Investments Commission with Australian Company Number 103 107 982. It was
incorporated on December 10, 2002 in Victoria, Australia and as of June 29, 2007, the
Company’s ownership in I-Remit Australia has been consolidated to 100%. It has no
regular employees and has not engaged, since incorporation, in any material activities
other than those related to the maintenance of a bank account with ANZ Bank
(Australia and New Zealand Banking Group Limited) where I-Remit’s subsidiary and tieups in Australia deposit the remittances that they receive for purpose of eventually
transferring the accumulated balance to I-Remit’s bank account in the Philippines.
IREMIT EUROPE Remittance Consulting AG (74.9% owned) was incorporated on 20
July 2005 in Vienna, Austria. It started commercial operations on September 16, 2007.
There are about 30,000 Filipinos in Austria. In November 2009, IREMIT EUROPE
Remittance Consulting AG was registered by Banca D’Italia Eurosistema in the general
list of financial intermediaries as a provider of money transfer services under Article 106
of the legislative decree 385/1993 of Italy’s Banking Law. On April 18, 2010, it opened
a branch in Rome. On August 1, 2010, it opened its second branch in Milan. Italy is the
second most popular destination of overseas Filipino workers in Europe. Numbering
about 200,000, the vast majority of Filipinos work in the domestic service sector while
there are also a number employed in the nursing field and other skilled and semi-skilled
occupational groups.
IRemit Global Remittance Limited, a wholly-owned subsidiary, is a private limited
company in the United Kingdom and Wales that was incorporated on June 22, 2001. It
is registered with The Registrar of Companies for England and Wales, Companies
House with Company Number 04239974. It started commercial operations in July 2001.
Initially, the Company had a 96% equity interest in the IRemit Global Remittance
Limited until it was sold on January 18, 2004. I-Remit repurchased it on June 29, 2007
and acquired 100% ownership interest. Filipinos are the fourth largest source of
immigrants to the United Kingdom. There were approximately 200,000 Filipinos living
and working in the United Kingdom as nurses, caregivers in public and private nursing
homes, medical professionals and chambermaids.
6
I-Remit New Zealand Limited, a wholly-owned subsidiary was incorporated on
September 11, 2007. Its registration was approved by the New Zealand Ministry of
Economic Development last September 11, 2007. It is registered with the Registrar of
Companies of New Zealand, Companies Office with Company Number 1984331. The
company started operating commercially on February 13, 2008. There are over 20,000
Filipinos in New Zealand.
Lucky Star Management Limited, a wholly-owned subsidiary, was incorporated on
March 16, 2001 as a limited liability company under the Companies Ordinance of Hong
Kong whose principal activity is the provision of remittance services. It is registered
with the Companies Registry with Company Number 750525. It was the first
international branch of I-Remit and, to date, it has four (4) branches in Hong Kong: two
(2) at the Central District, one (1) at the Admiralty, and one (1) in Tsuen Wan. Hong
Kong is one of the top destinations of land-based OFWs in Asia. There are on average
around 140,000 Filipinos in Hong Kong, most of whom find work as domestic
household helpers.
Power Star Asia Group Limited, a wholly-owned subsidiary, was incorporated on April
28, 2008 under the Companies Ordinance of Hong Kong. It is engaged in foreign
exchange trading activities. It was acquired by I-Remit on November 12, 2008 with the
purchase of its 1,000,000 outstanding shares for a total consideration of HKD1,000,000
with the intention of outsourcing some of the Parent Company’s foreign exchange
activities to a company located in one of the regional financial centers in Asia. It is
registered with the Companies Registry with Company Number 1232132.
Worldwide Exchange Pty Ltd (consisting of direct voting interest of 70% and indirect
voting interest through I-Remit Australia Pty Ltd of 30%) was incorporated on
September 29, 2003 in Queensland, Australia. It is duly registered with the Australian
Securities and Investments Commission in Queensland, Australia with Australian
Company Registration Number 106493047. It started commercial operations in
September 2002. It currently has two (2) branches located in Blacktown and in Perth,
Western Australia. The Filipino-Australian community is composed of approximately
200,000 immigrants, many of whom moved to Australia from the Philippines in the early
1980’s.
The Company’s associates are as follows:
IRemit Singapore Pte Ltd (49% owned) is a private limited company incorporated in
Singapore whose principal business activity is to carry on the business of money
remittance services. It was incorporated on May 11, 2001 and started commercial
operations in October 2001. It is duly registered with the Registrar of Companies and
Businesses Singapore, Accounting and Corporate Regulatory Authority with Company
Number 200103087H. There are about 136,000 Filipinos in Singapore who work as
household workers, medical workers, IT professionals, and construction workers.
Hwa Kung Hong & Co. Ltd. (49% owned) is a company engaged in the remittance
business in Taiwan. It has offices in Taipei and Kaohsiung. It has a Taipei City
Business Number 00078598-2 and a Business Enterprise (For Profit) Unified Number
14033431. On January 9, 2009, the Board of I-Remit authorized the acquisition of up
to 49% of the outstanding capital stock of Hwa Kung Hong & Co. Ltd. The acquisition of
the shares was completed on July 1, 2009.
7
Principal Products and Services
Through the years, I-Remit has developed products and services that cater specifically
to the various remittance needs of OFWs and other migrant workers as follows:
Bank-to-Bank
A facility for “same-day” online crediting to a bank
account in the Philippines. A remittance received
before 12:00 noon Manila time may be withdrawn by
the designated beneficiary from any BancNet,
MegaLink, or ExpressNet automated teller machine
(ATM) on the same day of the remittance transaction.
BancNet has 44 member banks and 15 subscribers
and almost 4,000 ATMs nationwide. Megalink has 22
members, 2,921 ATMs, and 17,000 POS terminals
nationwide. ExpressNet has five (5) member banks
and 3,113 ATMs nationwide.
Door-to-Door
Delivery of cash remittances to designated
beneficiaries through third party couriers. I-Remit has
the widest delivery reach nationwide, capable of
delivering cash remittances within the day for
beneficiaries in Metro Manila and the province of Rizal.
Next-day deliveries may be made in the following cities
and provinces: Batangas, Bulacan, Cavite, Cebu,
Davao, Laguna, La Union, Pampanga, Pangasinan,
Tacloban, and Tarlac. Deliveries in other remote areas
may be made in two (2) to three (3) days or more
depending on the actual location of the beneficiary. IRemit can deliver in 17 regions, 79 provinces, and 136
cities and municipalities in the country.
Notify-to-Pay
Allows a beneficiary in the Philippines to pick-up a
remittance in any of I-Remit’s 5,951 pay-out stations
nationwide within 24 hours. These designated pay-out
stations number 1,956 in Metro Manila, 1,852 in the
rest of Luzon, 1,246 in the Visayas, and 897 in
Mindanao. I-Remit has tied-up with the following
institutions whose branches serve as pay-out stations:
Allied Banking Corporation, Asiatrust Development
Bank, Bank of the Philippine Islands, Bayad Center,
Cebuana Lhuillier, China Banking Corporation, Land
Bank of the Philippines, Philippine National Bank,
Mindanao Capital Corporation, ML Kwarta Padala, One
Network Rural Bank, Inc., Philippine Savings Bank,
Philippine Veterans Bank, Premiere Development
Bank, Prime Asia Pawnshop, Rural Bank of Malinao,
Saint Sealtiel Services, Inc., Security Bank
Corporation, Sterling Bank of Asia, Inc. (A Savings
Bank), Tambunting Pawnshops, Union Bank of the
Philippines, Maybank Philippines, Inc., United Coconut
Planters Bank, UCPB Savings Bank, Rural Bank of
Malinao, and Wilmon Group.
8
Visa Card
I-Remit Visa Card is a “debit and ATM card in one”
through which remitters can send money to their
beneficiaries almost instantaneously. Cardholders may
withdraw cash from more than 10,000 BancNet,
MegaLink, or ExpressNet ATMs in the Philippines and
any Visa ATM worldwide. As a debit card, cardholders
may use the I-Remit Visa Card to pay for their
purchases from any of the 12 million Visa-affiliated
merchant establishments in over 170 countries
worldwide. The I-Remit Visa Card is issued in
partnership with Chinatrust (Philippines) Commercial
Bank Corporation while the Visa Electron Card is
issued in partnership with the Standard Chartered
Bank Philippines. In 2008, I-Remit also introduced the
I-Remit Shop ‘N’ Pay Card in partnership with Sterling
Bank of Asia (A Savings Bank). The I-Remit Shop ‘N’
Pay Card utilizes the EMV (Europay, MasterCard,
Visa) technology, the standard for the interoperation of
IC cards (“chip cards”) and IC capable POS terminals
and ATMs, for authenticating credit and debit card
payments.
Auxiliary Services
I-Remit is authorized to accept payments,
contributions, premiums or donations from Filipinos
abroad for the following government agencies and
private companies: Social Security System (SSS);
Overseas Workers Welfare Administration (OWWA);
Home Development Mutual Fund (HDMF or Pag-IBIG
Fund); Philippine Health Insurance Corporation
(PhilHealth); Philippine Retirement Authority; Loyola
Plans Consolidated, Inc. ; Platinum Plans Phil., Inc.;
Confed Properties, Inc. ; Surewell Equities, Inc. ;
Robinsons Homes, Inc.; Dynamic Realty and
Resources Corporation; CHMI Land, Inc.; Firm Builders
Realty Development Corporation; Regent Pearl;
Earth+Style Corporation; Extraordinary Development
Corporation; Earth Prosper Corporation; Earth Aspire
Corporation; P.A. Alvarez Properties and Development
Corporation; San Marco Realty and Development
Corporation; PHINMA Property Holdings Corporation;
NJR Realty and Development; R. J. Lhinet
Development Corporation; Pueblo de Oro
Development Corporation; Homeowners Development
Corporation; Ledesco Development Corporation;
Nippon Credit Co., Inc.; Automatic Centre; Kabalikat ng
OFW, and CBN Asia.
SMS (Short Message
Service) via Globe GCash and Smart Padala
Beneficiaries may encash remittances in more than
5,000 Globe G-Cash and Smart Padala encashment
centers and ATMs nationwide once received on their
mobile phones. Beneficiaries may also use the facility
for “cashless shopping” in G-Cash and Smart affiliated
business establishments.
iRemit Direct Online
Remittance System
(iDOL)
iDOL is I-Remit’s Internet-based remittance service in
the Philippines. The product aims to offer convenient
and secure remittance services to Filipinos everywhere
that have Internet access.
9
I-Remit derives its income from remittance transactions in the form of: (i) service fees,
and (ii) on the spread on the applicable foreign exchange rate for each conversion of
any remittance to the Philippines. Service fees cover all logistical and operational
expenses of the Company and its partner or tie-up company for each remittance
transaction. These fees vary per country of operation depending on competition and
the current foreign exchange situation. The timing of a remittance is also a
consideration in applying a foreign exchange factor.
Percentage of Sales or Revenues Contributed by Foreign Sales
I-Remit operates in various countries through its subsidiaries and associates or through
tie-ups. The former allows the Company to own up to 100% equity while the latter is
through agent-partner agreements. Partnership arrangements are utilized when the
volume of remittances do not justify incorporating new companies.
Due to the nature of its business, all of the Company’s sales or revenues are from
foreign sales.
The percentage shares of the Company’s major markets in terms of total value of
inward remittances (in US dollar amounts) is as follows:
Share in Value (in USD) of Remittances
2010
2009
2008
34%
33%
34%
11%
12%
13%
19%
20%
21%
15%
17%
15%
21%
18%
17%
100%
100%
100%
Region
Asia-Pacific
Europe
Middle East
North America
Others
Total
The percentage shares of the Company’s major markets in terms of the volume
(number of transactions) of inward remittance transactions is as follows:
Share in Volume (in No. of Transactions) of Remittances
2009
2009
2008
43%
43%
42%
10%
9%
10%
29%
28%
28%
15%
16%
15%
4%
4%
5%
100%
100%
100%
Region
Asia-Pacific
Europe
Middle East
North America
Others
Total
10
Distribution Methods of the Products or Services
I-Remit operates globally through a combined network of branches and tie-ups
worldwide offering its products and services to overseas Filipino workers (OFWs).
Currently, I-Remit is present in the following 26 countries and territories:
Asia Pacific
Australia
Brunei
Hong Kong
Malaysia
Marshall Islands
New Zealand
Saipan
Singapore
Taiwan
Europe
Austria
Greece
Ireland
Italy
Spain
The Netherlands
United Kingdom
Middle East
Bahrain
Israel
Jordan
Kuwait
Lebanon
Qatar
United Arab Emirates
North America
Bermuda
Canada
USA
The Company’s general expansion plans in 2011 include the opening of new and/or
additional offices or the engagement of new tie-ups and partners in Australia, Canada,
Italy, Ireland, Japan, Macau SAR, Saudi Arabia, and Switzerland.
The distribution methods in the Philippines of the Company’s products or services are
as described under “Principal Products and Services.”
Remittances may be credited to any account maintained in over 4,500 branches of IRemit’s partner banks in the Philippines. Remittances may also be withdrawn from any
of over 10,000 ATMs of the member banks and subscribers of BancNet, Megalink, and
ExpressNet.
11
I-Remit has the widest coverage in door-to-door delivery nationwide and is capable of
delivering cash remittances within the day for beneficiaries in Metro Manila and the
province of Rizal. Next-day deliveries may be made in the following cities and
provinces: Batangas, Bulacan, Cavite, Cebu, Davao, Laguna, La Union, Pampanga,
Pangasinan, Tacloban, and Tarlac. Deliveries in other remote areas may be made in
two (2) to three (3) days or 10 – 12 days depending on the specific location of the
beneficiary. I-Remit can deliver in 17 regions, 81 provinces, and 136 cities and
municipalities in the country.
Under the Company’s “Notify-to-Pay” services, remittances may be picked up by
beneficiaries in any of I-Remit’s 5,951 designated pay-out stations nationwide.
Beneficiaries may also encash remittances in more than 5,000 Smart Padala and Globe
G-Cash encashment centers nationwide once notified by “text” on their mobile phones.
New Products or Services
In May 2009, I-Remit implemented the Pag-IBIG Fund’s electronic collection system in
all its offices and tie-ups worldwide. I-Remit is an accredited non-bank remittance agent
of the Home Development Mutual Fund (also known as Pag-IBIG Fund). The new
service was introduced in line with the Pag-IBIG Fund’s Overseas Program (POP) for
its members.
In July 2009, I-Remit forged a partnership with Jollibee Foods Corporation for the “SaluSalo Padala Treat” for the purchase by OFWs of Jollibee meals and teats for delivery to
their families in the Philippines.
In December 2008, I-Remit tied-up with the Home Shopping Network, Inc. (HSNi) that
owns and operates Shop TV, a dedicated 24-hour TV shopping channel for the
purchase of various shopping items by OFWs for delivery to their families in the
Philippines.
In December 2008, I-Remit became an accredited marketer of the Philippine
Retirement Authority (PRA) that will conduct information dissemination, promotion and
collection activities in relation to PRA’s Retirement Program abroad.
On September 22, 2008, I-Remit signed a remittance partnership agreement with the
Bank of China Ltd. Manila branch. The agreement is initially intended to benefit
Chinese customers in the United Kingdom. The remittance proceeds may be
withdrawn by beneficiaries from any of Bank of China’s over 12,000 domestic branches
in the Chinese mainland.
On September 1, 2008, I-Remit introduced the I-Remit Shop ‘N’ Pay Card in
partnership with Sterling Bank of Asia. The I-Remit Shop I-Remit Shop ‘N’ Pay Card
utilizes the EMV (EuroPay, MasterCard, Visa) technology, the standard for the
interoperation of IC cards (“chip cards”) and IC capable POS terminals and ATMs, for
authenticating credit and debit card payments.
In May 2008, I-Remit signed a partnership agreement with the Land Bank of the
Philippines for the promotion and distribution of the Landbank OFW Cash Card, an
electronic debit card that can be linked to a Smart mobile phone.
On January 26, 2008, I-Remit introduced the I-Remit Electronic Overseas Collection
Service that allows OFWs to remit their contributions to the Social Security System
(SSS). I-Remit is the first non-bank remittance company authorized by the SSS to
provide this electronic service.
There are other services planned for launching in 2011. These products and services
are intended to improve product delivery and enhance I-Remit’s competitiveness in the
OFW remittance market. Among these are various payment and collection services.
12
Competition
Players
The overseas remittance industry has numerous players that are classified into two (2)
general categories: the formal and informal channels.
Formal Channels
Formal channels for remittances consist of organizations or institutions that transfer
funds from one geographic location to another and are operating within the regulated
financial sector. These institutions are covered by laws and are supervised by
government agencies that determine their establishment, and regulate their scope of
operations. Formal channels are characterized by licensing and registration
requirements and must also have in place mechanisms for customer identification,
record keeping, on-going monitoring of accounts and transactions, and customer due
diligence. Formal remittance channels consist of banks, money transfer agencies
(domestic and international), and telecommunications companies.
Banks. Presently, there are over twenty (20) commercial and thrift banks that are
active players in the overseas remittance business. Five (5) of these banks have a hold
on 80% to 90% of the banking sector’s remittance activities as they are able to utilize
their wide distribution overseas network and domestic branches to reach out to more
remitters and their beneficiaries. The major commercial banks in the Philippines such
as the Metropolitan Bank and Trust Company (Metrobank), Banco de Oro Unibank,
Inc., Bank of the Philippine Islands, and the Rizal Commercial Banking Corporation
(RCBC) have non-exclusive correspondent banking relationships with foreign banks
and tie-ups with international money transfer companies. These banks also subscribe
to the SWIFT system for bank-to-bank payments and have a combined international
network of correspondent banks, overseas branches or offshore remittance centers
located in key markets such as Canada, Italy, Austria, Spain, Singapore, Hong Kong,
Taiwan, Japan, the United Kingdom, and the United States. Banks usually offer any of
the following remittance services: over the counter or branch pick-up; door-to-door
delivery; credit to a deposit account; use of credit cards, cash cards, debit cards; or
pick-up from off-site payment centers.
International Money Transfer Agencies. The major players include I-Remit, Inc.,
Western Union, MoneyGram, Coinstar (that acquired Travelex), and the Omnex Group.
US-based Western Union maintains the most extensive network among global money
transfer agents in the country with over 6,000 agent locations in the Philippines and a
presence in over 200 countries and territories. The strength of these companies lies in
their network coverage and, with their global presence, they can easily address the
OFW recipients’ desire for accessibility and convenience.
Domestic Money Transfer Agencies. The major domestic players include I-Remit, Inc.,
Lucky Money, LBC Express, 2GO, and JRS Express. Most of the companies classified
under this category are local logistics service providers and courier companies that
branched out into the remittance business. There are 6,556 remittance agents (head
offices and branches) registered with the Bangko Sentral ng Pilipinas as at December
31, 2009.
Telecommunications Companies. The recent advances in information and
telecommunications technologies allowed companies such as Smart and Globe to offer
innovative modes of sending and receiving remittances. Smart Communications, Inc.
introduced Smart Padala in August 2004 while Globe introduced GCash in October
2004. Both are cash remittance services via short messaging system (SMS) or “text.”
Technology-Based Companies. The emerging new players in the industry are
composed mostly of technology-based companies that utilize the Internet in offering
remittance services. The online money transfer companies tapping the Philippine
market are composed of Remit2Home (part of The Times of India group), San
Francisco-based Xoom, Yahoo! Paydirect, PayPal, Billpoint, and Cashpin (based in
South America). Microsoft Philippines also tied-up with a local commercial bank in
offering the “Tele-OFW One Follow Me” system that allows users to manage their
funds in a bank account by connecting to the Microsoft live communication server using
Windows-based personal digital assistant (PDA) phones in a Wi-Fi area.
13
Informal Channels
Informal channels refer to methods of remittance or remittance activities conducted
outside of the regulated financial sectors. Cash may be sent through the recruitment
agency or through the local office of the employer; or through friends, relatives or coworkers traveling back to the Philippines. Alternatively, overseas Filipinos can bring the
cash themselves upon their return or visit to the Philippines.
“Padala” System. The literal meaning of the local word “padala” is to send through the
courtesy of another person. In this practice, it is assumed that the person asked to
bring the money to the Philippines is reliable and trustworthy, and the practice repeats
as trust and confidence builds between the parties with each completed delivery.
“Kaliwaan” System. This system, despite its lack of popularity, operates through a welltested network of currency exchanges. It involves the use of agents in the source and
destination countries who do not impose regulatory restrictions as they arrange
currency transfers. It has been the subject of recent congressional inquiries because of
its possible use in laundering monetary proceeds from various illegal activities.
Hand-carry System. This method refers to the practice of overseas Filipinos in bringing
home the cash themselves when they return to the Philippines on vacation or after the
expiration of their work contracts.
14
OFW remittances continue to fuel the Philippine economy. The continuing upward
trends in inward remittance flows are expected to be sustained by the increased
deployment of OFWs. Likewise, there is an observed overall shift from the utilization of
unregulated, informal channels to the more formal structured channels for remittances
that emphasizes the growing need for reliability, efficiency and convenience.
As competition among industry players intensifies, banks, money transfer agents, and
other similar service providers are expected to become more aggressive in their
marketing and promotional activities to lure potential clients and capture larger shares
of the market.
Advances in information and communications technology have allowed new players to
roll-out a growing variety of products and services catering to the evolving needs and
requirements of OFWs. Such innovative approaches are expected to fuel further
industry growth, help reduce transaction costs, and improve service delivery. Due to
rising competition from non-traditional players, banks and money transfer agents need
to upgrade their technology, expand network coverage, and enhance their distribution
structures.
Industry players, particularly banks and remittance agents, will always be on the lookout and competing for new tie-up arrangements with overseas partners, particularly in
untapped geographic markets. Banks and other financial institutions will continue to
seek partnership opportunities with correspondent banks, money transfer agents, and
other types of partners overseas to expand their coverage while also planning to
establish their own offshore units in key overseas markets like the Middle East,
Canada, and the United States, that have a growing concentration of OFWs and
Filipino immigrants. While the industry remains highly-competitive, industry players
often link-up and have overlapping or complementary offerings with other service
providers under revenue-sharing schemes.
I-Remit expects to encounter direct and indirect competition from domestic and foreign
companies offering money remittance services locally and internationally.
The Company competes mainly in terms of pricing and service efficiency against the
domestic commercial banks, Philippine-based money transfer agencies, international
money transfer agencies, and telecommunications firms.
I-Remit is able to compete effectively against the major players in the industry because
of its network of branches and tie-ups abroad, its local tie-ups with local and foreign
banks, its flexibility to expand in other markets, its relatively faster decision-making
process, and its marketing strategies that are customized for the Filipino populations in
each country that it operates in.
The Company believes that its customer-centric model, complemented by its flexible
and dynamic structure, will allow it to compete actively in the local and international
markets by capitalizing on its strengths in its core business while offering value-added
services to OFWs around the world. The Company similarly believes that with its
relentless drive for innovation, its streamlined organization, and efficient cost structure
in its local and foreign operations, it will be able to compete effectively in the global
marketplace through the continuous establishment of foreign offices in strategic
locations characterized by high-densities of OFW populations that will allow it to tap a
broader market, and consequently, deliver potentially high-yield profits.
Sources and Availability of Raw Materials and Names of Principal Suppliers
The Company has a broad base of suppliers, both local and foreign. The Company is
not dependent on one or a few suppliers in conducting its business.
15
Dependence Upon a Single Customer or a Few Customers
The Company serves a wide spectrum of overseas Filipino workers (OFWs) and
Filipino immigrants of different occupational groups in 26 countries and territories
around the world. It is not dependent on a single customer or a few customers. Neither
is there a single customer that accounts for, or will account for, 20% or more of the
Company’s sales.
Over nine (9) million Filipinos, or around 10% of the Philippine population, work abroad
as nurses, doctors, domestic helpers, engineers, educators, musicians, entertainers,
seafarers, doctors, laborers, caregivers, manufacturing workers, electricians,
information technology professionals, and in other roles. The Philippine Overseas
Employment Administration estimates that such Filipinos are in present in 194 countries
and territories around the world, the largest groups being in the United States, Saudi
Arabia, Canada, Japan, Malaysia, Australia, United Arab Emirates, Hong Kong,
Taiwan, Italy, Singapore, and the United Kingdom.
In its Migration and Development Brief dated November 8, 2010, the World Bank
reported that officially recorded remittance flows to developing countries fell to USD307
billion in 2009, registering a 5.5% decline. The decline in remittances during the global
financial crisis was modest compared to a 40% decline in foreign direct investments
(FDIs) between 2008 and 2009 and an 80% decline in private debt and portfolio equity
flows from their peak in 2007. Thus, remittance flows became more important as a
source of external financing in many developing countries. Recorded remittance flows
to developing countries are estimated to have fully recovered to the pre-crisis level of
USD325 billion in 2010. In line with the World Bank’s outlook for the global economy,
remittance flows to developing countries are expected to increase by 6.2% in 2011 and
8.1% in 2012, to reach USD346 billion in 2011 and USD374 billion in 2012 respectively.
Cumulative remittances from overseas Filipinos coursed through the formal channels
were more robust than expected in 2010, rising year-on-year by 8.2% to USD18.8
billion, slightly exceeding the Bangko Sentral ng Pilipinas’ forecast of USD18.7 billion.
Remittances from land-based and sea-based workers rose by 7.2% and 11.9%
respectively. In the month of December 2010 alone, remittances grew by 8.1%,
registering the highest level at USD1.7 billion.
The stable flow of remittances continued to provide strong support to domestic demand,
with the remittance level for the year amounting close to 10% of the country’s gross
domestic product (GDP). The major driving factors that helped accelerate the growth of
remittances were the diversity of the destinations and skills of overseas Filipinos
combined with the expanding network of bank and non-bank service providers both in
the Philippines and around the world. The continuing innovation of financial products
and services (e.g., web-based remittance services, automated remittance machines,
reloadable/reusable money/cash cards, among others) being offered in the market to
facilitate money transfers have likewise contributed to the resilience of remittances
throughout the year.
As of end-December 2010, commercial banks’ established tie-ups, remittance centers,
correspondent banks and branches/representative offices abroad expanded to 4,581
from 3,730 at end-December 2009.
The Bangko Sentral ng Pilipinas (BSP) recently reported that the amount of money sent
home by Filipinos abroad reached USD1.476 billion in January 2011 or 7.6% more than
the USD1.372 billion recorded in the same month in January 2010 amid the outbreak of
tension in the Middle East and North African states. Remittances from sea-based
OFWs rose 13.3% while that of land-based workers increased by 6.2%.
However, the BSP is now re-evaluating the projected 8% growth in OFW remittances in
view of the violent protests in Egypt, Libya, Yemen, Bahrain, and other Middle East and
North African states as well as the devastating magnitude 8.9 earthquake in Japan that
resulted in a killer tsunami last March 11.
16
On March 12, 2011, the Saudi Arabia Ministry of Foreign Affairs announced that it
would stop the processing of employment contracts for Filipino household service
workers until further notice. According to Philippine labor officials, the ban is connected
to the new Migrant Workers and Overseas Filipinos Act which requires prior to
deployment a Department of Foreign Affairs (DFA) certification that the rights of
domestic helpers would be adequately protected. As of November 2010, there were
80,656 Filipino household service workers with an estimated 9,000 Filipinos deployed in
Saudi Arabia last year.
Also, in March 2011, new Filipino workers have flown to Taiwan after its Ministry of
Foreign Affairs lifted deployment restrictions. Taiwan imposed restrictions on visa
applications and work permits after the deportation to China of 14 Taiwanese accused
of fraudulent activities.
In April 2011, the Department of Labor and Employment (DOLE) reported that the
Philippines stands to lose as much as USD1.6 billion in remittances every year from the
estimated three (3) million Filipino migrant workers in the Middle East and North African
countries because of mass displacement due to the worsening conflicts in those
nations.
17
Transactions and/or Dependence on Related Parties
The Company has transactions with its subsidiaries and associates abroad, i.e., the
remittance centers that accept transactions from its customers, mostly OFWs, in
Australia, Austria, Canada, Hong Kong, New Zealand, Singapore, and the United
Kingdom. These transactions primarily consist of delivery services for a fee.
Pursuant to the Company’s usual course of business, it also advances funds to its
subsidiaries, associates and affiliates. These are accounts receivable from subsidiaries,
associates and affiliates pertaining to remittance transactions. It also consists of
advances made to subsidiaries, associates, and affiliates for working capital to maintain
cash balances in bank accounts and other financial and operating requirements. The
account receivables are usually settled on the next banking day. On the other hand,
advances for financial and operating requirements are due on demand.
The Company leases office space from Oakridge Properties, a related party.
The Company has office sharing arrangements with Surewell Enterprises, Ltd. in Hong
Kong and Surewell Equities Pte. Ltd. in Singapore, both being related companies.
The Company maintains peso deposit accounts and has a revolving credit facility with
Sterling Bank of Asia, Inc., a related party.
Significant Agreements and/or Commitments
The Company conducts its remittance and collection business internationally by
organizing wholly-owned corporations, entering into joint ventures, and signing
Memoranda of Agreements (MOA) with individuals and corporations in various
countries and territories; these include: Australia, Austria, Bahrain, Bermuda, Brunei,
Canada, Greece, Hong Kong, Ireland, Israel, Italy, Jordan, Lebanon, Malaysia, Marshall
Islands, the Netherlands, Qatar, Saipan, Singapore, Spain, Taiwan, the United Arab
Emirates, and the United States of America.
The Memoranda of Agreement entered into with individuals and corporations in various
countries and territories follow a general format with minor variations. Generally, the
MOAs entered into on or after 2004 provide that I-Remit retain exclusive proprietary
rights over its I-Remit Foreign Remittance System which the foreign parties will use to
implement the remittance arrangement. MOAs entered into on or before 2003 do not
contain this provision. All MOAs, however, are aimed at limiting I-Remit’s exposure by
specifying that: (i) the foreign parties are not agents but independent contractors; (ii) the
foreign parties shall be shall be responsible for compliance with all applicable laws in
their respective countries and territories; and (iii) funds must first be deposited to an IRemit bank account before the Company shall release the same to the intended
beneficiaries in the Philippines. Contracts executed on or after 2004 also stipulate
amicable settlement or arbitration as the mode of settlement of disputes and provides
for the exclusive jurisdiction of the Philippine courts. New contracts with tie-ups require
bond or advanced payment cover in order to fulfill the delivery of any transaction. The
bond or “advanced payment cover” is deposited to an I-Remit-designated bank account
that serves as collateral.
The bulk of the MOAs executed in the Philippines cover the arrangement between the
Company and various companies and institutions, such as commercial banks, thrift
banks, and pawnshops for the appointment of the latter to provide pay-out stations
through their branches for the Company’s notify-to-pay services.
Certain MOAs also involve the appointment of the Company as a collection agent for
the remittance of amortization payments, loan payments, premiums, and contributions
for government financial institutions and agencies consisting of the Social Security
System (SSS), Overseas Workers Welfare Administration (OWWA), Home
Development Mutual Fund (HDMF or Pag-IBIG Fund), Philippine Retirement Authority
(PRA) and the Philippine Health Insurance Corporation (PhilHealth), and various preneed and real estate development companies.
18
Principal Terms and Expiration Dates of All Patents, Trademarks, Copyrights, Licenses,
Concessions, and Royalty Agreements Held
The Company is duly registered as a Remittance Agent (RA) with the Bangko Sentral
ng Pilipinas (BSP) subject to applicable provisions of law and BSP rules and
regulations, as well as the provisions of the Anti-Money Laundering Act of 2001
(Republic Act. No. 9160, as amended by Republic Act. No. 9194) and its implementing
rules and regulations, with Certificate No. FX-2005-000364 issued by the BSP on May
10, 2005.
Licenses are held by I-Remit’s subsidiaries and affiliates that are registered in their host
countries in Australia, Austria, Canada, Hong Kong, New Zealand, Singapore, Taiwan,
and the United Kingdom. The said licenses have no expiration dates but are subject to
compliance with mandatory reportorial requirements. To secure these licensing rights,
I-Remit ensures compliance with all the reportorial requirements of the host countries.
I-Remit offers its products and services through the “I-Remit” trademark and/or trade
name. In addition, most of the Company’s subsidiaries and associate companies use
the “I-Remit” name.
19
I-Remit has registered the following patents, trademarks and/or trade names:
Name/Trademark
I-Remit Name and Logo
Date Filed
January 20, 2004
Application No. 4-20040000529
I-Load
June 16, 2004
I-Travel
June 16, 2004
I-Pay
June 16, 2004
iDol
July 8, 2004
I-Serve
February 14, 2008
Application No. 4-2008-001818
I-Value
February 14, 2008
I-Reward
February 14, 2008
I-Care
February 14, 2008
I-Remit Trademark
June 23, 2006
e-Filing No. 125586
I-Remit Trademark
I-Remit Trademark
September 18, 2009
Application No. 145s2333
20
Date Registered
December 11, 2006
Registration No. 4-2004-000529
Registered for a term of 10 years
from date of registration
January 21, 2006
October 1, 2005
October 1, 2005
July 30, 2006
December 15, 2008
September 8, 2008
December 1, 2008
September 8, 2008
June 23, 2006
Trademark No. T06/12356G
Registry of Trademarks, Property
Office of Singapore
November 1, 2007
New Zealand Trademark Registration
No. 778760
Registration pending; for publication
in Trademarks Journal (Canada)
I-Remit has licenses to the following information technology software and systems used
in its operations:
Software / System,
Version
Enterprise Resource
Information and Control
(ERIC) Financial Suite
(General Ledger &
Accounts Payable)
Version 5.2, Jupiter
Systems, Inc.
Enterprise Resource
Information and Control
(ERIC) Payroll, Human
Resource Management,
Timecard, Version 5.2,
Jupiter Systems, Inc.
Microsoft SQL Server
2000 (Standard Edition),
Microsoft Corporation
Microsoft SQL Server –
Enterprise Edition
Microsoft Exchange
Server, 2003 and 2007 –
Enterprise Edition
Internet Service
Accelerator 2004
Microsoft Office – Small
Business
Purpose
The General Ledger
module serves as the
central financial data
repository that allows for
convenient and accurate
preparation of the
Company’s financial
statements. The Accounts
Payable module manages
supplier payables and
disbursements.
The Payroll module is used
for employees’ pay
computation, payroll
processing, and statutory
reporting. The Human
Resource Management
module is used for
capturing 201-file
information and recordkeeping. The Timecard
module is used in
recording and processing
employee working hours.
A relational data base
management system used
for the “back-end” data
base of I-Remit’s
remittance system
A relational data base
management system used
for the “back-end” data
base of I-Remit’s
remittance system
A messaging and
collaborative software
used for the electronic mail
system of I-Remit, Inc.
Used as an internal firewall
Software used in creating
documents, files and
reports
21
Acquisition and
Effectivity
Version 3.2 acquired
in 2002; upgraded to
version 5.2 in 2006;
perpetual license
License / Renewal of
Maintenance Service
Support agreement is
renewed every year
Acquired in 2007;
perpetual license
renewed every year
Version 2000,
acquired on October
31, 2005;
Version 2008,
acquired on February
27, 2009;
perpetual license
Version 2008,
acquired on February
27, 2009; perpetual
license
Software assurance
will end on February
28, 2011
Version 2003,
acquired on August
11, 2006; additional
licenses acquired on
September 27, 2007;
perpetual license
Acquired on August
11, 2006
Version 2003,
acquired on October
31, 2005; version
2007, acquired on
November 20, 2008;
perpetual license
Software assurance
will end on February
28, 2011
Software / System,
Version
Microsoft Windows
Server – Enterprise and
Standard Edition
Purpose
Operating system used in
servers
Power Builder
Software development tool
Kaspersky Anti-Virus
Anti-virus system
Adobe Acrobat Reader
Hitachi Data Protection
Suite (Commvault)
VeriSign SSL Certificate
File management
Backup and replication
software
SSL certificates for data
encryption
Acquisition and
Effectivity
Version 2003,
acquired on October
31, 2005; additional
licenses acquired on
August 31, 2006,
September 30 &
October 31, 2007,
March 31 & October
31, 2008;
Version2008,
acquired February
27, 2009
Version 11.1,
acquired on
November 18, 2008
Open space security,
acquired in May 2009
Version 8 and 9
Version 7 and 8,
acquired in 2009
Acquired in 2009
License / Renewal of
Maintenance Service
renewed every year
renewed every year
renewed every year
Need for Any Government Approval of Principal Products or Services
There are no new products or services that require government approval.
Effect of Existing Probable Governmental Regulations on the Business
The normal operations of the Company is not adversely affected by any existing
governmental regulation nor is it expected that any probable governmental regulation
would have an adverse effect on the operations of the Company.
Other than the reportorial requirements of the Securities and Exchange Commission
(SEC), the Bangko Sentral ng Pilipinas (BSP), the Anti-Money Laundering Council
(AMLC), the Bureau of Internal Revenue (BIR), and the local permits that are required
by the City Government of Pasig, there is no other governmental permit required of the
Company for its operation in the Philippines. The Company is in full compliance with
the requirements of the SEC, BSP, AMLC, BIR and of the local government.
Licenses are held by the Company’s subsidiaries and affiliates that are registered in
their respective host countries in Australia, Austria, Canada, Hong Kong, Singapore,
Taiwan and the United Kingdom. The said licenses have no expiration dates but are
subject to compliance with mandatory reportorial requirements. The Company has
complied with all such reportorial requirements.
Amount Spent on Research and Development Activities
There is no material amount spent for research and development.
Costs and Effects of Compliance with Environmental Laws
The Company has not been subject to any penalties or legal or regulatory action and
has not incurred any costs for non-compliance with environmental laws or regulations of
the Philippines.
22
Employees
The Company has 312 employees including those directly employed by subsidiaries as
of December 31, 2010. These consist of 71 officers and 241 non-officers as follows:
Officers
57
14
71
Parent Company
Subsidiaries
Total
No. of Employees (December 31, 2010)
Non-Officers
Total
160
217
81
95
241
312
The Company projects no new additional personnel in 2010.
Type
Administrative
Finance
Information Technology
Sales and Marketing
Service and Operations
Total
No. of Employees
31
52
18
27
184
312
None of the Company, its subsidiaries, affiliates and associate companies is subject to
any collective bargaining agreement (CBA). There has been no strike, nor any attempt
to protest against the Company, its subsidiaries and associates during their entire
histories.
The supplemental benefits that the Company grants to its employees include medical,
dental and hospitalization benefits, per diem and travel allowances, group insurance,
birthday bonuses, meal and overtime allowances, and bereavement assistance.
Employees are also entitled to vacation, sick, maternity, paternity, and emergency
leaves. The Company provides the health and medical insurance benefits to its
employees through an independent health maintenance organization (HMO).
The Parent Company has a noncontributory defined benefit retirement plan covering
substantially all of its regular employees. Under this retirement plan, all qualified
employees are entitled to cash benefits after satisfying age and service requirements.
Under Republic Act No. 7641, also known as Retirement Pay Law, its applicability is
effective on the fifth year of an employee’s tenure, provided that the employee is 60
years old but not more than 65 years old.
The Company continues to invest in its employees through various training programs
strategically focused on the Company’s core values, team development, selling skills,
customer service and product knowledge.
23
Risk Management
The Company’s goal in risk management is to ensure that it understands, measures,
and monitors the various risks that arise from its business activities, and that it adheres
strictly to its established risk management policies.
Periodic strategic planning sessions and meetings by top management, and the various
management and Board committees are being held to identify, assess and formulate
contingency plans to manage or minimize the adverse impact of risks to the Company.
The Board performs an oversight role for the Company’s risk management activities
and approves I-Remit’s risk management policies and any revisions thereto. The Chief
Executive Officer, as the overall risk executive, oversees the risk management activities
of the Company and ensures that the responsibilities for managing risk are clear, the
levels of risk taken on by the Company is acceptable, and that an effective control
environment is in place.
Risk management is an integral part of the day-to-day business management of the
Company and each operating unit has a responsibility to measure, manage, and
controls the risks associated with the functions they perform.
There are three (3) major risks involved in the business of the Company: credit risk,
market risk, and operational risk.
Credit risks are risks that arise when a counter-party in a transaction may default and
cause a possible loss to the Company. The nature of its business exposes the
Company to potential risk from difficulties in recovering transaction money from its
foreign partners. Accounts receivable from foreign offices and agents arise as a result
of its remittance operations in various regions of the globe. In order to address this, the
Company has maintained the following credit policies: (i) enforce a contract that
incorporates a bond and advance payment cover such that the full amount of the
transactions will be credited to the Company prior to their delivery to the beneficiaries
which applies generally to all new agents of the Company and in certain cases, to old
agents, the advance funding equivalent to their average daily remittance transactions,
to fulfill or deliver their remittance transactions; (ii) all foreign offices and agents must
settle their accounts following the next banking day settlement policy, otherwise, the
fulfillment or delivery of their remittance transactions will be put on hold; (iii) evaluation
of individual potential partners and preferred associates’ credit worthiness, as well as a
close look into the other pertinent aspects of their businesses which assures the
Company of the financial soundness of its partner firms; (iv) receivable balances are
monitored daily by the Company’s regional managers with the result that the
Company’s exposure to bad debts is not significant.
The Company’s accounts receivables from agents are highly collectible which have
turnovers ranging from one (1) to five (5) days. The other receivables which include
advances to related parties is also highly collectible which are due in less than one (1)
year.
24
Market risks, consisting of foreign exchange risk and interest rate risk, are the risks that
the value of a currency position or financial instrument will fluctuate due to changes in
foreign exchange rates and interest rates. The Company’s financial instruments
consist of short-term loans from banks and advances from stockholders. The main
purpose of these financial instruments is to raise funds for the Company’s fulfillment or
delivery of remittance transactions to beneficiaries. The Company also has various
financial assets and liabilities such as accounts receivable from agents and accounts
payable to beneficiaries, which arise directly from its remittance operations.
I-Remit provides money transfer and remittance services in 25 countries and territories.
Foreign exchange risk is managed through the structure of the business and an active
risk management process. In the substantial majority of its transactions, I-Remit settles
with its foreign offices, associates, and agents in their respective local currencies, and
requires the foreign offices, associates, and agents to obtain settlement currency to
provide to recipients. The foreign currency exposure that does exist is limited by the
fact that the majority of transactions are settled within a day or two (2) days after these
are initiated. In addition, in money transfer transactions involving different currencies
received and paid in Philippine pesos, I-Remit generates revenue by receiving a foreign
currency spread based on the difference between buying currencies at wholesale
exchange rates and providing the currencies to its customers at retail exchange rates.
This spread provides some protection against currency fluctuations. The Company’s
policy is not to speculate in foreign currencies and it promptly trades foreign currencies
as necessary to cover its payables and receivables.
It is the Company’s policy that all daily foreign currencies, which arise as a result of its
remittance transactions, must be traded daily with bank partners only at prevailing
foreign exchange rates in the market. The daily closing foreign exchange rates are
used as the guiding rates in providing wholesale rates to foreign offices and agents,
respectively. The trading proceeds are used to pay out bank loans and other
obligations of the Company.
The Company is exposed to short-term interest rate risks on its peso-denominated
bank credit facilities. The Company’s exposure to cash flow interest rate risk is
minimal. It is the policy of the Company to manage its interest cost by entering into
fixed short-term debt.
25
Operational risks are risks of losses resulting from inadequate or failed internal
processes, people and systems or from external events, such as those resulting from
fraud or defalcations from internal or external sources, or actual financial losses arising
from failed processes, systems and procedures.
The Company’s main goal in managing operational risk is to create and maintain an
operating environment that ensures and protects the integrity of its financial resources,
assets, transactions, records, and information resources. The Company attempts to
mitigate operational risks by maintaining a comprehensive system of internal controls,
establishing standard systems and procedures, implementing a system to monitor
transactions, maintaining key back-up procedures, and undertaking regular contingency
planning.
The Company has operating manuals detailing the procedures for the processing of its
remittance transactions, the implementation of its various business processes, and the
use of its information technology resources. These operating manuals undergo
periodic reviews and revisions, if needed. Amendments to these manuals are
implemented through circulars sent to all divisions and offices of the Company.
Transactions and items of value are subject to a system of dual control whereby the
work of one person is verified by a second person to ensure that the transaction is
properly authorized, recorded, and settled.
Independent reviews are regularly conducted by the Internal Audit Department to
ensure that risk controls are in place and functioning effectively. The Internal Audit
Department undertakes a comprehensive audit of all divisions and departments in
accordance with a risk-based audit plan. It conceptualizes and recommends the
implementation of an improved system of internal controls, to minimize operational
risks. The Audit Plan for each fiscal year is approved by the Audit Committee of the
Board of Directors. These audits also include the area of information security that
covers application systems, databases, networks, and operating systems.
Recognizing the importance of customer service in its operations, the Company has a
Customer Support Team composed of a dedicated and highly-trained team of Country
Customer Care Officers (3COs) who support the foreign offices, associates, and the
Company’s customers and their beneficiaries. The Company provides 24 x 7 customer
service support and minimizes operational risks by ensuring accuracy and effectiveness
in operations and in the delivery of services.
The Company also has a Business Continuity Plan (BCP) that outlines the activities
and the procedures to be undertaken in the event of abnormal or emergency
conditions, or a disaster, to ensure that disruption to operations will be kept at a
manageable level, financial losses will be minimized, the safety and security of
employees, customers, and Company records will be maintained, and normal
operations will be restored in the shortest time possible. I-Remit maintains a disaster
recovery (DRP) site with Globe Telecom/Innove Communications in Makati City.
26
The other risks identified are: regulatory risk, legal risk, and technology risk.
Regulatory risk refers to the potential for the Company to suffer financial losses due to
changes in the laws or monetary, tax or other governmental regulations of the
Philippines or of a country. Losses may be in the form of regulatory sanctions for noncompliance, and in extreme cases, may involve not just mere loss in terms of reputation
or financial penalties, but a revocation of the license, charter or franchise.
The Company’s Compliance Program, the implementation of which is overseen and
coordinated by the Compliance Officer, is the primary control process for regulatory risk
issues. The Compliance Officer is responsible for communicating and disseminating
new rules and regulations to all concerned units, analyzing and addressing compliance
issues, and reporting compliance findings to the Management Committee, Executive
Committee or the Board of Directors.
I-Remit’s subsidiaries, associates, affiliates, tie-ups and agents have and maintain all
licenses and permits necessary to provide remittance and money transfer services in
their host countries. Compliance officers are appointed in each of the Company’s
foreign offices whose primary responsibility is to ensure compliance with all local rules,
regulations, laws, and licensing requirements.
The Anti-Money Laundering Act (AMLA) of 2001 (Republic Act 9160) was passed into
law on November 29, 2001 and was subsequently amended on March 23, 2003
(Republic Act 9194). The AMLA created the Anti-Money Laundering Council (AMLC)
which is composed of the Governor of the Bangko Sentral ng Pilipinas (BSP) as
Chairman, and the Commissioner of the Insurance Commission and the Chairman of
the Securities and Exchange Commission as Members. The AMLC discharges the
functions enumerated in the AMLA, which basically regulates the transfer of funds via
the route of covered institutions.
As remittance agents are covered by the AMLA, the Bangko Sentral ng Pilipinas issued
BSP Circular No. 471, Series of 2005 on January 24, 2005 that prescribed rules and
regulations that govern the registration and operations of foreign exchange dealers,
money changers, and remittance agents. On January 5, 2011, the BSP issued BSP
Circular 706 Series of 2011 that prescribes updated anti-money laundering rules and
regulations.
The Company requires its subsidiaries, associates, and agents to validate the true
identity of a customer based on official or other reliable identifying documents or
records before accepting a transaction. The Company is required to submit a report on
“covered” transactions and “suspicious” transactions involving a single transaction in
cash or other monetary instruments in excess of PHP 500,000 within one (1) banking
day from the date of said transaction or from the date the Company gained information
that the transaction was done for the purpose of laundering proceeds of criminal or
other illegal activities or from the time the Company had reasonably suspected that said
transactions were entered into for the purpose of laundering proceeds of criminal and
other illegal activities.
The Company is required to establish and record the identities of its clients based on
official documents. The BSP requires all registered remittance agents to maintain
accurate and meaningful originator information on funds transferred or remitted by
requiring the sender or remitter to fill-out and sign an application form, which shall
contain minimum data and information, such as the printed name and signature of the
remitter, permanent address, nationality, amount and currency to be remitted and
source of foreign currency for individuals. For corporate or juridical entities, in addition
to a signed application form containing the applicable information for individual
customers, the requirement includes a photocopy of the authority and identification of
the person purporting to act in behalf of the client shall be required. In addition, all
records of transactions are required to be maintained and stored for five (5) years from
the date of a transaction.
27
The Company has adopted the anti-money laundering/counter-terrorism financing
(AML/CFT) policies and guidelines that are part of its Compliance Program. These
policies and guidelines cover areas such as the customer due diligence process (“Know
Your Customer” rule), large cash transactions, record-keeping, large cash and
suspicious transaction reporting, and AML/CFT training of employees. These policies
and guidelines are based on the Financial Action Task Force (FATF) 40
Recommendations and 9 Special Recommendations, and were formulated to ensure
compliance with the requirements of the AMLA and BSP Circular 706 Series of 2011.
I-Remit’s foreign subsidiaries, associates, and agents are required to comply with the
anti-money laundering regulations of their host countries to ensure that funds being
sent through the I-Remit foreign system are of lawful and verifiable origin. Among
others, remitters are required to present documents such as proofs of identification,
residency, and financial origin as required by local regulations of the host countries.
Remitted amounts are also subject to the prescribed transmission limits of the monetary
authorities or the financial intelligence units. I-Remit’s subsidiaries, associates, and
agents are registered with the various financial and central monetary authorities
globally such as the Office of the Superintendent of Financial Institutions (Canada), the
Hong Kong Monetary Authority, the Monetary Authority, etc. I-Remit’s subsidiaries,
associates, and agents are registered with and submit periodic reports, when required,
to the financial intelligence units (FIUs) of their host countries such as the Australian
Transaction Reports and Analysis Centre (AUSTRAC), Financial Transactions and
Reports Analysis Centre (FINTRAC) of Canada, the Joint Financial Intelligence Unit
(JFIU) in Hong Kong, Her Majesty’s Customs and Excise (United Kingdom), etc. In
ensuring compliance across the different locations, I-Remit’s Foreign System is linked
to the databases of the Office of Foreign Assets Control (OFAC) of the US Department
of the Treasury (Specially Designated Nationals and Blocked Persons List), Office of
the Superintendent of Financial Institutions (OSFI) of Canada (Consolidated List of
Names Subject to the Regulations Establishing a List of Entities Made Under
Subsection 83.05[1] of the Criminal Code or the Regulations Implementing the United
Nations Resolutions on the Suppression of Terrorism or the United Nations Al-Qaida
and Taliban Regulations), European Union (EU) (Consolidated List of Persons, Groups
and Entities Subject to EU Financial Sanctions), and United Nations Security Council
Consolidated List Established and Maintained by the 1267 Committee with respect to Al
Qaida, and the Taliban, and other individuals, groups, undertakings and entities
associated with them to filter specially-designated nationals and blocked individuals.
Regulatory risk also includes the strict monitoring or the limitation on the entry of foreign
workers entering specific countries by their respective governments. Governments of
some concerned nations have implemented strict monitoring measures on the number
and types of foreign workers entering their respective countries because some of their
citizens have incessantly blamed their inability to obtain jobs on the increasing
competition from foreign migrant workers. By nature, the Philippine remittance industry
relies heavily on the number of OFWs residing or working abroad, and sending money
to the Philippines. Any decline in the growth of OFW deployment as a result of
regulations or restrictions imposed by host countries may hamper the overall growth of
the remittance industry.
Legal risk refers to the uncertainty of the enforceability of the obligations of the
Company’s business partners, agents, tie-ups, and suppliers. Changes in law and
regulations could adversely affect the Company. Legal risk is higher in new areas of
business where the law is often untested by the courts. The Company seeks to
minimize its legal risks by using stringent legal documentation, employing procedures
designed to ensure that transactions are properly authorized, and by constantly
consulting its external legal counsels locally and in the countries it operates in.
28
The delivery of financial services is characterized by rapid technological change,
changing customer preferences, the introduction of new products and services, and the
emergence of new standards. The Company realizes the potential losses arising from
the breakdown or malfunction of computer systems as well as from the misuse of its
infrastructure and networks. The Company gives importance to computer security and
has a comprehensive information technology security policy. The Company defines
and maintains information security policies that follow industry standards, such as the
use of firewalls, secure socket layer (SSL) encryption, anti-virus measures, and userdefined access controls. The Company’s major application systems have multiple
security features to protect the integrity of applications and data.
Access to I-Remit’s Foreign System via the Internet has several security restrictions
including firewalls, secure socket layers using 128-bit encryption, digital certificates and
password identification. All remittance transactions are encrypted with hash totals / test
keys to ensure authenticity of transaction details. “Check and balance control” is
implemented across the procedure cycle from foreign offices, associates, and agents to
the I-Remit office in Manila.
Most of the information technology assets including critical servers are located in a
centralized data center at the Company’s headquarters, which are subject to
appropriate physical and logical access controls. Likewise, the systems are designed
to be redundant to ensure continuity of business operations in the event of unforeseen
events or disasters. The system also has parallel servers concurrently operating and
connected to different ISP providers to ensure non-disruption of its operations.
Other Information
No bankruptcy, receivership or similar proceedings have been instituted against the
Company and its subsidiaries, affiliates or associates. Furthermore, no material
reclassification, merger, consolidation, or purchase or sale of a significant amount of
assets not in the ordinary course of business has taken place.
29
Item 2. Properties
(B)
Description of Property
I-Remit and its subsidiaries do not own any real estate properties. I-Remit is leasing its headquarters
located at the 25th, 26th, and 27th floors of the Discovery Centre, a condominium office and residential
building, located at 25 ADB Avenue, Ortigas Center, Pasig City from Oakridge Properties, Inc. In
addition, certain departments of the Company are holding office at the 8th floor of the Wynsum
Corporate Plaza, a condominium office building located at 22 F. Ortigas Jr. Road (formerly Emerald
Avenue), Ortigas Center, Pasig City.
I-Remit and Oakridge Properties, Inc. are related to each other by virtue of JTKC Equities’ ownership
of the Discovery Leisure Company, Inc. which in turn owns Oakridge Properties, Inc. JTKC Equities,
Inc. is one of the Company’s major shareholders.
The lease on the unit at the 25th floor of the Discovery Centre (Unit 2503), consisting of an area of
199.70 square meters, is covered by an operating lease agreement with a term of two (2) years,
commencing on February 1, 2010 and ending on January 31, 2012, with a 10 percent escalation on
the aggregate current monthly rental on the 13thmonth of the lease term. The lease may be renewed
under terms and conditions mutually agreed upon by the parties 90 days prior to the expiration of the
contract of lease. At the start of the lease, for the use and occupancy of the premises, the Company
paid Oakridge Properties, Inc. the amount of PHP 598.95 per square meter every month or its
equivalent monthly rental of PHP119,610.31.
The lease on the unit at the 26th floor of the Discovery Centre (Unit 2603), consisting of an area of
199.70 square meters, is covered by an operating lease agreement with a term of two (2) years,
commencing on December 1, 2009 and ending on November 30, 2011, with a 10 percent escalation
th
on the aggregate current monthly rental on the 13 month of the lease term. The lease may be
renewed under terms and conditions mutually agreed upon by the parties 90 days prior to the
expiration of the contract of lease. I-Remit, as lessee, pays Oakridge Properties, Inc. every month the
amount of PHP660.00 per square meter or its equivalent monthly rental of PHP131, 802.00.
The lease on the units at the 26th floor of the Discovery Centre (Units 2604 and 2605) with an
aggregate useable floor area of 278.00 square meters and 273.80 square meters, is covered by an
operating lease agreement with a term of two (2) years, commencing on December 1, 2009 and
expiring on November 30, 2011, with a 10 percent escalation on the aggregate current monthly rental
th
on the 13 month of the lease term. The lease may be renewed under terms and conditions mutually
agreed upon by the parties 90 days prior to the expiration of the contract of lease. At the start of the
lease, I-Remit, as lessee, paid Oakridge Properties, Inc. every month the amount of PHP683.65 per
square meter or its equivalent monthly rental of PHP377,238.07.
The lease on the unit at the 27th floor of the Discovery Centre (Unit 2703) with an aggregate useable
floor area of 199.70 square meters, is covered by an operating lease agreement with a term of two (2)
years, which commenced on February 1, 2011 and expires on January 31, 2013, with an escalation
th
rate of 10 percent on the 13 month of the lease term. The lease may be renewed under terms and
conditions mutually agreed upon by the parties 90 days prior to the expiration of the contract of lease.
At the start of the lease, I-Remit, as lessee, paid Oakridge Properties, Inc. every month the amount of
PHP610.00 per square meter or its equivalent monthly rental of PHP121,817.00.
The above monthly rentals with respect to the lease contracts with Oakridge Properties, Inc. exclude
charges for air-conditioning and electricity or generator set during brown-out, water, and other charges
such as association dues, parking fees, overtime pay of janitors and technicians which are borne by
I-Remit.
The lease on the unit at the 8th floor of the Wynsum Corporate Plaza with an aggregate useable floor
area of 287 square meters and five (5) parking spaces, are covered by an operating lease agreement
with a term of two (2) years, commencing on September 1, 2010 and expiring on August 31, 2012.
The lease may be renewed under terms and conditions mutually agreed upon by the parties 90 days
prior to the expiration of the contract of lease. I-Remit, as lessee, pays Wynsum Realty Developer,
Inc. the rent on the condominium unit in the amount of PHP 175,350.00 every month and on the five
(5) parking spaces in the amount of PHP17,500.00 every month, both not subject to escalation.
The above monthly rentals with respect to the lease contract with Wynsum Realty Developer, Inc.
exclude charges for air-conditioning, electricity, gas, telephone and other charges such as association
dues, which are borne by I-Remit.
30
Unit & Location
Unit 2503, 25/F
Discovery Centre
Unit 2603, 26/F
Discovery Centre
Unit 2604 & 2605,
26/F Discovery
Centre
Unit 2703, 27/F
Discovery Centre
8/F Wynsum
Corporate Plaza
Five (5) parking
spaces, Wynsum
Corporate Plaza
Address
25 ADB Avenue, Ortigas
Center, Pasig City
Center, Pasig City
Center, Pasig City
Area (sqm)
199.70
Current Rent
per Month
exclusive of
VAT (PHP)
119,610.31
199.70
131,802.00
2
551.80
377,238.07
2
Center, Pasig City
22 F. Ortigas Jr. Road,
Ortigas Center, Pasig
City
22 F. Ortigas Jr. Road,
Ortigas Center, Pasig
City
199.70
121,817.00
2
287.00
175,350.00
2
---
17,500.00
2
Contract Period
Term
(years)
2
Start
Feb. 1,
2010
Dec. 1,
2009
Dec. 1,
2009
End
Jan. 31,
2012
Nov. 30,
2011
Nov. 30,
2011
Feb. 1,
2011
Sep. 1,
2010
Jan. 31,
2013
Aug. 31,
2012
Sep. 1,
2010
Aug. 31,
2012
Rent expense pertaining to the above leased office spaces by the Parent Company, from Oakridge
Properties and Wynsum Realty amounted to PHP11.01 million in 2010, PHP10.55 million in 2009,
PHP9.48 million in 2008 and PHP7.07 million in 2007.
I-Remit has office sharing arrangements with Surewell Enterprises, Ltd. in Hong Kong and Surewell
Equities (Singapore) Pte. Ltd. in Singapore. Mr. Bansan C. Choa, Chairman and Chief Executive
Officer of I-Remit, is also a shareholder in both companies.
I-Remit’s subsidiaries have their respective operating lease agreements for their office spaces. The
lease contracts are for periods ranging from 1 to 10 years and may be renewed under the terms and
conditions mutually agreed upon by the subsidiaries and the lessors.
The Group’s rent expense includes operating lease agreements entered into by the subsidiaries for
the use of its office spaces. Rent expense of the Group amounted to PHP 50.38, PHP39.33 million,
and PHP32.53 million in 2010, 2009, 2008, respectively.
31
Item 3. Legal Proceedings
(C)
Legal Proceedings
The Parent Company is not involved in nor are any of its properties subject to, any material legal
proceeding that could potentially affect its operations and financial capabilities.
Item 4. Submission of Matters to a Vote of Security Holders
Except for matters taken up during the annual meeting of stockholders, there were no matters
submitted to a vote of security holders during the period covered by this report.
32
PART II. OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters
(A)
Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters
(1)
Market Information
The common shares of the Parent Company are traded in the Philippine Stock Exchange
(PSE).
Quarter end stock price ranges for 2008 were as follows:
Quarter Ending Date
Mar. 31, 2008
Jun. 30, 2008
Sep. 30, 2008
Dec. 31, 2008
High
PHP 4.70
PHP 3.55
PHP 4.70
PHP 5.00
Low
PHP 3.00
PHP 2.50
PHP 2.55
PHP 3.25
Close
PHP 3.55
PHP 3.00
PHP 4.30
PHP 4.95
Quarter Ending Date
Mar. 31, 2009
Jun. 30, 2009
Sep. 30, 2009
Dec. 31, 2009
High
PHP 4.80
PHP 4.65
PHP 4.60
PHP 7.00
Low
PHP 3.70
PHP 4.00
PHP 3.85
PHP 3.70
Close
PHP 4.45
PHP 4.10
PHP 4.00
PHP 6.10
Quarter Ending Date
Mar. 31, 2010
Jun. 30, 2010
Sep. 30, 2010
Dec. 31, 2010
High
PHP 6.20
PHP 5.00
PHP 4.85
PHP 4.08
Low
PHP 4.70
PHP 4.25
PHP 3.44
PHP 3.20
Close
PHP 4.85
PHP 4.40
PHP 4.00
PHP 3.34
The closing price of the Company’s common shares as of the latest practicable trading date,
i.e., April 14, 2011, is PHP 3.10 per share.
33
(2)
Holders
There were sixteen (16) common shareholders of record as of December 31, 2010. Common
shares amounted to 562,417,000* as of December 31, 2010.
* Inclusive of 9,329,000 common shares purchased by the Company under its stock buy-back
program.
The top twenty (20) common shareholders as of December 31, 2010, the number of shares
held and the percentage of total shares held by each are as follows:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
14
Name
PCD Nominee Corporation - Filipino
Star Equities Inc.
JTKC Equities, Inc.
PCD Nominee Corporation – Non-Filipino
Asiatic Development Corporation
GTS Insurance Brokers Inc.
Cruz, Napoleon D. Sr. and/or Luisa I. Cruz
Soriano, Victor Martin J.
Ona, Edgardo V.
Simon, Dwight David M. and/or Corrine Jewel R. Simon
Olayres, Norberto F. and/or Olayres, Felisa J.
Hapi Iloilo Corporation
M. J. Soriano Trading, inc.
Gaw, Gilbert C.
Total
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Foreign
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Total Shares
* 219,998,625
158,418,225
122,043,900
43,428,450
17,000,000
1,410,700
100,000
5,000
3,000
2,000
2,000
2,000
1,000
1,000
1,000
100
** 562,417,000
Percentage
(%)
39.1166
28.1674
21.6999
7.7218
3.0227
0.2508
0.0178
0.0009
0.0005
0.0004
0.0004
0.0002
0.0002
0.0002
0.0002
0.0000
100.0000
* Inclusive of 62,581,775 lodged common shares held by JTKC Equities, Inc.; thus, its total
shareholdings is 106,010,225 representing 18.8490% ownership.
** Inclusive of 9,329,000 common shares purchased by the Company under its stock buy-back
program.
34
There were sixteen (16) common shareholders of record as of March 31, 2011. Common
shares amounted to 562,417,000* as of March 31, 2011.
* Inclusive of 9,329,000 common shares purchased by the Company under its stock buy-back
program.
The top twenty (20) common shareholders as of March 31, 2011, the number of shares held
and the percentage of total shares held by each are as follows:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
14
Name
PCD Nominee Corporation - Filipino
Star Equities Inc.
JTKC Equities, Inc.
PCD Nominee Corporation – Non-Filipino
Asiatic Development Corporation
GTS Insurance Brokers, Inc.
Cruz, Napoleon D. Sr. and/or Luisa I. Cruz
Soriano, Victor Martin J.
Ona, Edgardo V.
Simon, Dwight David M. and/or Corinne Jewel R. Simon
Olayres, Norberto F. and/or Olayres, Felisa J.
Hapi Iloilo Corporation
M. J. Soriano Trading, Inc.
Gaw, Gilbert C.
Total
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Foreign
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Total Shares
* 219,998,625
158,418,225
122,043,900
43,428,450
17,000,000
1,140,700
100,000
5,000
3,000
2,000
2,000
2,000
1,000
1,000
1,000
100
** 562,417,000
Percentage
(%)
39.1166
28.1674
21.6999
7.7218
3.0227
0.2508
0.0178
0.0009
0.0005
0.0004
0.0004
0.0004
0.0002
0.0002
0.0002
0.0000
100.0000
* Inclusive of 62,581,775 lodged common shares held by JTKC Equities, Inc., thus, its total
shareholdings is 106,010,225 representing 18.8490% ownership.
** Inclusive of 9,329,000 common shares purchased by the Company under its stock buy-back
program.
35
(3)
Dividends
The Company’s Board of Directors is authorized to declare dividends. Pursuant to Sections 43
and 143 of the Corporation Code of the Philippines, Section 5 of the Securities Regulation
Code, and SEC Memorandum Circular No. 11, Series of 2008 (Guidelines on the
Determination of Retained Earnings Available for Dividend Declaration), dividends may be
declared and paid out of the unrestricted retained earnings which shall be payable in cash,
property, or stock to all stockholders on the basis of outstanding stock held by them, as often
and at such time as the Board of Directors may determine and in accordance with law and
applicable rules and regulations. Cash and property dividend declarations do not require any
further approval from the Company’s shareholders. Any stock dividend declaration requires
the approval of shareholders holding at least two-thirds of the Company’s total outstanding
capital stock.
Pursuant to existing Philippine regulations, cash dividends declared by the Company must
have a record date of not less than ten (10) days or more than thirty (30) days from the date
the cash dividends are declared.
With respect to stock dividends, the record date is to be not less than ten (10) days or more
than thirty (30) days from the shareholders’ approval, provided however, that the set record
date is not to be less than ten (10) training days from receipt of the Philippine Stock Exchange
of the notice of declaration of stock dividend. If no record date is set, under the Securities and
Exchange Commission rules, the record date will be deemed fixed at fifteen (15) days from the
date of stock dividend declaration. In the event that a stock dividend is declared in connection
with an increase in authorized capital stock, the corresponding record date is to be fixed by the
Securities and Exchange Commission.
The Board of Directors of the Company declared stock dividends worth PHP 43,000,000.00 to
its shareholders on July 20, 2007, which declaration was subsequently ratified and confirmed
by the Company’s shareholders during their annual meeting held on the same day,
immediately after the Board meeting. The Record Date was set on August 19, 2007, thirty (30)
days from the date of approval of the Company’s shareholders.
With the listing of the Company’s shares in the Philippine Stock Exchange, the Company
intends to maintain an annual dividend payment ratio for its shares of up to 20 percent of its
consolidated net income from the preceding fiscal year, subject to the requirements of
applicable laws and regulations and the absence of circumstances which may restrict the
payment of dividends. Circumstances which may restrict the payment of dividends include, but
are not limited to, situations when the Company undertakes major projects and developments
requiring substantial cash expenditures or when it is restricted from paying dividends by its
loan covenants. The Company’s Board, may, at any time, modify such dividend payout ratio
depending upon the results of operations and future projects and plans of the Company.
On April 25, 2008, the Board of Directors of the Parent Company declared cash dividends
amounting to PHP 21.99 million or PHP 0.0391 per share, payable to shareholders-of-record
as of May 15, 2008, which declaration was subsequently ratified and confirmed by the Parent
Company’ shareholders during their annual meeting held on July 31, 2008. The payment of
dividends was made on June 10, 2008.
On March 20, 2009, the Board of Directors of the Parent Company declared cash dividends
amounting to PHP 26 million, representing 20 percent of the Company’s consolidated net
income for the period ended December 31, 2008 or PHP 0.0471 per share, payable to
shareholders-of-record as of April 7, 2009. The payment of dividends will be on a date on or
before May 6, 2009.
On March 19, 2010, the Board of Directors of the Parent Company declared cash dividends
amounting to PHP 26,603,532, representing 20 percent of the Company’s consolidated net
income for the period ended December 31, 2009 or PHP 0.0481 per share, payable to
shareholders-of-record as of April 8, 2010. The payment of dividends will be on a date on or
before May 5, 2010.
Other than statutory limitations, there are no restrictions that prevent the Parent Company from
paying dividends on common equity.
36
(4)
Recent Sales of Unregistered or Exempt Securities, Including Recent Issuances of Securities
Constituting an Exempt Transaction
On August 21, 2007, the Company distributed stock dividends worth PHP 43,000,000.00 to the
stockholders of record as of August 19, 2007.
The stock dividend declaration was approved by the Company’s Board of Directors on July 20,
2007 and was subsequently approved and ratified by the stockholders owning at least twothirds (2/3) of the total outstanding capital stock of the Company on the same date of July 20,
2007 during the annual stockholders’ meeting. The issuance of the shares as stock dividend
was exempt from the Securities Regulation Code (SRC) registration requirements pursuant to
Section 10.1 (d). The shares were issued at the original par value of one hundred pesos (PHP
100.00) per share.
Thereafter, with the approval of the Securities and Exchange Commission (“SEC”) on August
22, 2007 of the Company’s application to increase its authorized capital stock to one billion
pesos (PHP 1,000,000,000.00) and to reduce its par value per share to one peso (P1.00), the
Company, on August 23, 2007, issued a total of two hundred ninety seven million
(297,000,000) common shares at the reduced par value of one peso (PHP 1.00) out of the
increase in the Company’s authorized capital stock to the following: (1) JPSA Global Services
Company; (2) JTKC Equities, Inc.; (3) Star Equities Inc.; (4) Surewell Equities, Inc.
Since no expense was incurred, or no commission, compensation or remuneration was paid or
given in connection with the issuance of the shares, the same was exempt from the SRC
registration requirements pursuant to Section 10.1 (i).
Subsequent to the increase in authorized capital stock, the Company issued a total of
15,000,000 shares out of its unissued and authorized capital stock on September 20, 2007 to
its Directors, key Officers, Employees, Consultants and Resource Persons under the Special
Stock Purchase Plan (“SSPP”).
The foregoing issuance of the 15,000,000 new shares under the SSPP was the subject of an
application for exemption from registration of the shares under Section 10.2 of the SRC, which
application was granted by the SEC on September 13, 2007. Notwithstanding the aforesaid
confirmation by the Commission of the exempt status of the SSPP shares, the Commission
nonetheless required the Corporation to include the SSPP shares among the shares of I-Remit
which were registered with the Commission prior to the conduct of its Initial Public Offering in
October 2007. The registration of the I-Remit shares, together with the SSPP shares, was
rendered effective on 5 October 2007. All 15,000,000 shares were subscribed and purchased.
The shares subject of the SSPP were sold at par value or PHP1.00 per share. Total share
purchases amounting to PHP11.74 million were paid in full, while the difference totaling
PHP3.26 million were paid by way of salary loan. Shares acquired through the SSPP are
subject to a lock-up period of two (2) years from the date of issue which ended on September
19, 2009. No underwriter was engaged in connection with the foregoing share issuance.
The sale is further subject to the condition that should the officer or employee resign from the
Parent Company prior to the expiration of the lock-up period, the share purchased by such
resigning employee or officer shall be purchased at cost by the Parent Company’s Retirement
Fund for the benefit of the Parent Company’s retiring employees or officers. As of December
31, 2009, twenty-two (22) employees had resigned (seven in 2009, thirteen in 2008 and two in
2007) and their shares totaling to 808,100 (130,900 in 2009; 548,500 in 2008; and, 128,700 in
2007) were bought back by the Parent Company on behalf of the Retirement Fund. The total
cost of the shares acquired amounting to PHP808,100 was recognized as treasury stock.
With the establishment of the I-Remit, Inc. Retirement Fund and after the expiration of the lock
up period on September 19, 2009, the Company transferred to the Retirement Fund on
September 24, 2009 the 808,100 shares it has bought back from its resigned employees and
officers upon reimbursement of the advances made by the Company in acquiring such shares
on behalf of the Retirement Fund. With this transfer, the Company’s outstanding capital stock
now stands at 553,088,000 shares from 552,279,900 shares. Issued capital stock still remains
at 562,417,000 shares.
Except for the above issuances, the Company has not issued or sold new shares within the
past three (3) years which were not registered pursuant to the requirements of the Securities
Regulation Code (“SRC”).
37
Item 6. Management’s Discussion and Analysis or Plan of Operation
(A)
Management’s Discussion and Analysis (MD&A) or Plan of Operation
(1)
Plan of Operation
The Company’s strategy is focused on creating a global brand for I-Remit by: (i) identifying
and tapping a wider customer base and (ii) maintaining its status as the leading and preferred
choice of OFWs for their remittance requirements. The Company will still continue to introduce
alternative delivery channels and find ways to further improve the speed and reliability of
deliveries, develop a wider delivery network, and forge strategic alliances with various banks.
The key elements of the Company’s strategy is as follows:

Utilize technological advances in increasing value for money of products and
services;
Implement product prioritization and differentiation;
Increase strategic alliances with banks with limited or no remittance business; and
Increase partnerships with various establishments to act as pay stations.
The Company’s general expansion plans in 2011 include the opening of offices or the
engagement of tie-ups and partners in Australia, Canada, Italy, Ireland, Japan, Macau SAR,
Saudi Arabia, and Switzerland.
38
(2)
Management’s Discussion and Analysis
2010 compared to 2009
I-Remit realized a consolidated net income of PHP 65.9 million in 2010, a decrease of PHP
67.2 million or 50.5% over the consolidated net income of PHP 133.1 million in 2009.
Revenues decreased by 1.1% or PHP 8.7 million from PHP 778.7 million in 2009 to PHP
769.9 million in 2010 mainly due to the decline in realized foreign exchange gains. Foreign
exchange gains dropped by 8.6% or PHP24.9 million from PHP287.7 million in 2009 to
PHP262.8 million in 2010. The value of transactions grew by 9.9% or USD109.5 million from
USD1.103 billion in 2009 to USD1.213 billion in 2010. The Company’s revenue from delivery
fees grew by only 3.2% or PHP15.9 million from PHP490.4 million in 2009 to PHP506.2 million
in 2010 largely because of the appreciation of the Philippine peso against the U.S. dollar. The
Company’s fees are largely settled in U.S. dollars. The average peso-dollar exchange rate
was PHP47.63 in 2009 against PHP45.08 in 2010, a gain of 5.3% or PHP2.55 per dollar. In
December 2010, the average peso-dollar exchange rate was PHP43.95 per dollar. The
number of transactions processed by the Company grew by only 2% from 2.683 million in
2009 to 2.737 million in 2010.
Total operating expenses was higher by PHP58.3 million (14.1%) from PHP412.4 million in
2009 to PHP470.7 million in 2010 mainly on account of higher rental, marketing, and
professional fee expenses. Rental expenses increased by 28.1% from PHP39.3 million in
2009 to PHP50.4 million in 2010. Marketing expenses increased by 32.0% from PHP33.0
million in 2009 to PHP43.5 million in 2010. Professional fees increased by 46.9% from
PHP29.7 million in 2009 to PHP43.6 in 2010. The increase in these expense items are
related mainly to the Company’s expansion as it opened new offices in Canada and Italy.
Other income decreased by 62.8% or PHP54.3 million from PHP86.4 million in 2009 to
PHP32.1 million in 2010 mainly due to the decline in net trading gains on debt securities
(listed overseas) held for trading and lower other income consisting of interest income,
rebates, and unrealized foreign exchange gain. Net trading gains declined by PHP30.3 million
or 92.4% from PHP32.8 million in 2009 to PHP2.5 million in 2010.
The total assets of the Company decreased by PHP131.9 million or 5.3% to PHP2.356 billion
as of December 31, 2010 against PHP2.488 billion as of December 31, 2009. Cash and cash
equivalents decreased by PHP79.0 million or 8.2% from PHP962.8 million in 2009 to
PHP883.8 million in 2010. Financial assets at fair value through profit or loss amounted to
PHP102.9 million at end-2010 against PHP65.8 million at end-2009, increasing by PHP37.1
million or 56.4%. These assets consist of investments in debt securities (listed overseas) held
for trading. Receivables declined by PHP80.2 million or 7.0% from PHP1.139 billion in 2009 to
PHP1.059 billion in 2010. The Company’s non-current assets declined by PHP300,928 or
0.2% from PHP190,039,196 at end-2009 to PHP190,340,124 at end-2010.
Total liabilities declined by PHP151.4 million or 12.2% from PHP1.235 billion at end-2009 to
PHP1.084 billion in 2010 mainly due to a lower level of current liabilities. Current liabilities
decreased by PHP148.6 million or 12.1% from PHP1.232 billion in 2009 to PHP 1.083 billion
in 2010.
The Company’s stockholders’ equity as of December 31, 2010 stood at PHP 1.271 billion,
higher by PHP19.5 million or 1.6% against the end-2009 level of PHP 1.252 billion.
39
Below are the comparative key performance indicators of the Company (Parent Company and
subsidiaries):
Performance Indicator
Return on Equity (ROE)
Return on Assets
(ROA)
Earnings per Share
(EPS)
Sales Growth
Gross Income
Definition
Net income* over average stockholders’
equity during the period
Net income* over average total assets
during the period
Net income* over average number of
outstanding shares
Total transaction value in USD in present
year over previous year
Revenue less total cost of services (PHP
millions)
Dec. 31, 2010
Dec. 31, 2009
5%
11%
3%
6%
PHP 0.12
PHP 0.24
10%
2%
562.0
547.7
* Net Income attributable to equity holders of the Parent Company and Minority Interest. EPS computed using
Net Income attributable to equity holders of the Parent Company for the year ended December 31, 2010 and
for the year ended December 31, 2009 are P 0.14 and P 0.25, respectively.
Below are the comparative key performance indicators of the Company’s subsidiaries:
International Remittance (Canada) Ltd.
Definition
Net income over average stockholders’
Return on Assets
Net income over average total assets
(ROA)
during the period
Earnings per Share
Net income over average number of
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Lucky Star Management Limited
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
IRemit Global Remittance Limited
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
40
Dec. 31, 2010
Dec. 31, 2009
3%
33%
1%
10%
1.80
18.18
3%
11%
97.5
99.7
Dec. 31, 2010
Dec. 31, 2009
89%
47%
26%
14%
30.53
11.18
8%
20%
25.6
21.4
Dec. 31, 2010
Dec. 31, 2009
39%
60%
6%
4%
10,191.13
10,021.79
1%
-17%
43.8
46.9
I-Remit Australia Pty Ltd
Return on Assets
(ROA)
Earnings per Share
(EPS)
Sales Growth
Gross Income
Definition
during the period
outstanding shares
millions)
Worldwide Exchange Pty Ltd
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
I-Remit New Zealand Limited
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
IREMIT EUROPE Remittance Consulting AG
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
41
Dec. 31, 2010
Dec. 31, 2009
1%
176%
0.2%
24%
14,435.50
1,859,480.93
-
-
0.3
0.2
Dec. 31, 2010
Dec. 31, 2009
5%
41%
1%
11%
2.00
29.75
20%
-5%
29.2
32.6
Dec. 31, 2010
Dec. 31, 2009
20%
81%
-9%
-25%
-1,129.10
-2,654.42
38%
595%
8.8
7.6
Dec. 31, 2010
Dec. 31, 2009
-193%
-189%
-74%
-31%
-666.31
-243.17
94%
43%
11.7
9.1
Power Star Asia Group Limited
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
42
Dec. 31, 2010
Dec. 31, 2009
38%
89%
36%
78%
63.27
86.35
-
-
62.4
55.5
I-Remit realized a consolidated net income of PHP 133.1 million in 2009, an increase of PHP
3.2 million or 2.4% over the consolidated net income of PHP 129.98 million in 2008.
Revenues increased by PHP 16.6 million (2.2%) to PHP 778.6 million in 2009 from PHP 762.0
million in 2008 mainly due to the 11.9% increase in transaction count (from 2,397,180 in 2008
to 2,683,639 in 2009) and a 1.9% increase in USD remittance volume (from USD 1,083.6
million in 2008 to USD 1,104.0 million in 2009). Of the total transaction count in 2009, the
percentage contributions per region are as follows: Asia-Pacific, 43%; Middle East, 28%; North
America, 16%; and Europe, 9%. In terms of USD remittance volume, the regional
contributions are as follows: Asia-Pacific, 33%; Europe, 12%, Middle East, 20%, and North
America, 17%. The Company’s market share in 2009 was 6.4% from 6.6% in 2008 based on
the BSP-reported figure of total inward remittances to the Philippines of USD 17.3 billion.
Accordingly, the Company’s gross income decreased by PHP 17.7 million or -3.1% from PHP
565.4 million in 2008 to 547.7 million in 2009.
Total operating expenses was higher by PHP 15.0 million (3.8%) from PHP 397.4 million in
2008 to PHP 412.4 million in 2009 mainly on account of higher salaries, wages and employee
benefits, and rental expenses. Other income increased by 156.7% or PHP 52.7 million from
PHP 33.7 million in 2008 to PHP 86.4 million in 2009 mainly due to net trading gains on debt
securities (listed overseas) held for trading and higher other income of subsidiaries such as
rebates and sub-lease rental income. Interest expense was higher by PHP 35.2 million
(260.4%) from PHP 13.5 million in 2008 to PHP 48.7 million in 2009 due to increased loans.
The total assets of the Company increased by PHP 514.5 million or 26.1% to PHP 2.488
billion as of December 31, 2009 against PHP 1.974 billion as of the same period in 2008.
Cash and cash equivalents increased by PHP 130.2 million or 15.6% from PHP 832.6 million
in 2008 to PHP 962.8 million in 2009. Financial assets at FVPL amounting to PHP 65.8
million consist of investments in debt securities (listed overseas) held for trading. Receivables
increased by PHP 310.6 million or 33.2% from PHP 936.9 million in 2008 to PHP 1,247.5
million in 2009. Other current assets increased by PHP 2.0 million or 10.0% from PHP 20.3
million to PHP 22.3 million mainly because of a higher level of Visa cards inventory. Property
and equipment decreased by PHP 3.1 million or 9.9% from PHP 30.9 million in 2008 to PHP
27.8 million in 2009 on account of higher depreciation and amortization expenses. Goodwill
increased by PHP 6.1 million or 6.6% from PHP 91.5 million in 2008 to PHP 97.6 million in
2009 due to exchange adjustment. Deferred tax asset increased by PHP 2.5 million or
305.1% from PHP 0.8 million in 2008 to PHP 3.3 million in 2009. Other noncurrent assets
increased by PHP 4.6 million or 13.2% from PHP 34.7 million in 2008 to PHP 39.3 million in
2009.
Total liabilities increased by PHP 378.2 million or 44.1% from PHP 857.5 million in 2008 to
PHP 1,235.7 million in 2009 mainly higher level of current liabilities. Current liabilities
increased by PHP 380.0 million or 44.6% from PHP 852.1 million in 2008 to PHP 1,232.1
million in 2009 due to the increase in interest-earning loans by PHP 350.0 million or 60.3%
from PHP 580.0 million in 2008 to PHP 930.0 million in 2009.
higher by PHP 136.4 million or 12.2% against the year-end 2008 level of PHP 1.116 billion.
43
subsidiaries):
Return on Assets
(ROA)
Earnings per Share
(EPS)
Sales Growth
Gross Income
Definition
during the period
outstanding shares
millions)
Dec. 31, 2009
Dec. 31, 2008
11%
12%
6%
8%
PHP 0.24
PHP 0.23
2%
42%
547.7
565.4
Net Income attributable to equity holders of the Parent Company for the year ended December 31, 2009 and
for the year ended December 31, 2008 are P 0.25 and P 0.23, respectively.
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
44
Dec. 31, 2009
Dec. 31, 2008
33%
62%
10%
9%
18.18
26.60
11%
35%
99.7
85.8
Dec. 31, 2009
Dec. 31, 2008
47%
61%
14%
40%
11.18
15.67
20%
7%
21.4
20.9
Dec. 31, 2009
Dec. 31, 2008
60%
5%
4.08%
0.2%
10,021.79
666.34
-17%
-4%
46.9
42.2
Return on Assets
(ROA)
Earnings per Share
(EPS)
Sales Growth
Gross Income
Definition
during the period
outstanding shares
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
45
Dec. 31, 2009
Dec. 31, 2008
176%
108%
24%
17%
1,859,480.93
1,623,710.00
-
-
0.2
0.4
Dec. 31, 2009
Dec. 31, 2008
41%
91%
11%
45%
29.75
106.93
-5%
40%
32.6
35.0
Dec. 31, 2009
Dec. 31, 2008
81%
104%
-25%
-21%
-2,654.42
-1,721.28
595%
-
7.6
1.1
Dec. 31, 2009
Dec. 31, 2008
-189%
56%
-31%
-34%
-243.17
-259.01
43%
-
9.1
6.8
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
46
Dec. 31, 2009
Dec. 31, 2008
89%
90%
78%
76%
86.35
49.87
-
-
55.5
59.8
I-Remit realized a consolidated net income of PHP 129.9 million in 2008, an increase of PHP
16.7 million or 15% over the consolidated net income of PHP 113.3 million in 2007.
Revenues increased by PHP 200.3 million (36%) to PHP 762.0 million in 2008 from PHP
561.8 million in 2007 mainly due to the 29% increase in transaction count (from 1,864,869 in
2007 to 2,397,180 in 2008 ) and a 42% increase in USD remittance volume (from USD 762.3
million in 2007 to USD 1,083.6 million in 2008). Of the total transaction count in 2008, the
percentage contributions per region are as follows: Asia-Pacific, 42%; Middle East, 28%; North
America, 15%; and Europe, 10%. In terms of USD remittance volume, the regional
contributions are as follows: Asia-Pacific, 34%; Europe, 13% , Middle East, 20% , and North
America, 15%. The Company’s market share in 2008 grew to 6.60% from 5.28% in 2007
based on the BSP-reported figure of total inward remittances to the Philippines of USD 16.43
billion. Accordingly, the Company’s gross income increased by PHP 158.9 million or 39%
from PHP 406.4 million in 2007 to 565.4 million in 2008.
Total operating expenses was higher by PHP 119.7 million (43%) from PHP 277.7 million in
2007 to PHP 397.4 million in 2008 mainly on account of higher salaries, wages and employee
benefits, and marketing expenses. Other income increased by 99% or PHP 16.7 million from
PHP 16.9 million in 2007 to PHP 33.7 million in 2008 mainly due to higher other income of
subsidiaries such as sub-lease rental income. Interest expense was lower by PHP 10.8
million (44.5%) from PHP 24.3 million in 2007 to PHP 13.5 million in 2008.
The total assets of the Company increased by PHP 572.6 million or 41% to PHP 1.974 billion
as of December 31, 2008 against PHP 1.401 billion as of the same period in 2007. Cash and
cash equivalents increased by PHP 151.0 million or 22% from PHP 681.7 million in 2007 to
PHP 832.6 million in 2008. Receivables increased by PHP 390.7 million or 72% from PHP
546.2 million in 2007 to PHP 936.9 million in 2008. Other current assets increased by PHP
15.0 million or 284% from PHP 5.3 million in 2007 to PHP 20.3 million in 2008 mainly because
of a higher level of prepaid expenses and card inventory. Property and equipment increased
by PHP 11.8 million or 62% from PHP 19.1 million in 2007 to PHP 30.9 million in 2008 mainly
due to investments in office and communication equipment. Goodwill decreased by PHP 20.0
million from PHP 111.4 million in 2007 to PHP 91.5 million in 2008 due to exchange
adjustment. Other noncurrent assets increased by PHP 15.2 million or 68% from PHP 22.49
million in 2007 to PHP 37.7 million in 2008.
Total liabilities increased by PHP 533.6 million or 165% from PHP 323.9 million in 2007 to
PHP 857.5 million in 2008 mainly higher level of current liabilities. Current liabilities increased
by PHP 533.7 million or 168% from PHP 318.4 million in 2007 to PHP 852.1 million in 2008
due to the increase in interest-earning loans by PHP 405.0 million or 231% from PHP 175
million in 2007 to PHP 580 million in 2008.
higher by PHP 38.9 million or 4% against the year-end 2007 level of PHP 1.077 billion.
47
subsidiaries):
Return on Assets
(ROA)
Earnings per Share
(EPS)
Sales Growth
Gross Income
Definition
during the period
outstanding shares
millions)
Dec. 31, 2008
Dec. 31, 2007
12%
21%
8%
11%
PHP 0.23
PHP 0.56
42%
37%
565.4
406.4
Net Income attributable to equity holders of the Parent Company for the year ended December 31, 2008 and for
the year ended December 31, 2007 are P 0.23 and P 0.53, respectively.
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
48
Dec. 31, 2008
Dec. 31, 2007
62%
99%
9%
7%
26.60
21.74
35%
74%
85.8
67.3
Dec. 31, 2008
Dec. 31, 2007
61%
-48%
40%
23%
15.67
11.78
7%
20%
20.9
19.6
Dec. 31, 2008
Dec. 31, 2007
5%
33%
0.2%
1%
666.34
4,193.47
-4%
-
42.2
43.6
Return on Assets
(ROA)
Earnings per Share
(EPS)
Sales Growth
Gross Income
Definition
during the period
outstanding shares
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
49
Dec. 31, 2008
Dec. 31, 2007
108%
98%
17%
7%
1,623,710.00
1,167,012.29
-
-
0.4
0.3
Dec. 31, 2008
Dec. 31, 2007
91%
58%
45%
34%
106.93
77.14
40%
-
35.0
20.4
Dec. 31, 2008
Dec. 31, 2007
104%
-
-21%
-
-1,721.28
-
-
-
1.1
-
Dec. 31, 2008
Dec. 31, 2007
56%
-
-34%
-
-259.01
-
-
-
6.8
-
Definition
Return on Assets
(ROA)
during the period
Earnings per Share
(EPS)
outstanding shares
Sales Growth
Gross Income
millions)
Dec. 31, 2008
Dec. 31, 2007
90%
-
76%
-
49.87
-
-
-
59.8
-
The Company is not aware of any known trends, commitments, events or uncertainties that will have a
material impact on the Company’s liquidity. The Company has not defaulted in paying its currently
maturing obligations. In addition, obligations of the Company are guaranteed up to a certain extent by
the Company’s majority stockholders.
The Company is not aware of any events that will trigger a direct or contingent financial obligation that
is material to the Company, including any default or acceleration of an obligation.
There are no material off-balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the Company with unconsolidated entities or other persons
created during the reporting period.
The Company has no material commitments for capital expenditures.
Except as discussed above, the Company is not aware of any trends, events or uncertainties that have
had or that are reasonably expected to have a material favorable or unfavorable impact on sales,
revenues or income from continuing operations.
There are no significant elements of income or loss that did not arise from the Company’s continuing
operations.
There are no seasonal aspects that had a material effect on the financial condition or results of
operations.
The Company does not expect any purchase of significant equipment in the next twelve (12) months.
The Company does not expect any significant changes in the number of employees in the next twelve
(12) months.
50
Item 7. Financial Statements
The consolidated financial statements and schedules listed in the accompanying Index to Financial
Statements and Supplementary Schedules are filed as part of this Form 17-A.
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
I-Remit and its subsidiaries had no disagreement with the auditors on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedure as of December 31, 2010 and
December 31, 2009.
Appointment of and Review of the Performance of the External Auditor
The Board of Directors and the stockholders approve the Audit Committee’s recommendation for the
appointment and the review of the performance of the external auditors. In appointing its external auditors,
the Company considers the technical competence, training, experience and professional reputation of the
audit firm’s partners and staff, its capacity to perform the requirements of the audit engagement, its
correspondent and other professional relationships with reputable firms in other jurisdictions, and the general
reputation of the firm for integrity and efficiency.
Pursuant to the General Requirements of SRC Rule 68, Par. 3 (Qualifications and Reports of Independent
Auditors), I-Remit engaged the services of SyCip Gorres Velayo & Co. (SGV & Co.) (BOA/PRC Reg. No.
0001; SEC Accreditation No. 0012-FR-1) for the audit of the Group’s and Parent Company’s financial
statements which comprise the statements of condition as of December 31, 2010 and 2009, and the
statements of income, changes in equity, and cash flows for each of the three (3) years in the period ended
December 31, 2009.
SGV & Co. is the Philippines’ largest professional services firm with nine (9) offices across the country. It
employs over 1,800 people. SGV professionals from various disciplines provide integrated solutions that
draw on diverse and deep competencies in assurance, tax, and risk services. Upholding the highest
standards of quality, the Assurance and Advisory Business Services division of SGV & Co. has been ISOcertified since 1996.
SGV & Co.’s track record has remained unmatched in the region. It has accumulated invaluable resources in
its more than 60 years of operation --- highly qualified and competent staff, state-of-the-art facilities, and an
enviable international network.
SGV & Co. is a member practice of Ernst & Young Global, a leader in professional services with 114,000
people serving as trusted advisors in more than 140 countries offering audit, tax, and transaction advisory
services across all industries to many of today’s leading global corporations as well as emerging growth
companies.
SGV & Co. has served as the Company’s external auditors since 2002. Josephine Adrienne A. Abarca (CPA
Certificate No. 92126; SEC Accreditation No. 0466-A) is the current audit partner for the Company. Aris C.
Malantic (CPA Certificate No. 90190; SEC Accreditation No. 0326-AR-1) is the former audit partner for the
Company and he has served as such from 2005 to 2008.
51
External Audit Fees and Services
For the audit of the Group’s and Parent Company’s annual financial statements and services provided in
connection with statutory and regulatory filings or engagements, the aggregate amounts to be billed/billed ,
exclusive of value-added tax (VAT) and out-of-pocket expenses by SGV amounts/amounted to PHP 605,000,
PHP 600,000 and PHP 500,000 for 2010, 2009 and 2008, respectively.
The Company’s Executive Committee approves the audit fees as recommended by the Management
Committee.
52
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except for the
adoption of the following new and amended Philippine Financial Reporting Standards (PFRS), Philippine
Accounting Standards (PAS) and Philippine Interpretations which became effective on January 1, 2010:
New Standards and Interpretations
• PFRS 3, Business Combinations (Revised)
• PAS 27, Consolidated and Separate Financial Statements (Amended)
• Philippine Interpretation International Financial Reporting Interpretation Committee (IFRIC) 17,
Distribution of Non-Cash Assets to Owners
Amendments to Standards
• PAS 39 Amendment – Eligible Hedged Items
• PFRS 2 Amendments – Group Cash-settled Share-based Payment Transactions
Improvement to PFRS 2008
• PFRS 5 – Non-current Assets Held for Sale and Discontinued Operations
Improvements to PFRS 2009
• PFRS 2, Share-based Payment
• PFRS 5, Non-current Assets Held for Sale and Discontinued Operations
• PFRS 8, Operating Segments
• PAS 1, Presentation of Financial Statements
• PAS 7, Statement of Cash Flows
• PAS 17, Leases
• PAS 34, Interim Financial Reporting
• PAS 36, Impairment of Assets
• PAS 38, Intangible Assets
• PAS 39, Financial Instruments: Recognition and Measurement
• Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
• Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation
Adopted new standards, amendments and interpretations that are deemed to have an impact on the
financial statements or performance of the Group are described below:
PFRS 3, Business Combinations (Revised) and PAS 27 Consolidated and Separate Financial
Statements (Amended)
PFRS 3 (Revised) introduces significant changes in the accounting for business combinations
occurring after becoming effective. Changes affect the valuation of non-controlling interest, the
accounting for transaction costs, the initial recognition and subsequent measurement of a contingent
consideration and business combinations achieved in stages. These changes will impact the amount
of goodwill recognized, the reported results in the period that an acquisition occurs and future reported
results.
PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of
control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such
transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the
amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of
control of a subsidiary.
The changes introduced by PFRS 3 (Revised) and PAS 27 (Amended) affect acquisitions or loss of
control of subsidiaries and transactions with non-controlling interests after January 1, 2010. The
change in accounting policy was applied prospectively and had no material impact on earnings per
share.
53
PART III. CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Issuer
(A)
Directors, Executive Officers, Promoters and Control Persons
(1)
Directors, Including Independent Directors and Control Persons
Bansan C. Choa, 56, Filipino
Director, Chairman and Chief Executive Officer
Director’s Term of Office
July 23, 2010 until the next annual stockholders’ meeting
Period Served as Such
August 16, 2002 to date
Mr. Choa has served as Chairman and Chief Executive Officer of since 2005 and has been a
Director since 2002. He is involved in various businesses in the manufacturing, and
construction and property development sectors. He currently holds the following positions:
Chairman, Confed Properties, Inc. (1991 to date); Chairman, Surewell Equities, Inc. (2001 to
date); Director, Sterling Bank of Asia, Inc. (2007 to date); Board Member, Professional
Regulatory Board of Real Estate Service (2010 to date); President, Philippine Retirement, Inc.
(2009 to date) Chairman, Six Alps Corporation (1997 to date); Chairman, Lucky Star
Management, Ltd. (Hong Kong) (2001 to date); Chairman, Surewell Enterprise Ltd. (Hong
Kong) (1998 to date); Chairman, Surewell Equities (Singapore) Pte. Ltd. (2001 to date).
Mr. Choa is a licensed real estate broker (Professional Regulation Commission License No.
00002), appraiser (Professional Regulation Commission License No. 00002), and real estate
consultant (Professional Regulation Commission License No. 00002). He is a certified public
accountant (Professional Regulation Commission License No. 030924). He is active in the real
property development and property management field and has served and continues to hold
board and officer positions in housing and real property development organizations including
the Organization of Socialized Housing Developers as Vice President (2001 to 2008),
President(2008 to 2009) and Board Member (2010); Subdivision and Housing Developers
Association as First Vice President (2008), Chairman (2004), and Board Governor (2000 to
date). He is also the Chairman of the Board of Trustees of Kassel Condominium Corporation
(2001 to date).
He was one of the finalists of the 2006 Entrepreneur of the Year award of the Ernst & Young
global accounting firm. He is also a member of the Board of Trustees and the treasurer of
Kabalikat ng Migranteng Pilipino, Inc. (KAMPI), a non-stock non-profit organization serving
overseas Filipino workers.
Mr. Choa obtained his master in business administration degree from the Ateneo de Manila
University Graduate School of Business in 1985 and his bachelor’s degree in commerce from
the De La Salle University in 1974. He is a certified public accountant (CPA) and a member of
the Philippine Institute of Certified Public Accountants (PICPA). He was connected with the
accounting firm of SyCip Gorres Velayo & Co. from 1974 to 1976.
Armin V. Demetillo, 42, Filipino
Director, Chairman of the Executive Committee
July 17, 2009 to date
Mr. Demetillo has served as Director and Chairman of the Executive Committee of I-Remit,
Inc. since July 17, 2009. He is the Managing Director of Goldleaf Guard Services, Inc. (2002
to date); Executive Vice President, Rapid Security (2002 to date); and vice president, St.
Thomas Security Corporation (2002 to date). Mr. Demetillo is the Founding President/Charter
President of the Rotary Club of Pasay EDSA, R.I. District 3810. He also served as a member
of the Board of Trustees of the Rotary Street Children Foundation (2005 to 2007). In 2005 to
2006, he assumed the position of Chairman of the Board of Virlanie Foundation, Inc. ( a street
children foundation supported by Princess Caroline of Monaco, which received an award in
Europe for its effort in protecting children’s rights).
Mr. Demetillo obtained his bachelor of arts degree, major in philosophy cum laude from the
Saint Joseph Seminary College in 1990.
54
Harris Edsel D. Jacildo, 49, Filipino
Director, President & Chief Operating Officer
Mr. Jacildo joined I-Remit, Inc. as Executive Vice President and Chief Operating Officer in
February 2002. He has been a Director and the President and Chief Operating Officer of the
Company since April 2003. He also currently holds the following positions: Director, Sterling
Bank of Asia, Inc. (A Savings Bank) (2007 to date); Director, Lucky Star Management Ltd.
(Hong Kong) (2002 to date); Director, Iremit Global Remittance Ltd. (United Kingdom) (2002 to
date); Director, I-Remit Australia Pty Ltd (2002 to date).
He is also a Trustee of the Kabalikat ng Migranteng Pilipino, Inc. (KAMPI) (2003 to date), a
non-stock non-profit organization serving overseas Filipino workers and likewise serves as a
Director of the Association of Philippine Private Remittance Services, Inc. (APPRISE) (2007 to
2010), an organization of registered non-bank money remittance companies in the Philippines.
Prior to joining I-Remit, he spent 20 years in the banking industry where he was initially
working in the field of information technology while employed by the Pacific Banking
Corporation (1982 – 1991). In 1991, he joined the remittance division of the Rizal Commercial
Banking Corporation (RCBC) where he headed the domestic marketing unit until 2005 and
was the head of its Asia-Pacific operations until 2002.
Mr. Jacildo obtained his bachelor of science degree in applied economics from the De La Salle
University in 1982. He also completed the basic management program of the Asian Institute of
Management in 1991.
Gilbert C. Gaw, 61, Filipino
Director
Mr. Gaw has been a Director of I-Remit since 2002. He is a business engaged in steel
manufacturing. He is currently a partner of JPSA Global Services (2003 to date), and a
Director of Treasure Steelworks Corporation (2004 to date) and Zhangzhou Stronghold Steel
Works Co., Ltd. (China) (2003 to date).
He obtained his bachelor of science degree in electronics and communications engineering
from the University of the East in 1973.
55
A. Bayani K. Tan, 55, Filipino
Director
May 18, 2007 to date
Atty. Tan was the Corporate Secretary of I-Remit from 2001 until 2004 and has been a Director
since May 2007. He is currently a Director and Corporate Secretary of the following reporting
companies: First Abacus Financial Holdings Corporation (1994 to date); Sinophil
Corporation (1993 to date); TKC Steel Corporation (2007 to date); Tagaytay Highlands
International Golf Club, Inc. (1993 to date); Destiny Financial Plans, Inc. (2003 to date as
Director and 2009 to date as Corporate Secretary).
Mr. Tan has also been the Corporate Secretary and a Director of Sterling Bank of Asia, Inc. (A
Savings Bank) (2007 to date); FHE Properties, Inc. (1995 to date); Club Asia, Inc. (1999 to
date); HSAI-Raintree, Inc. (1999 to date); and Job1 Global, Inc. (2006 to date as Director and
2009 to date as Corporate Secretary). He is also a Director for the following private
companies: Highlands Gourmet Specialist Corp. (2006 to date); Destiny LendFund, Inc. (2005
to date); and City Cane Corporation (1993 to date).
He is the Corporate Secretary of the following companies: Belle Corporation (1994 to date);
Pacific Online Systems Corporation (2007 to date); Vantage Equities, Inc. (1993 to date);
Yehey! Corporation (1994 to date); Philequity Fund, Inc. (1997 to date); Philequity Peso Bond
Fund, Inc. (2000 to date); Philequity Dollar Income Fund, Inc. (1999 to date); Philequity PSE
Index Fund, Inc. (1999 to date); Tagaytay Midlands Golf Club, Inc. (1997 to date); The Country
Club at Tagaytay Highlands, Inc. (1995 to date); The Spa and Lodge at Tagaytay Highlands,
Inc. (1999 to date); Monte Oro Resources & Energy, Inc. (2005 to date); E-Business Services,
Inc. (2001 to date); Hella-Phil., Inc. (1992 to date); JTKC Equities, Inc. (1998 to date);
Goodyear Steel Pipe Corporation (1999 to date); Star Equities Inc. (2006 to date); Tera
Investments, Inc. (2001 to date); Winstone Industrial Corporation (1998 to date); Winsteel
Manufacturing Corporation (1998 to date); JTKC Realty Corporation (1998 to date); Southern
Visayas Property Holdings, Inc. (2003 to date); Pan Asean-Multi Resources Corporation (1998
to date); Union Pacific Ace Industries, Inc. (1998 to date); The Discovery Leisure Company,
Inc. (2001 to date); Oakridge Properties, Inc. (1998 to date); Discovery Country Suites, Inc.
(2004 to date); JTKC Land, Inc. (2003 to date); Donau Deli, Inc. (2001 to date); Donau
Gourmet, Inc. (2007 to date); Touch Solutions, Inc. (2007 to date); Treasure Steelworks
Corporation (2009 to date) and Karen Marie L. Ty Foundation, Inc. (1995 to date).
He is a Trustee and the Corporate Secretary of Wellington Dee Ty Foundation, Inc. (2004 to
date) and Movers for Renewed Hope (2009 to date). He is also a Trustee (2004 to date) and
currently is the Executive Vice President of UP Law ’80 Foundation, Inc.
Atty. Tan is also the Managing Partner of the law firm of Tan Venturanza Valdez. He also
concurrently holds the following positions: Managing Director, Shamrock Development
Corporation (1998 to date); Managing Trustee, SC Tan Foundation, Inc. (1986 to date);
Chairman & President, Yehey! Money, Inc. (2001 to date); Legal Counsel, Xavier School, Inc.
(2005 to date); Director and Corporate Secretary of St. Scholastica’s Hospital-Catarman, Inc.
(2010 to date).
In the last five years, he has held the following positions: Director, Monte Oro Resources and
Energy, Inc. (2005 – 2008); Director, Philequity Fund, Inc. (1997 – 2007); Director, Philequity
Peso Bond Fund, Inc. (2000 – 2007); Director, Philequity Dollar Income Fund, Inc. (1999 –
2007); Director, Philequity PSE Index Fund, Inc. (1999 – 2007); Director, APC Group, Inc.
(1996 – 2006); Director, Metro Manila Turf Club, Inc. (1995 – 2006); Corporate Secretary,
International Exchange Bank (1995 – 2006).
Atty. Tan holds a Master of Laws degree from New York University, USA (class of 1988). He
obtained his Bachelor of Laws degree from the University of the Philippines in 1980 where he
was a member of the Order of the Purple Feather (the UP College of Law Honor Society)
having ranked ninth in his class. Atty. Tan was admitted to the Philippine Bar in 1981 after
placing sixth in the examinations. He also has a Bachelor of Arts Degree (Majored in Political
Science) from San Beda College (class of 1976) from where he graduated class valedictorian
and was awarded the medal for academic excellence.
56
Ben C. Tiu, 58, Filipino
Director
Mr. Ben Tiu has been a Director of I-Remit, Inc. since 2001 and has also served as the
Chairman and Chief Executive Officer of I-Remit, Inc. from 2001 to 2004. He is also the
Chairman of the Boards of Sterling Bank of Asia, Inc. (A Savings Bank) (2007 to date), TKC
Steel Corporation (2007 to date), and The Discovery Leisure Company (the group behind the
Discovery Suites Hotel, The Country Suites at Tagaytay City and Discovery Shores Boracay)
(2001 to date). He is the Corporate Nominee in the Philippine Stock Exchange of Fidelity
Securities, Inc. (1998 to date). He is also a Director of Iremit Singapore Pte Ltd (2001 to date).
He also concurrently holds the following positions: Chairman, Tera Investments, Inc. (2001 to
date); President, JTKC Equities, Inc. (1993 to date); President, Union Pacific Ace Industries,
Inc. (1978 to date); President, Britishwire Industries Corporation (1976 to date); President,
Goodway Marketing Corporation (1998 to date); Executive Vice President, Hotel System Asia,
Inc. (1996 to date); Executive Vice President, JTKC Realty Corporation (1989 to date);
Executive Vice President, Pan Asean Multi Resources Corporation (1976 to date); Executive
Vice President and Treasurer, Aldex Realty Corporation (1982 to date); and Vice President,
Goodyear Steel Pipe Corporation (1976 to date). Mr. Tiu was also formerly the Vice Chairman
of the Board and Chairman of the Executive Committee of the International Exchange Bank
(1995 – 2006).
He obtained his master in business administration degree from the Ateneo de Manila
University Graduate School of Business in 1977 and his bachelor’s degree in mechanical
engineering from the Loyola Marymount University, USA in 1975.
John Y. Tiu, Jr., 34, Filipino
Director
Mr. John Tiu has served as Director of I-Remit since 2002. He is also presently Chairman and
President of Tera Investments, Inc. (2003 to date); and a Director of Sterling Bank of Asia, Inc.
(A Savings Bank) (2007 to date). He is also the Director and Treasurer of the following
companies: Star Equities Inc. (2006 to date); Touch Solutions, Inc. (2001 to date); JTKC
Equities, Inc. (2003 to date); JTKC Land, Inc. (2003 to date); The Discovery Leisure Company,
Inc. (2001 to date); Cay Islands Corporation; Palawan Cove Corporation; Sonoran
Corporation; Tofino Corporation; Discovery Country Suites, Inc. (2004 to date). He is a
Director of Oakridge Properties, Inc. (2003 to date), Enderun Colleges, Inc., JT Perle
Corporation, One Cerrada Corporation, Sagesoft Solutions, Inc. and Tokyo Holdings, Inc. He
is a Director and President of Southern Visayas Property Holdings, Inc. (2003 to date), Director
and First Vice President of JTKC Realty Corporation (2005 to date) and the President of
Fidelity Securities, Inc. (2002 to date).
Mr. John Tiu obtained his bachelor of science in electrical engineering degree (minor in
mathematics) from the University of Washington, USA in 1998.
Ruben C. Tiu, 54, Filipino
Director
Mr. Ruben Tiu has served as Director of I-Remit from 2002 to 2004 and was reappointed as
such on May 18, 2007. He currently holds the following positions: Director, Sterling Bank of
Asia, Inc. (A Savings Bank) (2007 to date); Director, Star Equities Inc. (2006 to date);
President, JTKC Realty Corporation (1988 to date); President, Pan-Asean Multi Resources
Corporation (1988 to date); President, Aldex Realty Corporation (1988 to date); President,
Oakridge Properties, Inc. (1996 to date); Executive Vice President, JTKC Equities, Inc. (1993
to date).
Mr. Ruben Tiu obtained his bachelor of science in business administration degree from the De
La Salle University in 1976.
57
Calixto V. Chikiamco, 60, Filipino
Director
Mr. Chikiamco has been a Director of I-Remit since 2002. He is a former columnist of the
Manila Standard and the Manila Times. He has authored two (2) books: “Reforming the
System” (Orange Publications and Kalikasan Press, 1992) and “Why We Are Who We Are”
(Foundation for Economic Freedom, 1998). In 2001, he was awarded by the Archdiocese of
Manila for the Best Business Column (“Agriculture, Not IT”, Manila Standard) in the Catholic
Mass Media Awards. He is the founder and CEO of Mobilemoco, Inc. ; founder and president
of MRM Studios, Inc., a company involved in mobile entertainment, digital musical services,
and e-commerce (2001 to date). He also concurrently holds the following positions: Director,
UPCC Securities (1999 to date); Vice Chairman, CBY, Inc. (1999 to date); Director, Golden
Sunrise (1984 to date); Director, APMC (1985 to date); Director, Foundation for Economic
Freedom (1996 to date). He is also involved in several professional and civic organizations
such as the Foundation for Economic Freedom where he is the President. He is also presently
a columnist of Business World and a property rights consultant to the Asia Foundation. He is a
member of the Philippine Internet Commerce Society and the Syracuse University Alumni
Association.
Mr. Chikiamco holds a Master’s degree in Professional Studies in Media Administration from
the Syracuse University (New York, USA). He obtained his bachelor’s degree in economics
summa cum laude from the De La Salle University.
In accordance with the requirements of Section 38 of the Securities Regulation Code, the
Revised SRC Rules, and the Company’s Manual on Corporate Governance, the following
Directors were nominated and elected as Independent Directors of the Company during the
Annual Stockholders’ Meeting held on July 23, 2010:
Jose Joel Y. Pusta, 58, Filipino
Independent Director
Mr. Pusta has been a Director of I-Remit since 2002. He was a Director and Vice President of
Confed Properties, Inc. (1997 to 2009). He was also the Corporate Secretary and a Trustee
of the Kabalikat ng Migranteng Pilipino, Inc. (KAMPI) (2003 to 2009) and the President and a
Trustee of the Kassel Condominium Corporation (2002 to 2009).
Mr. Pusta obtained his bachelor of science in commerce degree (majored in accounting) from
the University of San Carlos in Cebu City in 1974. He has also earned units leading to the
master in business administration degree at the Ateneo de Manila University Graduate School
of Business from 1985 to 1988. He is a certified public accountant (CPA) and a member of the
Philippine Institute of Certified Public Accountants (PICPA) and the Institute of Internal
Auditors, Philippines.
58
Gregorio T. Yu, 52, Filipino
Director
Mr. Yu was a Director of I-Remit, Inc. from 2001 to 2004 and was re-elected as an
Independent Director of the Company on May 18, 2007. He is currently the Chairman of CATS
Automobile Corporation (2004 to date), Chairman of CATS Motors, Inc. (2000 to date),
Chairman of CATS Asian Cars, Inc. (Mazda Greenhills) (2004 to date), Director, Prople BPO,
Inc. (formerly Summersault, Inc.) (2006 to date), Director and Treasurer of CMB Partners, Inc.
(2003 to date), and President of the Domestic Satellite Corporation of the Philippines (2001 to
date). He is also the Vice Chairman of the Board and the Chairman of the Executive
Committee Sterling Bank of Asia, Inc. (2006 to date) and Chairman and President of Lucky
Star Network Communications Corporation (1994 to date). He is also concurrently a Director
of the following companies: Ripple E-Business International, Inc. (2010 to date); Nexus
Technologies, Inc. (2001 to date); Jupiter Systems, Inc. (2001 to date); Wordtext Systems, Inc.
(2001 to date); Yehey, Inc. (2001 to date); Philequity Money Market Fund, Inc. (2000 to date);
Philequity Fund, Inc. (1994 to date) Philequity PSE Index Fund, Inc. (1999 to date); Philequity
Dollar Income Fund, Inc. (1999 to date). Mr. Yu is also a Trustee of the Government Service
Insurance System (2010 to date). He is also a Board Member of Ballet Philippines (2009 to
date) and Manila Symphony Orchestra (2009 to date), and a Trustee of the Xavier School, Inc.
(1998 to date) and a Trustee and the Chairman, Ways and Means Committee of the Xavier
School Educational and Trust Fund, Inc. (1998 to date).
Mr. Yu was formerly the President and Chief Executive Officer of Belle Corporation (1989 –
2001). He was also a Director and a Member of the Executive Committee of The International
Exchange Bank (1995 – 2006). He was also the President of the following organizations:
Tagaytay Highlands International Golf Club (1991 – 2001); President, The Country Club and
Tagaytay Highlands (1995 – 2001). He was also the President and Chief Executive Officer of
Sinophil Corporation (1993 – 2001) and Pacific Online Systems Corporation (1994 – 2001).
He was also the Vice Chairman of Philippine Global Communications (1996 – 2001) and the
APC Group, Inc. (1994 – 2001). He was also connected with the Chase Manhattan Asia
Limited as Director of Corporate Finance (1988 – 1999) and with The Chase Manhattan Bank,
NA Asia Pacific Regional Headquarters as Vice President – Area Credit. He was also a
Second Vice President of the Chase Manhattan Bank, NA Manila Offshore Banking Unit from
1983 to 1986.
Mr. Yu obtained his Master of Business Administration degree from The Wharton School,
Graduate of the University of Pennsylvania in 1983. He obtained his bachelor of arts degree in
economics summa cum laude from the De La Salle University in 1978.
The above directors shall hold office from their date of election until the next annual
shareholders meeting or their resignation unless sooner terminated or removed in accordance
with law.
59
The names, ages, citizenship, present positions, previous positions, terms of office, and period
served by the Corporate Secretary and the Assistant Corporate Secretary are as follows:
Nancy Joan M. Javier, 43, Filipino
Corporate Secretary
Term of Office
December 1, 2009 to date
Atty. Javier is the incumbent Corporate Secretary of I-Remit, Inc. She is also the Corporate
Secretary of Jolliville Holdings Corporation (2009 to date) and St. Patrick Mining and
Development Corporation (2009 to date). She was a Senior Associate of Mayer Brown JSM
(formerly Johnson Stokes & Master) in Ho Chi Minh City, Vietnam (2007 to 2008) and SyCip
Salazar Hernandez & Gatmaitan (1995 – 2007).
She finished her preparatory course in veterinary medicine and obtained her bachelor of
science in tourism degree cum laude degree in 1988 and bachelor of laws degree (Dean’s
medalist for academic excellence) in 1995 from the University of the Philippines. She also
obtained her master of laws, international law degree from the University of Michigan Law
School in Ann Arbor, Michigan, USA in 2002. She was admitted to the Philippine Bar in 1996
and the New York bar examination in February 2011 and is licensed foreign practicing lawyer
of Vietnam, 2008 – 2012. She is a Senior Associate of Tan Venturanza Valdez (2009 to date).
Maria Cecilia V. Soria, 35, Filipino
Assistant Corporate Secretary
Term of Office
July 23, 2010 to date
Atty. Soria is the incumbent Assistant Corporate Secretary of I-Remit, Inc. She is also the
Assistant Corporate Secretary of the following companies: Sterling Bank of Asia, Inc., Jolliville
Holdings Corporation, Cibt-Sprott Shaw Education Consulting (Philippines) Inc., e-Business
Services Inc., FHE Properties Inc., Highlands Gourmet, iRipple, Inc., Philequity Management,
Inc. and Tagaytay Midlands Golf Club Inc. She obtained her bachelor of arts degree in political
science and bachelor of laws degree from the University of the Philippines in 1998 and 2006
respectively. She is currently an associate of Tan Venturanza Valdez (2010 to date). She was
formerly connected with Reyes-Fajardo & Associates (2009 – 2010), SGV & Co. (a member
practice of Ernst & Young) (2008 – 2009), and Medialdea Ata Bello & Guevarra law office
(2007 – 2008). She was admitted into the Philippine bar in May 2007.
60
The names, ages, citizenship, present positions, previous positions, terms of office, and period
served of all Executive Officers are as follows:
Bansan C. Choa, 56, Filipino
Director, Chairman and Chief Executive Officer
Term of Office
2005 to date
(see above for business experience and positions held under “Directors”)
Harris Edsel D. Jacildo, 49, Filipino
Director, President and Chief Operating Officer
Term of Office
February 4, 2002 to date
(see above for business experience and positions held under “Directors”)
Ronald A. Benito, 41, Filipino
Senior Vice President & Head, International Treasury
Term of Office
November 15, 2010 until the next annual stockholders’
meeting
November 15, 2010 to date
Mr. Benito joined I-Remit, Inc. in 2010 and currently heads the Company’s international
treasury unit in charge of trading its foreign currencies. He was previously connected with
ICAP AP (Singapore) as director of new business initiatives(2007-2010) and vice president
and deputy treasurer of Banco Santander Central Hispano (2001-2004)
He obtained his bachelor of arts degree in economics cum laude from the University of Santo
Tomas in 1991. He obtained his master of arts degree in international relations (school of
politics) in 2005 from the University of Durham, United Kingdom and his master of science
degree in economics and international business in 2007 from City University London.
Ma. Elizabeth G. Yao, 40, Filipino
Senior Vice President & Head, Service and Operations Division
Term of Office
Ms. Yao joined I-Remit in 2002 and has since been in charge of its Service and Operations
Division. She was previously an equities sales officer of Belson Securities, Inc. (1997 – 2002).
She was previously connected with the institutional sales group of Belson PrimeEast Capital
(1996 – 1997) and was also a money market trader of the Security Bank Corporation (1995 –
1996).
She obtained her bachelor’s degree in business administration from the University of the
Philippines in 1994. She also attended the business administration program of the University
of New Mexico (USA) from 1988 to 1990.
61
Bernadette Cindy C. Tiu, 32, Filipino
First Vice President & Chief Financial Officer; Head, Finance Division
Term of Office
April 1, 2005 to date
Ms. Tiu has been the Chief Financial Officer of I-Remit since 2006. She was previously the
Finance Manager of IRemit Global Remittance Limited in the United Kingdom (2003) and
International Remittance (Canada) Ltd. (2004), both wholly-owned subsidiaries of the
Company. She joined I-Remit, Inc. in Manila in 2005 as Treasurer and Corporate Governance
Head.
She obtained her bachelor’s degree in business administration (majored in accounting and
finance) from the Boston University School of Management in 2001.
Fitzgerald S. Duba, 46, Filipino
Vice President & Compliance Officer; Head, Corporate Affairs and Information Division
Term of Office
November 16, 2007 to date
Mr. Duba was a Vice President and the head of the Corporate Strategy Division of the Rizal
Commercial Banking Corporation (RCBC) from 2002 to 2005, where he was employed for 12
years. He was also a management consultant in the Management Services Division of SyCip
Gorres Velayo & Co (SGV) and later, the Manila office of Andersen Consulting.
He obtained his bachelor’s degree in industrial engineering from the University of the
Philippines in 1987 and completed the basic banking course of the Asian Institute of
Management in 1996. He also completed the corporate governance seminar of the Bangko
Sentral ng Pilipinas (BSP) in 2000. He is a member of the Philippine Institute of Industrial
Engineers.
62
(2)
Significant Employees
There is no person other than the entire human resources as a whole, and the executive
officers who are expected to make a significant contribution to the Company.
(3)
Family Relationships
Directors Ben C. Tiu, John Y. Tiu, Jr. and Ruben C. Tiu are brothers. Bernadette Cindy C. Tiu,
First Vice President and Chief Financial Officer of the Company, is a daughter of Director Ben
C. Tiu.
There are no other family relationships among the directors or the officers listed.
63
(4)
Involvement in Certain Legal Proceedings
As a result of the delay in the delivery of the facilities of the Universal Leisure Club, Inc.
(ULCI), some of its members have initiated legal actions against ULCI, the Universal Rightfield
Property Holdings, Inc. (URPHI) and the Universal Leisure Corp. (ULCorp), as well as their
respective incumbent and former officers and directors, including their former Corporate
Secretary, A. Bayani K. Tan. The cases filed include:
i. Civil actions for breach of contract and/or of contract, specific performance, quieting of
title and reimbursement, damages with request for receivership and preliminary
attachment (Civil Case Nos. MC03-075, MC03-077, and MC04-082) before the RTC of
Mandaluyong City, which cases have been settled and the RTC Mandaluyong has, on 08
February 2006, promulgated a Joint Decision approving the Settlement Agreement,
Supplemental Agreement, and Second Supplemental Agreement re: Civil Case Nos.
MC03-077 and MC04-082. RTC Mandaluyong, noting the settlement of Civil Case Nos.
MC03-077 and MC04-082, likewise issued an Order dated 18 May 2006 re: Civil Case
No. MC-075 holding that the aforementioned settlement agreement likewise puts an end
to Civil Case No. MC03-075, as it involves substantially similar factual antecedents, and
holding further that the complaint and counterclaims of the parties are withdrawn with
prejudice. While the main cases have been settled, a group of ULCI members who were
not included in the settlement and are not in favor of its terms have initiated suit to nullify
the same. RTC Mandaluyong has rejected such moves to assail the settlement,
prompting said group to elevate their complaint to the Court of Appeals. The Court of
Appeals partially granted the group’s prayer and revived the writs of attachment and
garnishment but only to such extent as to cover the remaining claims. Respondents filed
a timely petition with the Supreme Court, where it is currently pending.
ii. A Complaint for Estafa (docketed as I.S. No. 08-K-19713) filed before the City Prosecutor
of Manila. A Counter-Affidavit has already been filed before the City Prosecutor seeking
to dismiss the Complaint for lack of cause of action.
Except as provided above, the Company is not aware of any of the following events wherein
any of its directors, executive officers, nominees for election as director, executive officers,
underwriter or control persons were involved during the past five (5) years up to the latest date.
(1)
Any bankruptcy petition filed by or against any business of which any of the above
persons was a general partner or executive officer either at the time of bankruptcy or
within two years prior to that time;
(2)
Any order or judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, domestic or foreign, permanently or temporarily
enjoining, barring, suspending or otherwise limiting the involvement of any of the
above persons in any type of business, securities, commodities, or banking activities;
and
(3)
Any findings by a domestic or foreign court of competent jurisdiction (in civil action), the
SEC or comparable foreign body, or a domestic or foreign exchange or electronic
marketplace or self-regulatory organization, that any of the above persons has violated
a securities or commodities law, and the judgment has not been reversed, suspended,
or vacated.
The Company and its major subsidiaries and associates are not involved in, nor are any of
their properties subject to, any material legal proceedings that could potentially affect their
operations and financial capabilities.
64
Item 10. Executive Compensation
(B)
Executive Compensation
(1)
Summary Compensation Table
The following table summarizes the aggregate compensation paid or accrued during the last
two (2) calendar years and to be paid in the ensuing calendar year to the Company’s Chief
Executive Officer and four (4) other most highly compensated officers:
Year
2011
(Estimate)
2010
(Actual)
2009
(Actual)
(2)
Name
Principal Position
Bansan C. Choa
Chairman & CEO
Harris E. D. Jacildo
President & COO
Ma. Elizabeth G. Yao
SVP
Ronald A. Benito
SVP
Bernadette Cindy C. Tiu
FVP & CFO
All other officers and directors as a group unnamed
Bansan C. Choa
Chairman & CEO
President & COO
SVP
Ronald A. Benito
SVP
FVP & CFO
Ronald C. Santos
FVP
Bansan C. Choa
Chairman & CEO
President & COO
SVP
FVP
Ronald C. Santos
FVP
Aggregate
Compensation
9,351,421.64
10,444,171.05
8,658,723.75
9,593,788.01
7,799,458.36
7,721,889.54
Compensation of Directors
The directors receive per diems for attendance in meetings of the Board but do not receive
compensation from the Company for services rendered. There are no other standard
arrangements, including consultancy contracts, pursuant to which any Director of the Company
was compensated, or is to be compensated, directly or indirectly, for any services provided as
a Director, including any additional amounts payable for committee participation, or special
assignments, during the Company’s last completed fiscal year, and the ensuing year.
(3)
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
There was no compensatory plan or arrangement with respect to named Executive Officers
that resulted or will result from the resignation, retirement or termination of such executive
officer from a change-in-control of the Company.
(4)
Warrants and Options Outstanding: Repricing
No warrants or options on the Company’s shares of stock have been issued to the Directors or
Executive Officers as a form of compensation for services rendered.
65
Item 11. Security Ownership of Certain Beneficial Owners and Management
(1)
Security Ownership of Certain Record and Owners
The following are known to the registrant to be directly or indirectly the record or beneficial owner of
more than five per cent (5%) of registrant’s voting securities (registrant has only one class of voting
security, i.e., common shares) as of December 31, 2010:
Class
Common
Common
Common
Common
Name and Address of Record
Owner and Relationship with
Issuer
PCD Nominee Corporation
G/F Makati Stock Exchange
Building, 6767 Ayala Avenue,
Makati City
(stockholder)
Star Equities Inc.
2/F JTKC Center
2155 Pasong Tamo
Makati City
690-A Quirino Ave.
Tambo, Paranaque City
JTKC Equities, Inc.
2/F JTKC Center
2155 Pasong Tamo
Makati City
Name and Address of
Beneficial Owner and
Relationship with
Record Owner
(Please see note below)
Citizenship
Filipino
Number of
Shares
219,998,625¹
Per cent
Held
39.1166%
Same as record owner
Filipino
158,418,225
28.1674%
Filipino
122,043,900
21.6999%
Filipino
43,428,450
7.7218%
NOTE: PCD Nominee Corporation (“PCDNC”) is a wholly-owned subsidiary of the Philippine Central Depository, Inc. The
beneficial owners of such shares of the Company registered under the name of PCDNC are PCD’s participants who hold the
shares in there own behalf or in behalf of their clients. No PCD participant currently owns more than five per cent (5%) of
the Corporation’s shares forming part of the PCNDC account except Fidelity Securities, Inc., viz:
Class
Common
Name and Address of Owner
and Relationship with Issuer
Fidelity Securities, Inc.*
2/F JTKC Centre
2155 Pasong Tamo, Makati City
Citizenship
Filipino
Number of Shares
129,540,305²
Per cent Held
23.0328%
* Fidelity Securities, Inc. (“Fidelity”) is a registered broker and dealer in securities and holds the shares of the Company in favor of beneficial
owners who hold the shares in their own behalf or on behalf of their respective clients.
1 Includes 9,329,000 Treasury shares purchased from the stock market under the Buy-back Program that was approved by the Board on
August 15, 2008.
Includes 62,581,775 shares in favor of beneficial owner JTKC Equities, Inc. which owns a total of 106,010,225 shares or per cent held of
18.8490%.
2
66
(2)
Security Ownership of Management (Individual Directors and Executive Officers)
Title of
Class
Common
Name of Beneficial Owner
Bansan C. Choa
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Armin V. Demetillo
Harris Edsel D. Jacildo
Calixto V. Chikiamco
Gilbert C. Gaw
Jose Joel Y. Pusta
A. Bayani K. Tan
Ben C. Tiu
Ruben C. Tiu
John Y. Tiu, Jr.
Gregorio T. Yu
Common
Number of Shares
778,000
500,000
100
316,300
100
820,695
100
520,040
1,090,030
378,960
72,150
100
140,900
424,500
Nature of Legal &
Beneficial Ownership
Direct
Indirect
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Indirect
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Per cent
of Class
0.13833%
0.08890%
0.00002%
0.05624%
0.00002%
0.14592%
0.00002%
0.09247%
0.19381%
0.06738%
0.01283%
0.00002%
0.02505%
0.07548%
The aggregate number of shares owned of record by all Directors and Executive Officers as a group
named herein as of December 31, 2010 is 5,041,975 common shares or approximately 0.90% of the
Company’s common shares. This includes the indirect ownership of 924,500 shares representing
0.16% of total outstanding and issued common shares.
(3)
Voting Trust of 5% or More
The Company is not aware of any voting trust agreement executed granting any person the right to
exercise the voting rights of a holder of 5% or more of the securities.
(4)
Changes In Control
There are no arrangements, existing or otherwise, which may result in a change in control of the
Company.
67
Item 12. Certain Relationships and Related Party Transactions
In the ordinary course of business, the Company engages in transactions with its subsidiaries and associate
consisting of delivery services for a fee.
The Company, as Lessor, entered into four (4) Lease Agreements covering its occupancy of its offices at the
25th, 26th and 27th floors of the Discovery Center, at No. 25 ADB Avenue, Ortigas Center, Pasig City with
Oakridge Properties, Inc., a related party by virtue of JTKC Equities, Inc.’s ownership of the Discovery
Leisure Company, Inc. which in turn owns Oakridge Properties, Inc.
I-Remit has office sharing arrangements with Surewell Enterprises, Ltd. in Hong Kong and Surewell Equities
Pte. Ltd. in Singapore. Mr. Bansan C. Choa, Chairman and Chief Executive Officer, is a shareholder in both
companies.
The Company maintains deposit accounts with the Sterling Bank of Asia, Inc. (A Thrift Bank). In 2010 and
2009, the Company has funded its retirement plan amounting to PHP 5.2 million and PHP 4.8 million,
respectively, and maintained with Sterling Bank of Asia. The said bank’s majority shareholders are: JTKC
Equities, Inc., Surewell Equities, Inc. and Star Equities Inc.
In the normal course of doing business, there were occasions when the stockholders would be advancing
funds for working capital requirements of the Company. Reciprocally, there would also be occasions when
the Company would have excess funds and would employ these to advance funds to some of its affiliates,
payable on demand. In prior years, advances were made to foreign offices which, as these still in the
process of starting their commercial operations, were then owned by the stockholders or associates or
companies owned by the stockholders. The funds were then used either as working capital, to maintain cash
balances in bank accounts of for provision of cash bonds. Presently, these foreign offices are either
subsidiaries or affiliates of I-Remit.
Further to the Company’s usual course of business, it also advances funds to its subsidiaries, associates,
and affiliates. These are accounts receivable from subsidiaries, associates, and affiliates pertaining to
remittance transactions. These also consist of advances made to subsidiaries, associates, and affiliates for
working capital to maintain cash balances in bank accounts and to cover other financial and operating
requirements. The receivables are usually settled on the next banking day. On the other hand, advances
made to cover financial and operating requirements are due on demand.
The law firm of Tan Venturanza Valdez is among the firms engaged by the Company to render legal services.
Atty. A. Bayani K. Tan, a Director of the Company, is a managing partner of this firm while Atty. Nancy Joan
M. Javier, the current Corporate Secretary, Atty. Alma C. Santiago, former Corporate Secretary, and Atty.
Ma. Cecilia V. soria, Assistant Corporate Secretary are senior associate and associate respectively. During
the year, the Company paid Tan Venturanza Valdez certain legal fees that the Company believes to be
reasonable for the services rendered.
68
PART IV. CORPORATE GOVERNANCE
Item 13. Corporate Governance
I-Remit practices the principles of good corporate governance – transparency, accountability, fairness, and
responsibility – in reporting financial and non-financial information about its activities and in its manner of
conducting business with its customers, investors, staff, stockholders, and its various publics.
The basic foundation and framework for corporate governance of I-Remit, Inc. is contained in its Articles of
Incorporation and its By-Laws and in their subsequent amendments.
In ensuring adherence to the principles of good corporate governance, the Board establishes the vision,
strategic direction, key objectives, and the major policies and procedures for the management of the
Company. The Board also ensures that internal control mechanisms are in place and adequate for good
governance.
Manual on Corporate Governance
On June 22, 2007, the Board of Directors approved and adopted the Company’s Manual on Corporate
Governance (“Manual”) pursuant to SEC Memorandum Circular No. 2, Series of 2002 issued by the
Securities and Exchange Commission on April 5, 2002. The Manual contains the principles of good
corporate governance and best practices and is intended to be kept updated with new governance-related
regulatory issuances. The Manual also established and defined the responsibilities and functions of the
Board and various Board committees necessary for good corporate governance, i.e., Audit Committee;
Compensation and Remuneration Committee; and the Nominations Committee. The Manual also defines the
functions of the Corporate Secretary and prescribes the roles of the Company’s external and internal
auditors.
On February 18, 2011, the Board of Directors adopted the Company’s Revised Manual on Corporate
Governance in compliance with SEC Memorandum Circular No. 6, Series of 2009: Revised Code of
Corporate Governance.
In addition, the Company also has a Conduct, Discipline and Ethics (CODE) Manual that was first adopted on
May 1, 2004 and subsequently revised on July 7, 2004. This manual contains guidelines on matters
involving work performance; professionalism; behavior and dealings with employees, directors, customers,
and business partners; and handling of assets, records and information. This manual is in the process of
being revised to include standards on matters of good corporate governance such as insider trading and the
avoidance of conflict of interest situations.
Independent Directors
In accordance with SEC Memorandum Circular No. 16 Series of 2002, Guidelines on the Nomination and
Election of Independent Directors, two (2) of the eleven members of the Board of Directors are Independent
Directors in the persons of Messrs. Jose Joel Y. Pusta and Gregorio T. Yu.
As used in Section 38 of the SRC, an independent director is a person who, apart from his fees and
shareholdings, is independent of management and free from any business or other relationship which could,
or could reasonably be perceived to, materially interfere with his exercise of independent judgment in
carrying out his responsibilities as a Director of the Company.
In accordance with SEC Notice on Certificate of Qualification dated October 20, 2006, the Independent
Directors of I-Remit have, on July 23, 2010, executed sworn Certifications of Independent Directors stating
that they possess all the qualifications and none of the disqualifications to serve as Independent Directors of
the Parent Company, as provided for in Section 38 of the Securities Regulation Code. The Certifications of
Independent Directors have been submitted to the Securities and Exchange Commission on July 23, 2010.
69
Committees of the Board of Directors
In aid of good corporate governance, the Company’s Board created each of the following committees and
appointed Board members thereto during the organizational meeting of the Board on July 23, 2009. Each
member of their respective committees named below began holding office on July 23, 2009 and will serve
until his successor shall have been duly qualified and elected.
Executive Committee
Except as provided in Section 35 of the Corporation Code, the Executive Committee has and
exercises all such powers as may be delegated to it by the Board. It acts on matters in accordance
with the authorities granted to it in case a full Board meeting cannot be convened. The The actions
and decisions of the Executive Committee are reported to and are ratified by the Board.
The Executive Committee is composed of the following: Mr. Armin V. Demetillo as Chairman, and
Messrs. Bansan C. Choa, Gilbert C. Gaw, Harris E. D. Jacildo, and Ben C. Tiu as Members.
Audit Committee
The Audit Committee is responsible in assisting the Board in its fiduciary responsibilities by providing
an independent and objective assurance to I-Remit’s management and shareholders of the
continuous improvement of the Company’s risk management systems and business operations, and
the proper safeguarding and use of the Company’s resources and assets. It also ensures that the
Board will take appropriate corrective action in addressing control and compliance issues of the
Company.
I-Remit’s Audit Committee shall have no less than three (3) members at least two (2) of whom are
Independent Directors, one of whom shall serve as the Committee’s Chairman. The Committee
reports to the Board and meets at twice every month.
The Audit Committee is composed of the following: Mr. Gregorio T. Yu (Independent Director) as
Chairman, and Messrs. Bansan C. Choa, John Y. Tiu, and Harris D. Jacildo as Members.
Compensation and Remuneration Committee
The Remuneration and Compensation Committee is responsible for objectively recommending a
formal and transparent framework of remuneration and evaluation for the members of the Board and
the Company’s Executive Officers. The committee is also responsible for providing oversight on the
remuneration of the Executive Officers and other key personnel and for ensuring that compensation is
always consistent with the Company’s culture, corporate strategy and control environment.
The Compensation and Remuneration Committee is composed of three (3) members of the Board,
one of whom is an Independent Director. The committee is composed of the following: Messrs.
Bansan C. Choa, Armin V. Demetillo, and Gregorio T. Yu (Independent Director).
70
Nomination Committee
The Nomination Committee is responsible for implementing a process that ensures that all Directors
to be nominated for election at the Annual Stockholders’ Meeting are all qualified and have none of
the disqualifications for Directors as provided in the Company’s By-Laws and Manual on Corporate
Governance. The committee provides the shareholders with an independent and objective evaluation
and assurance that the members of the Board will foster the Company’s long-term success and
competitiveness. The Nomination Committee is also responsible for reviewing and evaluating the
qualifications of all persons nominated to positions requiring appointment by the Board and for
assessing the Board’s effectiveness in directing the process of reviewing and replacing Board
members. The committee is also responsible for reviewing the qualifications of executives prior to
movement, promotion, or hiring.
The By-Laws of the Company require that all nominations for Directors shall be submitted to the
Nomination Committee by any stockholder of record on or before January 30 of each year to allow for
sufficient time to assess and evaluate the qualifications of the nominees. All nominations for
Independent Directors shall be signed by the nominating stockholder and shall bear the acceptance
and conformity of the persons nominated.
The Company’s Nomination Committee is composed of three (3) members of the Board, including one
(1) independent director and one non-voting member in the person of the Human Resources
Manager. The Company’s Nomination Committee reports directly to the Board and meets whenever
necessary to review and evaluate the qualifications of all persons nominated to the Board as well as
those nominated to other positions requiring appointment by the Board.
The Nomination Committee is composed of Messrs. Bansan C. Choa, Armin V. Demetillo, and
Gregorio T. Yu (Independent Director), and Ms. Catherine M. Chan (Head, Human Capital
Management Department).
71
Report on Attendance of Corporate Governance Seminars by Members of the Board of Directors
The following is an updated report on the attendance by the Directors of the Company of Corporate
Governance Seminars:
1
Name of Director
Chikiamco, Calixto V.
Date/s Attended
Jan. 8, 2008
2
Choa, Bansan C.
Jun. 4 & 5, 2003
3
Gaw, Gilbert C.
4
5
Jacildo, Harris E. D.
Pusta, Jose Joel Y. (Independent)
May 24 & 25, 2007
Jan. 30 & 31, 2003
6
Demetillo, Armin V.
July 30 & 31, 2009
7
Tan, A. Bayani K.
Oct. 17 & Dec. 17, 2001
8
Tiu, Ben C.
Oct. 17 & Dec. 17, 2001
9
Tiu, John Jr. Y.
Oct. 17 & Dec. 17, 2001
10
Tiu, Ruben C.
Oct. 17 & Dec. 17, 2001
11
Yu, Gregorio T. (Independent)
Jan. 8, 2008
Dec. 17, 2002
72
Institution
De La Salle Professional Schools, Inc.
Graduate School of Business, Makati City
Rural Bankers’ Research and Development
Foundation, Inc., Academy for Banking in the
Countryside, Manila (for the directors of GMA
Rural Bank of Cavite)
Development Finance Institute, Makati City
Development Finance Institute/Bangko Sentral
ng Pilipinas, Makati City
Institute of Corporate Directors, Makati City
(for the directors of The International
Exchange Bank)
Exchange Bank)
Exchange Bank)
Exchange Bank)
Evaluation System
The Company also adopted an evaluation system based on a self-assessment rating questionnaire to
determine the extent of compliance with the provisions of the Manual.
On December 11, 2007, the Board appointed a Compliance Officer to monitor and ensure compliance with
the provisions of the Manual.
The Company also adopted an evaluation system based on a self-assessment rating questionnaire to
determine the extent of compliance with the provisions of the Manual.
Results of Evaluation
Based on the results of the evaluation performed, there has been no significant deviation and, in general, the
Company has complied with most of the provisions and requirements of the Manual, SEC Memorandum
Circular No. 6 Series of 2009: Revised Code of Corporate Governance, and the leading practices and
principles of good corporate governance for the year 2009.
The Company’s Certificate of Compliance with the Manual on Corporate Governance (SEC Form MCG-2002)
was submitted by the Compliance Officer to the Securities and Exchange Commission and disclosed to the
Philippine Stock Exchange on January 18, 2011.
The Company accomplished and submitted the 2010 Corporate Governance Guidelines for Listed
Companies Disclosure Template of The Philippine Stock Exchange, Inc. on January 26, 2011.
73
PART V. EXHIBITS AND SCHEDULES
The other exhibits, as indicated in the Index to Exhibits, are either not applicable to the Company or require no
answer.
(a)
Exhibit
A – Aging of Consolidated Receivables, Unaudited, December 31, 2010
(b)
Reports on SEC Form 17-C
Reports under SEC Form 17-C (Current Report) that were filed during the last six (6) moths covered
by this report:
Date
July 23, 2010
Report
Election of directors in the 2009 Annual Stockholders’ Meeting and the appointment of officers
and committee members in the subsequent organizational meeting of the Board of Directors
Elected members of the Board of Directors
“Please be advised that during the annual shareholders’ meeting of I-Remit, Inc (“Corporation”)
held today, the following were elected as members of the Board of Directors of the Corporation for
the year 2010 – 2011 to hold office as such until their successors shall have been duly elected
and qualified:
Jose Joel Y. Pusta
Gregorio T. Yu
Calixto V. Chikiamco
Bansan C. Choa
Armin V. Demetillo
Gilbert C. Gaw
Harris Edsel D. Jacildo
A. Bayani K. Tan
Ben C. Tiu
John Y. Tiu, Jr.
Ruben C. Tiu
-
Director
Director
Director
Director
Director
Director
Director
Director
Director
Further, during the same meeting, the shareholders approved the audited financial statements of
the Company as of year-end 2009, as well as the re-appointment of SyCip, Gorres and Velayo as
the Company’s external auditor for the year 2010.
In the organizational meeting of the Board of Directors held after the stockholders’ meeting, the
following persons were elected officers of the Corporation for the year 2010 - 2011 to serve as
such until their successors shall have been duly elected and qualified:
Bansan Choa
Nancy Joan M. Javier
Maria Cecilia V. Soria
Fitzgerald S. Duba
74
-
Chairman and Chief Executive Officer
President and Chief Operating Officer
Corporate Secretary
Assistant Corporate Secretary
First VP & Chief Finance Officer
Compliance Officer
Also during the aforesaid organizational meeting of the Board, the following directors were elected
as members of the various Committees for the year 2010 – 2011 to serve as such until their
successors shall have been duly elected and qualified:
Executive Committee
1. Armin V. Demetillo (Chairman)
2. Bansan C. Choa
3. Gilbert C. Gaw
4. Harris E. D. Jacildo
5. Ben C. Tiu
Audit Committee
1. Gregorio T. Yu (Chairman)
2. Bansan C. Choa
3. John Y. Tiu, Jr.
4. Harris D. Jacildo
Nomination Committee
1. Bansan C. Choa
2. Armin V. Demetillo
3. Gregorio T. Yu
Compensation & Remuneration Committee
1.
2.
3.
July 23, 2010
President’s Report during the 2010 Annual Stockholders’ Meeting
July 26, 2010
Clarification of news article: “I-Remit’s five-month remittance volume climbs” published in the 24
July 2010 issue of The Manila Times
August 4, 2010
December 10, 2010
Bansan C. Choa
Armin V. Demetillo
Gregorio T. Yu”
Press release: I-Remit makes waves in Milan
Resignation of officer (Ronald C. Santos)
75
Exhibit A
I-REMIT, INC. AND SUBSIDIARIES
Aging of Consolidated Receivables
Unaudited
December 31, 2010
Agents
Couriers
Minority-Shareholder IERCAG
Related Parties
Bureau of Internal Revenue
Others
Total
960,016,072
34,283,201
39,981,243
16,602,911
13,160,535
91,906,720
1,155,950,682
Current
960,016,072
9,625,991
969,642,063
2-30 Days
34,283,201
6,976,920
41,260,121
31-60 Days
-
Over 60 Days
39,981,243
13,160,535
91,906,720
145,048,498
I-Remit, Inc. and Subsidiaries
Consolidated Financial Statements
December 31, 2010 and 2009
and for the Years Ended December 31, 2010, 2009 and 2008
and
Independent Auditors’ Report
SyCip Gorres Velayo & Co.
I-REMIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
I-Remit, Inc. (the Parent Company) was incorporated in the Philippines and was registered with
the Securities and Exchange Commission (SEC) on March 5, 2001 and started commercial
operations on November 11, 2001.
The Parent Company, which is domiciled in the Philippines, has its registered office and principal
place of business at 26/F Discovery Centre, 25 ADB Avenue, Ortigas Center, Pasig City. The
Parent Company’s common shares were listed with the Philippine Stock Exchange on
October 17, 2007.
The Parent Company and its subsidiaries (collectively referred to as “the Group”), except Power
Star Asia Group Limited (PSAGL), are primarily engaged in the business of fund transfer and
remittance services of any form or kind of currencies or monies, either by electronic, telegraphic,
wire or any other mode of transfer; delivery of such funds or monies, both in the domestic and
international market, by providing either courier or freight forwarding services; and conduct
foreign exchange transactions as may be allowed by law and other allied activities relative thereto.
PSAGL, on the other hand, provides advisory and other services.
The Parent Company’s subsidiaries and associates follow:
Country of
Incorporation
Subsidiaries:
International Remittance
(Canada) Ltd. (IRCL)
Lucky Star Management
Limited (LSML)
IRemit Global Remittance
Limited (IGRL)
(IAPL)
Worldwide Exchange Pty
Ltd (WEPL)*
IREMIT EUROPE
Remittance Consulting
AG (IERCAG)
I-Remit New Zealand
Limited (INZL)
PSAGL
Canada
Functional
Currency
Canadian
Dollar (CAD)
Hong Kong
Dollar (HKD)
Great Britain
Pound (GBP)
Australian
Dollar (AUD)
Australian
Dollar (AUD)
Effective Percentage of Ownership
December 31
2009
2008
2010
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
65.00
65.00
65.00
74.90
74.90
74.90
100.00
100.00
100.00
100.00
100.00
Associates:
IRemit Singapore Pte Ltd
Singapore
(ISPL)
Dollar (SGD)
49.00
49.00
Hwa Kung Hong & Co.,
New Taiwan
Ltd.(HKHCL)
Taiwan
Dollar (NTD)
49.00
49.00
* Consists of direct voting interest of 35.00% and indirect voting interest through IAPL of 30.00%
100.00
Hong Kong
United
Kingdom
Australia
Australia
Austria
New Zealand
Hong Kong
Euro (EUR)
New Zealand
Dollar (NZD)
Hong Kong
Dollar (HKD)
49.00
–
The Parent Company is the ultimate parent company of the Group.
*SGVMC113951*
-2-
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements of the Group have been prepared on a
historical cost basis except for financial assets at fair value through profit or loss (FVPL) that have
been measured at fair value. The financial statements are presented in Philippine peso, the Parent
Company’s functional currency, and all values are rounded to the nearest peso except when
otherwise indicated.
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. The respective
functional currencies of the subsidiaries and associates are presented in Note 1.
Statement of Compliance
The accompanying consolidated financial statements have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements of the Group are prepared for the same reporting year as the
Parent Company, using consistent accounting policies.
Subsidiaries are all entities over which the Parent Company has the power to govern the financial
and operating policies 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 Parent Company controls another entity.
All significant intra-group balances, transactions, income and expenses and profits and losses
resulting from intra-group transactions are eliminated in full.
Subsidiaries are consolidated from the date on which control is transferred to the Parent Company.
Control is achieved when the Parent Company has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. Consolidation of subsidiaries
ceases when control is transferred out of the Group.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated
statement of income from the date of acquisition up to the date of disposal, as appropriate.
When a change in ownership interest in a subsidiary occur which result in loss of control over the
subsidiary, the Parent Company:
·
·
·
·
·
·
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 recorded in equity and recycle the same
to profit or loss or retained earnings;
recognizes the fair value of the consideration received;
recognizes the fair value of any investment retained; and
recognizes any surplus or deficit in profit or loss.
*SGVMC113951*
-3Business 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 operating expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, 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 Philippine Accounting
Standards (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 is initially measured at cost being the excess of the aggregate of fair value of the
consideration transferred and the amount recognized for non-controlling interest over the net
identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair
value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For
the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generating units (CGU) that are expected to
benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units.
Business combinations prior to January 1, 2010
In comparison to the above-mentioned requirements, the following differences apply:
Business combinations were accounted for using the purchase method. Transaction costs directly
attributable to the acquisition formed part of the acquisition costs. The non-controlling interest
(formerly known as minority interest) was measured at the proportionate share of the acquiree’s
identifiable net assets.
Business combinations achieved in stages were accounted for as separate steps. Any additional
acquired share of interest did not affect previously recognized goodwill.
When the Group acquired a business, embedded derivatives separated from the host contract by
the acquiree were not reassessed on acquisition unless the business combination resulted in a
change in the terms of the contract that significantly modified the cash flows that otherwise would
have been required under the contract.
*SGVMC113951*
-4Contingent consideration was recognized if, and only if, the Group had a present obligation, the
economic outflow was more likely than not and a reliable estimate was determinable. Subsequent
adjustments to the contingent consideration were recognized as part of goodwill.
Non-Controlling Interest
Non-controlling interest represents the portion of profit or loss and net assets not owned, directly
or indirectly, by the Parent Company.
Non-controlling interests are presented separately in the consolidated statement of income,
consolidated statement of comprehensive income, and within equity in the consolidated balance
sheet, separately from the Parent Company’s shareholders’ equity. Any losses applicable to the
non-controlling interests are allocated against the interests of the non-controlling interest even if
this results in the non-controlling interest having a deficit balance. Acquisitions of noncontrolling interests that does not result in a loss of control are accounted for as equity transaction,
whereby the difference between the consideration and the fair value of the share of the net assets
acquired is recognized as an equity transaction and attributed to the owners of the Parent
Company.
The accounting policies adopted are consistent with those of the previous financial year except for
the adoption of the following new and amended PFRS, PAS and Philippine Interpretations which
became effective on January 1, 2010:
· PFRS 3, Business Combinations (Revised)
· PAS 27, Consolidated and Separate Financial Statements (Amended)
· Philippine Interpretation International Financial Reporting Interpretation Committee
(IFRIC) 17, Distributions of Non-Cash Assets to Owners
· PAS 39 Amendment - Eligible Hedged Items
· PFRS 2 Amendments - Group Cash-settled Share-based Payment Transactions
· PFRS 5, Non-current Assets Held for Sale and Discontinued Operations
Improvements to PFRSs 2009
· PFRS 2, Share-based Payment
· PFRS 8, Operating Segments
· PAS 1, Presentation of Financial Statements
· PAS 7, Statement of Cash Flows
· PAS 17, Leases
· PAS 34, Interim Financial Reporting
· PAS 36, Impairment of Assets
· PAS 38, Intangible Assets
· PAS 39, Financial Instruments: Recognition and Measurement
· Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
· Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation
*SGVMC113951*
-5Adopted new standards, amendments and interpretations that are deemed to have an impact on the
financial statements or performance of the Group are described below:
PFRS 3, Business Combinations (Revised) and PAS 27 Consolidated and Separate Financial
Statements (Amended)
PFRS 3 (Revised) introduces significant changes in the accounting for business combinations
occurring after becoming effective. Changes affect the valuation of non-controlling interest, the
accounting for transaction costs, the initial recognition and subsequent measurement of a
contingent consideration and business combinations achieved in stages. These changes will
impact the amount of goodwill recognized, the reported results in the period that an acquisition
occurs and future reported results.
PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss
of control) is accounted for as a transaction with owners in their capacity as owners. Therefore,
such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss.
Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as
well as the loss of control of a subsidiary.
The changes introduced by PFRS 3 (Revised) and PAS 27 (Amended) affect acquisitions or loss
of control of subsidiaries and transactions with non-controlling interests after January 1, 2010.
The change in accounting policy was applied prospectively and had no material impact on
earnings per share.
Foreign Currency Translation
The consolidated financial statements are presented in Philippine peso, which is the Parent
Company’s functional currency. Each subsidiary 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 and balances
Transactions in foreign currencies are initially recorded at the functional currency’s closing rate at
the date of the transaction. For financial reporting purposes, foreign currency-denominated
monetary assets and liabilities are translated in Philippine pesos based on the Philippine Dealing
System (PDS) closing rate prevailing at the balance sheet date, and foreign currency-denominated
income and expenses are translated at the PDS weighted average rate (PDSWAR) for the year.
Exchange differences arising on translation are taken directly to the consolidated statement of
income.
Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rates as at the dates of the initial transactions. Non-monetary items
measured at fair value in a foreign currency are translated using the exchange rates at the date
when the fair value was determined. Any goodwill arising on the acquisition of a foreign
operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on
the acquisition are treated as assets and liabilities of the foreign operation and translated at the
closing rate.
Foreign subsidiaries
As of the balance sheet date, the assets and liabilities of subsidiaries are translated into the Parent
Company’s presentation currency (the Philippine peso) at the PDS closing rate prevailing at the
balance sheet date, and their income and expenses are translated using the PDSWAR for the year.
Exchange differences arising on translation are taken directly to equity under ‘Cumulative
translation adjustment’. Upon disposal of a foreign entity, the deferred cumulative amount
*SGVMC113951*
-6previously recognized in other comprehensive income relating to the particular foreign operation
is recognized in the consolidated statement of income.
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 from the dates of placement and that are subject to an insignificant risk of
changes in fair value.
Financial Instruments - Initial Recognition and Subsequent Measurement
Date of recognition
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or market convention are recognized on the settlement date. Settlement
date is the date on which the transaction is settled by delivery of the assets that are the subject of
the agreement. Settlement date accounting refers to (a) the recognition of an asset on the day it is
received by the Group, and (b) the derecognition of an asset and recognition of any gain or loss on
disposal on the day that it is delivered by the Group. Any change in the fair value of the financial
asset to be received is recognized in the consolidated statement of income for financial assets at
FVPL. Receivables, beneficiaries and other payables, and interest-bearing loans are recognized
when cash is received by the Group or advanced to the borrowers/beneficiaries.
The classification of financial instruments at initial recognition depends on the purpose for which
the financial instruments were acquired and their characteristics. All financial assets and financial
liabilities are recognized initially at fair value plus any directly attributable cost of acquisition or
issue, except in the case of financial assets and financial liabilities at FVPL. The Group
categorizes its financial assets as: financial assets at FVPL, differentiating those that are held for
trading (HFT) and those designated as such, loans and receivables, held-to-maturity (HTM)
investments and available-for-sale (AFS) investments. Financial liabilities are categorized into
financial liabilities at FVPL and other financial liabilities carried at amortized cost. Management
determines the classification of its instruments at initial recognition and, where allowed and
appropriate, re-evaluates such designation at every balance sheet date.
As of December 31, 2010 and 2009, the Group has no financial liabilities at FVPL, AFS
investments and HTM investments.
HFT investments
Financial assets are classified as HFT if they are acquired for the purpose of selling and
repurchasing in the near term. Included in this classification are debt securities which have been
acquired principally for trading purposes.
The Group evaluated its HFT investments to determine whether the intention to sell them in the
near term is still appropriate. When the Group is unable to trade these financial assets due to
inactive markets and management’s intention to sell them in the foreseeable future significantly
changes, the Group may elect to reclassify these financial assets in rare circumstances. The
reclassification to loans and receivables, AFS investment or HTM investment depends on the
nature of the asset. This evaluation does not affect any financial assets designated at FVPL using
the fair value option at designation.
HFT investments are recorded in the consolidated balance sheet at fair value. Changes in fair
value are recognized as ‘Net trading gains’ in the consolidated statement of income. Interest
earned is recognized as interest income included under ‘Other income’ in the consolidated
statement of income. Quoted market prices, when available, are used to determine the fair value
*SGVMC113951*
-7of these financial instruments. If quoted market prices are not available, their fair values are
estimated based on inputs that are observable in the market.
Classified under this category are the Group’s investments in debt securities.
Receivables
Receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. After initial measurement, receivables are carried at amortized cost
using the effective interest method less any allowance for credit losses. Amortized cost is
calculated by taking into account any discount or premium on acquisition and fees and costs that
are an integral part of the effective interest rate (EIR). Gains and losses are recognized in the
consolidated statement of income when the receivables are derecognized or impaired, as well as
through the amortization process. Receivables are classified as current assets when the Group
expects to realize or collect the asset within twelve months from the balance sheet date. Otherwise,
these are classified as non-current assets.
Classified under this category are the Group’s ‘Cash and cash equivalents’, ‘Accounts receivable’,
‘Other receivables’ and refundable deposits included under ‘Other noncurrent assets’.
Other financial liabilities
Issued financial instruments or their components, which are not designated as at FVPL, are
classified as other financial liability, where the substance of the contractual arrangement results in
the Group having an obligation either to deliver cash or another financial asset to the holder, or to
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of its own equity shares. These include liabilities arising from operations
or borrowings. 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.
After initial measurement, other financial liabilities are subsequently measured at amortized cost
using the effective interest method.
Other financial liabilities include ‘Beneficiaries and other payables’ and ‘Interest-bearing loans’.
Determination of fair value
The fair value for financial instruments traded in active markets at the balance sheet date is based
on their quoted market prices 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 ask prices
are not available, the price of the most recent transaction provides evidence of the current fair
value as long as there has not been a significant change in economic circumstances since the time
of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation methodologies. Valuation methodologies include net present value
techniques, comparison to similar instruments for which market observable prices exist, option
pricing models, and other relevant valuation models.
*SGVMC113951*
-8Day 1 difference
Where the transaction price in a non-active market is different from the fair value from other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from an observable market, the Group recognizes the difference
between the transaction price and fair value (a Day 1 difference) in the consolidated statement of
income unless it qualifies for recognition as some other type of asset. In cases where use is made
of data which is not observable, the difference between the transaction price and model value is
only recognized in the consolidated statement of income when the inputs become observable or
when the instrument is derecognized. For each transaction, the Group determines the appropriate
method of recognizing the Day 1 difference amount.
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 part 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
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the
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.
Financial liability
A financial liability is derecognized when the obligation under the liability is discharged,
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 the consolidated statement of income.
Offsetting 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 asset and settle the
liability simultaneously.
Impairment of Financial Assets
The Group assesses at each balance sheet date whether there is an objective evidence that a
financial asset or group of financial assets is impaired. A financial asset or a group of financial
assets is deemed to be impaired if, and only if, there is an objective evidence of impairment as a
result of one or more events that has occurred after the initial recognition of the asset (an incurred
*SGVMC113951*
-9‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the
financial asset or the group of financial assets that can be reliably estimated. Evidence of
impairment may include indications that the borrower or a group of borrowers is experiencing
significant financial difficulty, default or delinquency in interest or principal payments, the
probability that they will enter bankruptcy or other financial reorganization, and where there are
observable data that indicates that there is a measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets carried at amortized cost
For financial assets carried at amortized cost, the Group first assesses whether objective evidence
of impairment exists individually for financial assets that are individually significant, or
collectively for financial assets that are not individually significant.
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 the
estimated future cash flows (excluding future credit losses that have not been incurred). The
carrying amount of the asset is reduced through the use of an allowance account and the amount of
loss is charged to the consolidated statement of income. Interest income continues to be
recognized based on the original EIR of the asset. Receivables, together with the associated
allowance accounts, are written off when there is no realistic prospect of future recovery and all
collateral has been realized. If subsequently, the amount of the estimated impairment loss
decreases because of an event occurring after the impairment was recognized, the previously
recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is
later recovered, any amounts formerly charged are credited to profit or loss.
If the Group determines that no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, it includes the asset in a group of financial
assets with similar credit risk characteristics and collectively assesses for impairment. Those
characteristics are relevant to the estimation of future cash flows for groups of such assets by
being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of
the assets being evaluated. 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 for
impairment.
The present value of the estimated future cash flows is discounted at the financial asset’s original
EIR. If a financial asset has a variable interest rate, the discount rate for measuring any
impairment loss is the current EIR, adjusted for the original credit risk premium.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis
of such credit risk characteristics as geographical classification. Future cash flows in a group of
financial assets that are collectively evaluated for impairment are estimated on the basis of
historical loss experience for assets with credit risk characteristics similar to those in the group.
Historical loss experience is adjusted on the basis of current observable data to reflect the effects
of current conditions that did not affect the period on which the historical loss experience is based
and to remove the effects of conditions in the historical period that do not exist currently.
Estimates of changes in future cash flows reflect, and are directionally consistent with changes in
related observable data from period to period (such as changes in payment status, or other factors
that are indicative of incurred losses in the group and their magnitude). The methodology and
assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce
any differences between loss estimates and actual loss experience.
*SGVMC113951*
- 10 Investments in Associates
The Group’s investments in its associates are accounted for using the equity method of
accounting. An associate is an entity in which the Group has significant influence. The Group’s
investments in associates include its 49.00% interest in ISPL and HKHCL, entities based in
Singapore and Taiwan, respectively.
Under the equity method, the investment in the associate is carried in the consolidated balance
sheet at cost plus post acquisition changes in the Group’s share in the net assets of the associate.
The consolidated statement of income reflects the share in the results of operations of the
associate. Where there has been a change recognized directly in the equity of the associate, the
Group recognizes its share of any changes and discloses this, when applicable, in the consolidated
statement of changes in equity. Unrealized gains and losses resulting from transactions between
the Group and the associate are eliminated to the extent of the interest in the associate.
The Group’s share in the net income (loss) of its associates is shown in the consolidated statement
of income as ‘Equity in net earnings’. This is the profit attributable to equity holders of the
associate and therefore is profit after tax and non-controlling interests in the subsidiaries of the
associates.
The financial statements of the associate are prepared for the same reporting period as the Parent
Company.
After application of the equity method, the Group determines whether it is necessary to recognize
an impairment loss on the Group’s investment in its associates. The Group determines at each
balance sheet date whether there is any objective evidence that the investment in the associate is
impaired. If this is the case the Group calculates the amount of impairment as the difference
between the recoverable amount of the associate and its carrying value and recognizes the amount
as impairment loss in the consolidated statement of income.
Upon loss of significant influence over the associate, the Group measures and recognizes any
remaining investment at its fair value. Any difference between the carrying amount of the
associate upon loss of significant influence and the fair value of the retaining investment and
proceeds from disposal is recognized in profit or loss.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization and any
impairment in value.
The initial cost of property and equipment comprises its purchase price and any directly
attributable costs of bringing the property and equipment to its working condition and location for
its intended use.
Expenditures incurred after the property and equipment have been put into operation, such as
repairs and maintenance are normally charged to operations in the year in which the costs are
incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in
an increase in the future economic benefits expected to be obtained from the use of an item of
property and equipment beyond its originally assessed standard of performance, the expenditures
are capitalized as an additional cost of property and equipment.
*SGVMC113951*
- 11 Depreciation and amortization is calculated on a straight-line basis over the estimated useful life of
the property and equipment as follows:
Office and communication equipment
Transportation and delivery equipment
Furniture and fixtures
Leasehold improvements
3 years
3 to 5 years
3 to 5 years
5 years or the term of the lease,
whichever is shorter
The carrying values of property and equipment are reviewed for impairment when events or
changes in circumstances indicate the carrying value may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated recoverable amount, the asset
or CGU are written down to their recoverable amount (see policy on Impairment of Nonfinancial
Assets).
An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount of
the asset) is included in the consolidated statement of income in the year the asset is derecognized.
The asset’s residual values, useful lives and methods of depreciation and amortization are
reviewed, and adjusted if appropriate, at each financial year-end to ensure that these are consistent
with the expected pattern of economic benefits from the items of property and equipment.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less any accumulated amortization and any
accumulated impairment losses.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangibles assets with finite lives are amortized over the useful economic life and assessed for
impairment whenever there is an indication that the intangible assets may be impaired. The
amortization period and the amortization method for an intangible asset with a finite useful life are
reviewed at least at each balance sheet date. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset is accounted for by
changing the amortization period or method, as appropriate, and treated as changes in accounting
estimates. The amortization expense on intangible assets with finite lives is recognized in the
consolidated statement of income in the expense category consistent with the function of the
intangible asset. Intangible assets with indefinite useful lives are tested for impairment annually
either individually or at the CGU level. Such intangibles are not amortized. The useful life of an
intangible asset with an indefinite life is reviewed annually to determine whether indefinite life
assessment continues to be supportable. If not, the change in the useful life assessment from
indefinite to finite is made on a prospective basis.
Gains or losses arising from the derecognition of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognized in the
consolidated statement of income when the asset is derecognized.
*SGVMC113951*
- 12 Software costs
Software costs are carried at cost less accumulated amortization and any impairment in value. The
cost of the asset is the amount of cash or cash equivalents paid or the fair value of the other
considerations given up to acquire the asset at the time of its acquisition or production. Software
costs are amortized on a straight-line basis over the estimated useful life of three (3) years.
Goodwill
Any excess of the acquisition cost over the fair values of the identifiable net assets acquired is
recognized as goodwill. Goodwill represents the excess of the acquisition cost of IRCL, IGRL,
IAPL, LSML and WEPL (see Note 13) over the fair value of their identifiable net assets at the
date of acquisition. Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill is reviewed for impairment annually (see accounting
policy on Impairment of Nonfinancial Assets).
Impairment of Nonfinancial assets
Investments in associates
The Group assesses at each balance sheet date whether there is any indication that its investments
in associates may be impaired. If any indication exists, the Group estimates the asset’s
recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value
less cost to sell and its value in use. 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.
Property and equipment and software costs
At each balance sheet date, the Group assesses whether there is any indication that its property and
equipment and software costs may be impaired. When an indicator of impairment exists or when
an annual impairment testing for an asset is required, the Group makes a formal estimate of
recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell
and its value in use and is determined for an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from other assets or groups of assets, in which
case the recoverable amount is assessed as part of the CGU to which it belongs. Where the
carrying amount of an asset (or CGU) exceeds its recoverable amount, the asset (or CGU) is
considered impaired and is written down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset
(or CGU). In determining fair value less cost to sell, recent market transactions are taken into
account, if available. If no such transactions can be identified, an appropriate evaluation model is
used. These calculations are corroborated with available fair value indicators.
An impairment loss is charged to operations in the year in which it arises, unless the asset is
carried at a revalued amount, in which case the impairment loss is charged to the revaluation
increment of the said asset.
An assessment is made at each balance sheet date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If such
indication exists, the recoverable amount is estimated. A previously recognized impairment loss is
reversed only if there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognized. If that is the case, the carrying amount of
the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying
amount that would have been determined, net of depreciation and amortization, had no impairment
loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated
statement of income unless the asset is carried at a revalued amount, in which case the reversal is
*SGVMC113951*
- 13 treated as a revaluation increase. After such a reversal, the depreciation and amortization expense
is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value,
on a systematic basis over its remaining life.
Goodwill
Goodwill is reviewed for impairment annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of the CGU (or group
of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU (or group of
CGUs) is less than the carrying amount of the CGU (or group of CGUs) to which goodwill has
been allocated, an impairment loss is recognized immediately in the consolidated statement of
income. Impairment losses relating to goodwill cannot be reversed for subsequent increases in its
recoverable amount in future periods. The Group performs its annual impairment test of goodwill
at the balance sheet date.
Input Value Added Tax (VAT)
Input VAT represents VAT imposed on the Parent Company by its suppliers for the acquisition of
goods and services as required by Philippine taxation laws and regulations. This will be claimed
as tax credits. Input VAT is stated at its estimated net realizable values.
Revenue Recognition
The Group assesses its revenue arrangements against specific criteria in order to determine if it is
acting as principal or agent. 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. The
following specific recognition criteria must also be met before revenue is recognized:
Delivery fees
Revenue from delivery fees is recognized when the service is rendered net of amounts payable to
principals (i.e., partner remittance companies) for fees billed on their behalf.
Interest income
Interest on financial instruments measured at amortized cost and interest bearing HFT investments
is recognized based on the effective interest method of accounting.
The effective interest method is a method of calculating the amortized cost of a financial asset or a
financial liability and allocating the interest income or interest expense over the relevant period.
The EIR is the rate that exactly discounts estimated future cash payments or receipts throughout
the expected life of the financial instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability. When calculating the EIR, the Group
estimates cash flows from the financial instrument (for example, prepayment options) but does not
consider future credit losses. The calculation includes all fees and points paid or received between
parties to the contract that are an integral part of the EIR, transaction costs and all other premiums
or discounts.
Once a financial asset or a group of financial assets has been written down as a result of an
impairment loss, interest income is recognized thereafter using the rate of interest used to discount
the future cash flows for the purpose of measuring the impairment loss.
Net trading gain/loss
Trading gain/loss represents results arising from trading activities, including all gains and losses
from changes in fair value of HFT investments.
*SGVMC113951*
- 14 Rebates
Rebates pertaining to refunds of bank service charges are recognized upon collection.
Cost and Expenses
Costs and expenses encompass losses as well as those expenses that arise in the course of the
ordinary business activities of the Group. The following specific recognition criteria must also be
met before costs and expenses are recognized:
Cost of services
This includes all expenses associated with the specific delivery fees. Such costs are recognized
when the related delivery fees have been recognized.
Operating expenses
Operating expenses constitute costs incurred related to advertising and administering the business
and are recognized when incurred.
Taxes and licenses
This includes all other taxes, local and national, including real estate taxes, licenses and permit
fees included under ‘Other operating expenses’ in the consolidated statement of income.
Retirement Benefits
The Parent Company has a noncontributory defined benefit retirement plan administered by a
trustee, covering its permanent employees.
The retirement cost of the Parent Company is determined using the projected unit credit method.
Under this method, the current service cost is the present value of retirement benefits payable in
the future with respect to services rendered in the current period.
The liability recognized in the consolidated balance sheet in respect of defined benefit retirement
plan is the present value of the defined benefit obligation at the balance sheet date less the fair
value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past
service costs. The defined benefit obligation is calculated annually by an independent actuary
using the projected unit credit method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using interest rates on Philippine
government bonds that have terms to maturity approximating the terms of the related retirement
liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are credited to or charged against income when the net cumulative unrecognized
actuarial gains and losses at the end of the previous period exceeded 10.00% 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 plan.
Past-service costs, if any, are recognized immediately in income, unless the changes to the
retirement plan are conditional on the employees remaining in service for a specified period of
time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis
over the vesting period.
The defined benefit asset or liability comprises the present value of the defined benefit obligation
less past service costs not yet recognized and less the fair value of plan assets out of which the
obligations are to be settled directly. The value of any asset is restricted to the sum of any past
service cost 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.
*SGVMC113951*
- 15 Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of
the arrangement at the inception date of whether the fulfillment of the arrangement is dependent
on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A
reassessment is made after inception of the lease only if one of the following applies:
(a) there is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) a renewal option is exercised or extension granted, unless the term of the renewal or extension
was initially included in the lease term;
(c) there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
(d) there is a substantial change to the asset.
When a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios (a), (c), or (d) and at the date
of renewal or extension for scenario (b).
Group as a lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as an expense in the
consolidated statement of income on a straight-line basis over the lease term.
Group as a lessor
Leases in which 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 basis as rental income. Contingent rents are recognized as revenue in the period in which
they are earned.
Share-based Payment
The Parent Company granted a stock purchase program to certain officers, employees and
individuals (see Note 19) that is subject to a lock-up or vesting period of two (2) years and which
ended on September 19, 2009 . The Parent Company accounted for the share-based payment as an
equity-settled transaction. The cost of equity-settled transactions is measured by reference to the
fair value of the equity instrument at the date at which they are granted. The expense is
recognized as part of ‘Salaries, wages and employee benefits’ in the consolidated statement of
income, together with a corresponding increase in equity, over the lock-up period of two (2) years.
The cumulative expense recognized for equity-settled transactions at each balance sheet date until
the vesting date reflects the extent to which the vesting period has expired and the Group’s best
estimate of the number of equity instruments that will ultimately vest. The expense in the
consolidated statement of income for the period represents the movement in cumulative expense
recognized at the beginning and end of the period.
Income Taxes
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantially enacted at the balance sheet date.
*SGVMC113951*
- 16 Deferred tax
Deferred tax is provided, using the balance sheet liability method, on all temporary differences at
the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, including asset
revaluations. Deferred tax assets are recognized for all deductible temporary differences,
carryforward of unused tax credits from excess minimum corporate income tax (MCIT) over the
regular corporate income tax (RCIT), if any, and unused net operating loss carryover (NOLCO), if
any, to the extent that it is probable that taxable income will be available against which the
deductible temporary differences and carryforward of unused tax credits from excess MCIT over
RCIT and unused NOLCO can be utilized.
Deferred tax liabilities are not provided on non-taxable temporary differences associated with
investments in associates where the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will not be reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable income will be available to allow all
or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at
each balance sheet date and are recognized to the extent that it has become probable that future
taxable income will allow the deferred tax assets to be recovered.
Deferred tax assets and deferred tax liabilities are measured at the tax rates that are applicable to
the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantially enacted at the balance sheet date.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable
entity and the same taxation authority.
Current tax and deferred tax relating to items recognized directly in equity are also recognized in
equity and not in the consolidated statement of income.
Borrowing Costs
Borrowing costs are recognized as an expense when incurred.
Equity
Capital stock is measured at par value for all shares issued and outstanding. When the shares are
sold at a premium, the difference between the proceeds and the par value is credited to ‘Capital
paid-in excess of par value’ account. Direct costs incurred related to equity issuance, such as
underwriting, accounting and legal fees, printing costs and taxes are chargeable to ‘Capital paid-in
excess of par value’ account. If the ‘Capital paid-in excess of par value’ is not sufficient, the
excess is charged against the ‘Retained earnings’.
When the Group issues more than one class of stock, a separate account is maintained for each
class of stock and the number of shares issued.
‘Retained earnings’ represents accumulated earnings (losses) of the Group less dividends declared.
*SGVMC113951*
- 17 Own equity instruments which are reacquired (treasury shares) are recognized at cost as ‘Treasury
stock’ and deducted from equity. No gain or loss is recognized in the consolidated statement of
income on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any
difference between the carrying amount and the consideration is recognized in ‘Capital paid-in
excess of par value’.
Earnings per Share
Basic earnings per share (EPS) is computed by dividing net income for the year by the weighted
average number of common shares issued and outstanding during the year, after giving retroactive
effect to any stock dividends or stock splits, if any, declared during the year. Diluted EPS is
computed by dividing net income applicable to common stockholders by the weighted average
number of common shares issued and outstanding during the year after giving effect to assumed
conversion of diluted potential common shares.
Using the weighted average number of ordinary shares outstanding during the period reflects the
possibility that the amount of shareholders’ capital varied during the period as a result of a larger
or smaller number of shares being outstanding at any time. The weighted average number of
ordinary shares outstanding during the period is the number of ordinary shares outstanding at the
beginning of the period, adjusted by the number of ordinary shares bought back or issued during
the period multiplied by a time-weighting factor. The time-weighting factor is the number of days
that the shares are outstanding as a proportion of the total number of days in the period; a
reasonable approximation of the weighted average is adequate in many circumstances.
Dividends on Common Shares
Dividends on common shares are recognized as a liability and deducted from equity when
declared and approved by the Board of Directors (BOD) of the Parent Company. Dividends for
the year that are approved after the balance sheet date are dealt with as an event after the balance
sheet date.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of assets embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. Where the Group expects a provision to be reimbursed, the reimbursement is
recognized as a separate asset but only when the reimbursement is virtually certain. The expense
relating to any provision is presented in the consolidated statement of income, net of any
reimbursement.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. A contingent asset is not recognized in the consolidated financial statements but disclosed
when an inflow of economic benefits is probable.
Events After the Reporting Period
Post year-end events that provide additional information about the Group’s financial position at
the balance sheet date (adjusting events) are reflected in the financial statements. Post year-end
events that are not adjusting events are disclosed in the notes to the financial statements when
material.
*SGVMC113951*
- 18 Segment Reporting
The Group’s operating businesses are organized and managed separately within a particular
economic environment or geographical areas, with each segment representing a strategic business
unit which is subject to risk and rewards that are different from those of other segments. Financial
information on business segments is presented in Note 28.
Standards Issued but not Effective
The Group will adopt the following standards and interpretations enumerated below when these
become effective. Except as otherwise indicated, the Group does not expect the adoption of these
new and amended PFRS and Philippine Interpretations to have significant impact on its financial
statements.
Effective in 2011
PAS 24 (Amended), Related Party Disclosures
The amended standard, effective for annual periods beginning on or after February 1, 2010,
clarifies the definition of a related party to simplify the identification of such relationships and to
eliminate inconsistencies in its application.
PAS 32, Financial Instruments: Presentation (Amendment) – Classification of Rights Issues
The amendment to PAS 32 is effective for annual periods beginning on or after February 1, 2010.
It amends the definition of a financial liability classifying rights issues (and certain options or
warrants) as equity instruments in cases where such rights are given pro rata to all of the existing
owners of the same class of an entity’s non-derivative equity instruments, or to acquire a fixed
number of the entity’s own equity instruments for a fixed amount in any currency.
Philippine Interpretation IFRIC 14 (Amendment) - Prepayments of a Minimum Funding
Requirement
The amendment to Philippine Interpretation IFRIC 14 is effective for annual periods beginning on
or after January 1, 2011, with retrospective application. The amendment provides guidance on
assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat
the prepayment of a minimum funding requirement as an asset.
Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments
Philippine Interpretation IFRIC - 19 is effective for annual periods beginning on or after July 1,
2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a
financial liability qualify as consideration paid. The equity instruments issued are measured at
their fair value. In case that this cannot be reliably measured, the instruments are measured at the
fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or
loss.
Improvements to IFRSs is an omnibus of amendments to PFRSs. The amendments have not been
adopted as they become effective for annual periods on or after either July 1, 2010 or
January 1, 2011. The adoption of the following amendments will result in changes to accounting
policies but will not have any impact on the financial position or performance of the Group.
•
•
•
•
•
PFRS 3, Business Combinations
PFRS 7, Financial Instruments: Disclosures
PAS 1, Presentation of Financial Statements
PAS 27, Consolidated and Separate Financial Statements
Philippine Interpretation IFRIC - 13, Customer Loyalty Programmes
*SGVMC113951*
- 19 PAS 12, Income Taxes (Amendment) - Deferred Tax: Recovery of Underlying Assets
The amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012.
It provides a practical solution to the problem of assessing whether recovery of an asset will be
through use or sale. It introduces a presumption that recovery of the carrying amount of an asset
will, normally, be through sale.
Effective in 2012
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This Interpretation covers accounting for revenue and associated expenses by entities that
undertake the construction of real estate directly or through subcontractors. This Interpretation
requires that revenue on construction of real estate be recognized only upon completion, except
when such contract qualifies as a 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 rewards of ownership are transferred to the buyer on a
continuous basis will also be accounted for based on stage of completion.
PFRS 7, Financial Instruments: Disclosures (Amendments) - Disclosures-Transfers of Financial
Assets
The amendments to PFRS 7 are effective for annual periods beginning on or after July 1, 2011.
The amendments will allow users of financial statements to improve their understanding of
transfer transactions of financial assets (for example, securitizations), including understanding the
possible effects of any risks that may remain with the entity that transferred the assets. The
amendments also require additional disclosures if a disproportionate amount of transfer
transactions are undertaken around the end of a reporting period.
Effective in 2013
PFRS 9, Financial Instruments: Classifications and Measurement
PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and
applies to classification and measurement of financial assets and financial liabilities as defined in
PAS 39. In subsequent phases, hedge accounting and derecognition will be addressed. The
completion of this project is expected in early 2011.
The Group will assess the impact of these amendments on its financial position/performance when
they become effective.
3. Significant Accounting Judgments and Estimates
The preparation of the financial statements in compliance with PFRS requires the Group to make
judgments and estimates that affect the reported amounts of assets, liabilities, income and
expenses and disclosure of contingent assets and contingent liabilities. Future events may occur
which will cause the assumptions used in arriving at the estimates to change. The effects of any
change in estimates are reflected in the financial statements as they become reasonably
determinable.
Judgments and estimates are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
*SGVMC113951*
- 20 Judgments
a. Functional Currency
PAS 21 requires management to use its judgment to determine the entity’s functional currency
such that it most faithfully represents the economic effects of the underlying transactions,
events and conditions that are relevant to the entity. In making this judgment, the Group
considers the following:
·
·
·
the currency that mainly influences sales prices for financial instruments and services (this
will often be the currency in which sales prices for its financial instruments and services
are denominated and settled);
the currency in which funds from financing activities are generated; and
the currency in which receipts from operating activities are usually retained.
Each entity in the Group determines its own functional currency being the currency that
mainly influences each entity’s revenues and costs and expenses. The functional currency of
the Parent Company is the Philippine peso, while its subsidiaries are disclosed in Note 1.
b. Fair value of financial instruments
The fair values of financial instruments that are not quoted in active markets are determined
using valuation techniques. The carrying values of financial assets and financial liabilities of
the Group approximate their market values since these are short-term in nature (see Note 4).
c. Operating leases
Group as lessee
The Group has entered into commercial property leases as a lessee for its office premises. The
Group has determined, based on an evaluation of the terms and conditions of the arrangements
(i.e., the lease does not transfer ownership of the asset to the lessee by the end of the lease
term, the lessee has no option to purchase the asset at a price that is expected to be sufficiently
lower than the fair value at the date the option is exercisable, and the lease term ranges from
one - ten years only), that all significant risks and rewards of ownership of the properties it
leases are not transferable to the Group.
Group as lessor
The Group has entered into commercial property leases as lessor. The Group has determined,
based on an evaluation of the terms and conditions of the arrangements that it retains all the
significant risks and rewards of ownership of these properties and accounts for the contracts as
operating leases.
d. Contingencies
The Group is currently involved in various proceedings. The estimate of the probable costs
for the resolution of these claims has been developed in consultation with outside counsel
handling the defense in these matters and is based upon an analysis of potential results. The
Group currently does not believe these proceedings will have a material effect on the Group’s
financial position. It is possible, however, that future results of operations could be materially
affected by changes in the estimates or in the effectiveness of the strategies relating to these
proceedings (see Note 29).
*SGVMC113951*
- 21 e. Determination of whether the Group is acting as a principal or an agent
The Group assesses its revenue arrangements against the following criteria to determine
whether it is acting as a principal or an agent:
·
·
·
·
whether the Group has primary responsibility for providing the goods and services;
whether the Group has inventory risk;
whether the Group has discretion in establishing prices; and
whether the Group bears the credit risk.
If the Group has determined it is acting as a principal, revenue is recognized on a gross basis
with the amount remitted to the other party being accounted for as part of costs and expenses.
If the Group has determined it is acting as an agent, only the net amount retained is recognized
as revenue.
The Group assessed its revenue arrangements and concluded that it is acting as principal in
some arrangements and as an agent in other arrangements.
f.
Going concern
The Group’s management has made an assessment of the Group’s ability to continue as a
going concern and is satisfied that the Group has the resources to continue in business for the
foreseeable future. Furthermore, management is not aware of any material uncertainties that
may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore,
the financial statements continue to be prepared on the going concern basis.
Estimates
a. Credit losses on receivables
The Group reviews its receivables at each balance sheet date to assess whether an allowance
for credit losses should be recorded in the consolidated balance sheet. In particular, judgment
by management is required in the estimation of the amount and timing of future cash flows
when determining the level of allowance required. Such estimates are based on assumptions
about a number of factors such as the length of the Group’s relationship with counterparties
(i.e., agents and couriers), current credit status, average age of accounts, collection and
historical loss experience. Actual results may differ, resulting in future changes to the
allowance.
As of December 31, 2010, accounts receivable and other receivables are carried in the
consolidated balance sheet at P
=1.06 billion and P
=0.10 billion, respectively (see Notes 8 and 9).
As of December 31, 2009, accounts receivable and other receivables are carried in the
consolidated balance sheet at P
=1.14 billion and P
=0.11 billion, respectively. The Group has
assessed that there was no objective evidence of impairment on its receivables as of
December 31, 2010 and 2009.
b. Impairment of nonfinancial assets
(i) Investments in associates
The Group assesses impairment on its investments in associates whenever events or
changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. Among others, the factors that the Group considers important, which could
trigger an impairment review on its investments in associates, include the following:
·
·
deteriorating or poor financial condition;
recurring net losses; and
*SGVMC113951*
- 22 ·
significant changes with an adverse effect on the associate have taken place during the
period, or will take place in the near future, in the technological, market, economic, or
legal environment in which the associate operates.
(ii) Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This
requires an estimation of the recoverable amount, which is the higher of the net selling
price or value in use of the CGU to which the goodwill is allocated.
The Group’s impairment test for goodwill is based on value in use calculations that use a
discounted cash flow model. The cash flows are derived from the budget for the next five
years and do not include restructuring activities that the Group is not yet committed to or
significant future investments that will enhance the asset base of the CGU being tested.
The recoverable amount is most sensitive to the discount rate used for the discounted cash
flow model as well as the expected future cash-inflows and the growth rate used for
extrapolation purposes.
(iii) Property and equipment and software costs
The Group assesses impairment on property and equipment and software costs whenever
events or changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. The factors that the Group considers important, which could trigger an
impairment review, include the following:
·
·
·
significant underperformance relative to expected historical or projected future
operating results;
significant changes in the manner of use of the acquired assets or the strategy for
overall business; and
significant negative industry or economic trends.
The Group recognizes an impairment loss whenever the carrying amount of the asset
exceeds its recoverable amount. The recoverable amount is determined based on the
asset’s value in use computation, which considers the present value of estimated future
cash flows expected to be generated from the continued use of the asset.
As of December 31, 2010 and 2009, no impairment losses were recognized on the Group’s
nonfinancial assets, including goodwill. The carrying values of the Group’s nonfinancial
assets follow:
Investments in associates (Note 11)
Property and equipment - net (Note 12)
Goodwill (Note 13)
Software costs - net (Note 14)
2010
P
=20,932,236
27,013,308
93,092,118
2,081,746
2009
=19,024,162
P
27,820,132
97,582,106
2,704,684
c. Estimated useful lives of property and equipment and software costs
The Group reviews the estimated useful lives of property and equipment and software costs
annually based on the expected asset utilization after considering the expected future
technological developments and market behavior. Significant changes in these estimates
resulting from changes in the factors aforementioned could possibly affect the future results of
operations. Any decrease in the estimated useful life of the property and equipment and
software costs would decrease their respective balances and increase the recorded depreciation
and amortization.
*SGVMC113951*
- 23 As of December 31, 2010 and 2009, the carrying values of Property and equipment and
Software costs follow:
Property and equipment (Note 12)
Software costs (Note 14)
2010
P
=27,013,308
2,081,746
2009
=27,820,132
P
2,704,684
d. Recognition of deferred tax assets
The Group reviews the carrying amounts of deferred tax assets at each consolidated balance
sheet date and reduces it to the extent that it is no longer probable that sufficient taxable
income will be available to allow all or part of the deferred tax assets to be utilized.
Significant judgment is required to determine the amount of deferred tax assets that can be
recognized, based upon the likely timing and level of future taxable income together with
future tax planning strategies.
As of December 31, 2010 and 2009, the Group’s recognized deferred tax assets amounted to
=4.23 million and P
P
=3.28 million, respectively. As of December 31, 2010 and 2009, the
Group’s recognized deferred tax liabilities amounted to P
=0.03 million and nil, respectively.
As of December 31, 2010 and 2009, the Parent Company did not recognize net deferred tax
assets on existing deductible temporary differences amounting to P
=2.85 million and P
=5.05
million, respectively. Management believes that it is not highly probable that these temporary
differences will be realized in the future (see Note 26).
e. Present value of net retirement obligation
The cost of defined benefit retirement plan and other post employment benefits are determined
using actuarial valuations. The actuarial valuation involves making assumptions about
discount rates, expected rates of return on assets, future salary increases, mortality rates and
future retirement increases. Due to the long-term nature of these benefits, such estimates are
subject to significant uncertainty.
The assumed discount rates were determined using the market yields on Philippine
government bonds with terms consistent with the expected employee benefit payout as of the
consolidated balance sheet date. Refer to Note 18 for the details of assumptions used in the
calculation. As of December 31, 2010 and 2009, the present value of the net retirement
obligation of the Group amounted to =
P0.78 million and =
P3.63 million, respectively
(see Note 18).
f.
Share-based payment transactions
The Group determined the cost of its equity-settled stock purchase program at grant date using
the price earnings multiple model taking into account the terms and conditions upon which the
shares were granted. At year end, the Group estimates the number of equity instruments that
will ultimately vest. The Group recognized cost of equity-settled share based payments
amounting to =
P1.53 million and P
=2.16 million in 2009 and 2008, respectively (see Note 19).
The vesting period of the stock purchase program ended on September 19, 2009.
*SGVMC113951*
- 24 4. Fair Value Measurement
The following tables summarize the carrying amounts and fair values of the Group’s financial
assets and financial liabilities:
2009
2010
Carrying Value
Financial Assets
Financial assets at FVPL
Loans and receivables:
Cash and cash equivalents
Accounts receivable
Other receivables:
Minority shareholders
Related parties
Dividend
Others
Other noncurrent assets:
Refundable deposits
Total
Other Financial Liabilities
Beneficiaries and other payables:
Beneficiaries
Agents, couriers and trading clients
Payable to suppliers
Accrued expenses
Advances from related parties
Dividends payable
Others
Interest-bearing loans
Total
Fair Value Carrying Value
Fair Value
P
=102,905,294
P
=102,905,294
=65,800,288
P
=65,800,288
P
883,817,947
1,059,299,273
883,817,947
1,059,299,273
962,813,647
1,139,480,887
962,813,647
1,139,480,887
39,981,243
16,602,911
–
26,906,720
39,981,243
16,602,911
–
26,906,720
25,014,743
18,927,425
7,186,578
43,747,994
25,014,743
18,927,425
7,186,578
43,747,994
11,299,173
11,299,173
14,099,442
14,099,442
=2,274,270,735 P
=2,274,270,735
P
=2,143,612,830 P
=2,143,612,830 P
=147,449,679
P
=147,449,679
P
P
=144,960,550
P
=144,960,550
86,624,144
86,624,144
44,773,236
44,773,236
2,243,487
2,243,487
2,958,634
2,958,634
16,219,826
16,219,826
2,701,805
2,701,805
2,489,351
2,489,351
1,431,156
1,431,156
3,915,372
3,915,372
–
–
6,497,933
6,497,933
5,165
5,165
930,000,000
930,000,000
877,000,000
877,000,000
P1,195,439,792 =
P1,195,439,792
P
=1,073,830,546 P
=1,073,830,546 =
The following methods and assumptions were used to estimate the fair value of the financial
instruments:
Cash and cash equivalents, Account receivables, Other receivables, Beneficiaries and other
payables and Interest-bearing loans - carrying amounts approximate fair values due to the
relatively short-term maturities of these instruments.
Financial assets at FVPL - fair values are based on quoted market prices.
Refundable deposits - carrying amounts are deemed to approximate fair values since the fair value
of certain deposits cannot be reasonably and reliably estimated.
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 prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices); and
Level 3: inputs that are not based on observable market data or unobservable inputs.
*SGVMC113951*
- 25 As of December 31, 2010 and 2009, the financial instruments carried at fair value only pertain to
the Group’s financial assets at FVPL, which consist of investments in debt securities. The fair
values of these debt securities are based on quoted prices (Level 1). 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 in 2010 and 2009.
5. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments mainly comprise of short-term loans from banks. The
main purpose of these financial instruments is to raise funds for the Group’s fulfillment or delivery
of remittance transactions to beneficiaries. The Group also has various other financial assets and
liabilities such as cash and cash equivalents, accounts receivables and accounts payable to
beneficiaries, which arise directly from its remittance operations.
The main risks arising from the Group’s financial instruments are credit risk, foreign currency
risk, cash flow interest rate risk, fair value interest rate risk and liquidity risk. The BOD reviews
and approves policies for managing each of these risks and these are summarized below:
Credit Risk
Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform its
obligations during the life of the transaction. This includes risk of non-payment by borrowers or
issuers, failed settlement of transactions and default on contracts.
The nature of its business exposes the Group to potential risk from difficulties in recovering
transaction money from foreign partners. Receivables from agents arise as a result of its
remittance operations in various regions of the globe. In order to address this, the Group has
maintained the following credit policies: (a) implement a contract that incorporates a bond and
advance payment cover such that the full amount of the transaction will be credited to the Group
prior to their delivery to the beneficiaries, which applies generally to all new agents of the Group
and in certain cases to old agents; (b) all foreign offices and agents must settle their accounts
following the next banking day settlement policy, otherwise, the fulfillment or delivery of their
remittance transactions will be put on hold; (c) evaluation of individual potential partners and
preferred associates’ creditworthiness, as well as a close look into the other pertinent aspects of
their partners’ businesses which assures the Group of the financial soundness of their partner
firms; and (d) receivable balances are monitored daily by the regional managers with the result
that the Group’s exposure to bad debts is not significant.
Receivables from agents and couriers are highly collectible and have a turnover ranging from 1 to
5 days and 30 to 60 days, respectively. Other receivables, which include advances to related
parties, are also highly collectible and are due in less than one year.
*SGVMC113951*
- 26 The table below shows the maximum credit exposure of the Group per account classification as of
December 31, 2010 and 2009 (see Notes 6, 7, 8, 9 and 14):
Financial assets at FVPL
Cash and cash equivalents*
Accounts receivables
Other receivables:
Related parties
Dividend
Others
Refundable deposits
Total
2010
P
=102,905,294
2009
=65,800,288
P
831,495,615
1,059,299,273
913,862,163
1,139,480,887
39,981,243
16,602,911
–
26,906,720
25,014,743
18,927,425
7,186,578
43,747,994
14,099,442
P
=2,091,290,498
11,299,173
=2,225,319,251
P
* excludes cash on hand
Maximum exposure for financial instruments recorded at fair value as shown above represent the
risk exposure as of respective balance sheet dates but not the maximum risk exposure that could
arise in the future as a result of changes in value.
The table below shows the maximum credit exposure of the Group per geographical classification
as of December 31, 2010 and 2009:
Asia Pacific
Middle East
North America
Europe
Total
2010
P
=1,869,838,619
106,023,556
58,180,050
57,248,273
P
=2,091,290,498
2009
=2,035,284,877
P
68,374,702
61,943,096
59,716,576
=2,225,319,251
P
There are no past due receivables as of December 31, 2010 and 2009. The Group classifies its
receivables as high grade. High grade financial assets includes instruments with credit ratings of
excellent, strong, good, or satisfactory, wherein the borrower has a low probability of default and
could withstand the normal business cycle. Financial assets at FVPL, which are issued by
reputable companies, are classified as high grade.
Foreign Currency Risk
Foreign currency risk is the risk to earnings or capital arising from changes in foreign exchange
rates. It is the Group’s policy that all daily foreign currencies, which arise as a result of its
remittance transactions, must be traded daily with bank partners only at prevailing foreign
exchange rates in the market. The daily closing foreign exchange rates shall be the guiding rate in
providing wholesale rates and retail rates to foreign offices and agents, respectively. The trading
proceeds will be used to pay out bank loans and other obligations of the Group.
*SGVMC113951*
- 27 The tables below summarize the Group’s exposure to foreign exchange risk. Included in the tables
are the Group’s foreign currency-denominated monetary assets and liabilities as of
December 31, 2010 and 2009, and their PHP equivalent.
2010
Currency
CAD
HKD
EUR
USD
AUD
SGD
NTD
GBP
NZD
QAR
Net exposure
Cash and Cash
Equivalents
1,109,576
5,410,983
1,303,292
1,026,855
470,898
89,587
–
153,415
128,277
275
Receivables
2,765,810
14,370,305
360,688
901,651
718,244
1,254,112
23,731,378
570
105,825
–
Payables
(121,524)
(154,859)
(96,888)
–
(14,991)
–
–
(25,738)
(5,412)
–
Total
3,753,862
19,626,429
1,567,092
1,928,506
1,174,151
1,343,699
23,731,378
128,247
228,690
275
PHP
Equivalent
P
=164,519,939
110,564,310
90,850,617
84,545,703
52,360,146
45,565,156
35,581,120
8,715,202
7,659,688
3,312
P
=600,365,193
Total
4,853,840
17,432,832
890,037
2,530,352
2,310,119
1,448,763
51,271,915
824,571
419,507
PHP
Equivalent
=215,142,963
P
103,815,652
59,134,254
116,902,262
94,720,654
47,642,803
73,431,637
60,967,526
13,721,906
=785,479,657
P
2009
Currency
CAD
HKD
EUR
USD
AUD
SGD
NTD
GBP
NZD
Net exposure
Cash and Cash
Equivalents
1,509,579
18,003,960
660,755
1,218,815
961,220
5,654
–
116,626
124,193
Receivables
3,586,537
191,812
285,307
1,311,537
1,775,058
1,443,109
51,271,915
725,619
310,706
Payables
(242,276)
(762,940)
(56,025)
–
(426,159)
–
–
(17,674)
(15,392)
The following tables set forth for the year indicated the impact of reasonably possible changes in
the rates of other currencies on pretax income.
2010
Currency
EUR
USD
CAD
HKD
SGD
NTD
NZD
AUD
GBP
QAR
Change in
nominal
foreign currency
exchange rate
+8.87
+3.55
+1.75
+0.41
+0.32
+0.01
+1.03
+0.13
+8.01
+1.73
Effect on
pretax income
P
=7,430,736
6,846,196
6,041,607
637,042
429,984
237,314
226,486
125,764
118,164
476
Change in
nominal
foreign currency
exchange rate
-3.04
-1.61
-2.09
-0.08
-1.87
-0.12
-3.09
-7.05
-3.57
-4.08
Effect on
pretax income
(P
= 2,546,724)
(3,104,895)
(7,215,405)
(124,301)
(2,512,717)
(2,847,765)
(679,457)
(6,820,290)
(52,665)
(1,122)
*SGVMC113951*
- 28 -
Currency
EUR
USD
CAD
HKD
SGD
NTD
NZD
AUD
GBP
Change in nominal
foreign currency
exchange rate
+4.75
+3.00
+1.36
+0.78
+1.38
+1.73
+1.73
+3.51
+7.52
2009
Change in nominal
Effect on foreign currency
pretax income
exchange rate
=1,028,328
P
-7.32
7,591,056
-0.33
5,946,346
-7.19
1,389,065
-0.97
1,999,293
-2.19
88,700,413
-4.08
517,166
-4.08
6,681,524
-11.67
5,537,585
-11.25
Effect on
pretax income
(P
=1,584,707)
(835,016)
(31,436,930)
(1,727,426)
(3,172,791)
(209,189,413)
(1,219,675)
(22,214,639)
(8,284,286)
Translation Risk
The Group’s consolidated statement of financial position is exposed to foreign exchange
fluctuations as these affect the translation of subsidiaries’ net assets and income and expenses
denominated in foreign currencies. The following tables set forth for the year indicated the impact
of reasonably possible changes in the rates of other currencies on equity.
2010
Currency
HKD
CAD
GBP
EUR
NZD
AUD
Change in
nominal
foreign currency
exchange rate
+0.41
+1.75
+8.01
+8.87
+1.03
+0.13
Currency
HKD
CAD
GBP
EUR
NZD
AUD
Change in
nominal
foreign currency
exchange rate
0.78
1.36
7.52
4.75
1.73
3.51
Effect on
equity
P
=14,638,271
855,520
355,672
(299,049)
(189,295)
25,632
Change in
nominal
foreign currency
exchange rate
-0.08
-2.09
-3.57
-3.04
-3.09
-7.05
Effect on
equity
(P
= 2,856,248)
(1,021,735)
(158,520)
102,493
567,885
(738,995)
2009
Effect on
equity
18,518,265
643,691
223,690
3,597,284
(257,782)
672,502
Change in
nominal
foreign currency
exchange rate
-0.97
-7.19
-11.25
-7.32
-4.08
-11.67
Effect on
equity
(23,029,124)
(3,403,041)
(334,643)
(5,543,604)
607,948
(2,235,925)
Cash Flow Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash
flows of financial instruments.
As of December 31, 2010 and 2009, the Group’s exposure to cash flow interest rate risk is
minimal. The Group’s policy is to manage its interest cost by entering only into fixed rate shortterm loans from banks.
Fair Value Interest Rate Risk
Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due
to changes in market interest rates.
The Group accounts for its debt investments at fair value. Thus, changes in the benchmark interest
rate will cause changes in the fair value of quoted debt instruments.
*SGVMC113951*
- 29 The following table demonstrates the sensitivity to a reasonably possible change in interest rates,
with all other variables held constant, of the Group’s profit before tax as of December 31, 2010
and 2009. There is no impact on the Group’s equity other than those already affecting the profit or
loss.
Currency PHP
Currency PHP
2010
Sensitivity of
Increase in
basis points
trading gains
+50bps
(1,495,140)
-50bps
1,226,880
2009
Increase in
Sensitivity of
basis points
trading gains
+50bps
(3,403,557)
-50bps
3,963,733
Liquidity Risk
Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet
commitments associated with financial instruments.
The Group’s objective is to maintain a balance between continuity of funding and flexibility
through the use of short-term debts. In addition, the Group maintains credit facilities with local
banks. As of December 31, 2010 and 2009, the Parent Company has unused credit facilities
amounting to =
P1.02 billion and P
=0.60 billion, respectively (see Note 16).
Financial assets
Maturity profile of financial assets held for liquidity purposes is shown below. Analysis of debt
securities at FVPL into maturity groupings is based on the expected date on which these assets
will be realized. For other assets, the analysis is based on the remaining period from the end of the
reporting period to the contractual maturity date, or if earlier, the expected date the assets will be
realized.
Financial liabilities
The maturity grouping is based on the remaining period from the end of the reporting period to the
contractual maturity date. When a counterparty has a choice of when the amount is paid, the
liability is allocated to the earliest period in which the Group can be required to pay.
The tables below summarize the maturity profile of the Group’s financial instruments based on
undiscounted contractual payments.
Less than 5 days
Financial assets
Financial assets at fair value
through profit or loss
Beneficiaries
Agents, couriers and trading
clients
Accrued expenses
Advances to related parties
Others
2010
5 to 30 days
30 to 60 days
Total
P
=873,637,916
P
=10,180,031
P
=–
P
=883,817,947
–
1,059,299,273
P
=1,932,937,189
–
–
P
=10,180,031
102,905,294
–
P
=102,905,294
102,905,294
1,059,299,273
P
=2,046,022,514
P
=144,960,550
P
=–
P
=–
P
=144,960,550
44,773,236
–
–
–
–
395,273,055
P
=585,006,841
–
–
–
–
–
483,077,528
P
=483,077,528
–
2,958,634
2,701,805
1,431,156
5,165
–
P
=7,096,760
44,773,236
2,958,634
2,701,805
1,431,156
5,165
878,350,583
P
=1,075,181,129
*SGVMC113951*
- 30 -
Less than 5 days
Financial assets
Financial assets at fair value
through profit or loss
Beneficiaries
Agents, couriers and trading
clients
Accrued expenses
Dividends payable
Advances to related parties
Others
2009
5 to 30 days
30 to 60 days
Total
=912,511,491
P
=50,326,462
P
=–
P
=962,837,953
P
–
1,139,480,887
=2,051,992,378
P
–
–
=50,326,462
P
65,800,288
–
=65,800,288
P
65,800,288
1,139,480,887
=2,168,119,128
P
=147,449,679
P
=–
P
=–
P
=147,449,679
P
86,624,144
–
–
–
–
–
–
=234,073,823
P
–
–
–
–
–
–
833,145,972
=833,145,972
P
–
16,219,826
3,915,372
2,489,351
2,243,487
6,497,933
150,979,514
=182,345,483
P
86,624,144
16,219,826
3,915,372
2,489,351
2,243,487
6,497,933
984,125,486
=1,249,565,278
P
6. Cash and Cash Equivalents
This account consists of:
Cash on hand
Cash in banks (Note 25)
Short-term deposits
2010
P
=52,322,332
821,315,584
10,180,031
P
=883,817,947
2009
P48,951,484
=
863,560,007
50,302,156
=962,813,647
P
Cash in banks earn interest at the respective bank deposit rates. Short-term deposits are made for
varying periods of up to three months and earn interest at the respective short-term deposit rates.
In 2010, 2009 and 2008, interest income included in ‘Other income’ in the consolidated statements
of income amounted to =
P3.47 million, =
P7.90 million and =
P7.21 million, respectively (see Note 23).
The Group’s cash and cash equivalents denominated in foreign currency, with corresponding
Philippine peso (PHP) equivalent, are as follows:
EUR
CAD
USD
HKD
AUD
GBP
NZD
SGD
QAR
December 31, 2010
Amount PHP equivalent
1,303,292
P
=75,557,071
1,109,576
48,629,219
1,026,855
45,017,323
5,410,983
30,482,448
470,898
20,999,248
153,415
10,425,529
128,277
4,296,479
89,587
3,037,917
275
3,312
P
=238,448,546
December 31, 2009
Amount
PHP equivalent
660,755
=43,900,708
P
1,509,579
66,911,002
1,218,815
56,309,253
18,003,960
107,216,823
961,220
39,412,423
116,626
8,623,149
124,193
4,062,303
5,654
185,933
–
–
=326,621,594
P
*SGVMC113951*
- 31 Cash in banks earn interest rates ranging as follows:
PHP
Foreign Currency Denominated
2010
0.50% to 2.00%
0.40% to 2.00%
2009
0.50% to 2.00%
0.40% to 2.00%
2008
0.50% to 2.00%
0.40% to 2.00%
7. Financial Assets at Fair Value Through Profit or Loss
Financial assets at FVPL consist of investments in private debt securities (listed overseas) held for
trading with an aggregate face value of US $2.97 million (P
=130.12 million) and US $1.57 million
(P
=72.53 million) as of December 31, 2010 and 2009, respectively. As of December 31, 2010 and
2009, the carrying amount includes net unrealized gain of =
P0.57 million and =
P0.14 million,
respectively. Both realized and unrealized gains and losses on financial assets at FVPL are
included in ‘Net trading gains’ in the consolidated statements of income. Interest income earned
in 2010 and 2009 amounts to =
P9.04 million and =
P7.28 million, respectively, which are included in
‘Other income’ in the consolidated statements of income (see Note 23).
8. Accounts Receivable
Accounts receivable pertains mainly to receivables from agents and couriers. Receivables from
agents pertain to advances made to fund the remittance transactions to beneficiaries. These are
settled within 1 to 5 days from transaction date. Receivables from couriers pertain to advances
made to the courier companies to ease up the door-to-door delivery of the remittances to the
beneficiaries. These are settled within 30 to 60 days from transaction date.
9. Other Receivables
Other receivables consist of:
Related parties (Note 25)
Bureau of Internal Revenue (BIR)
Dividend
Others
2010
P
=39,981,243
16,602,911
13,160,535
–
26,906,720
P
=96,651,409
2009
=25,014,743
P
18,927,425
13,160,535
7,186,578
43,747,994
=108,037,275
P
Receivable from the BIR pertains to the excess payments made by the Parent Company in 2007
for the Initial Public Offering (IPO) percentage tax. As of December 31, 2010, the case is pending
resolution with the Court of Tax Appeals. The Parent Company believes that it will be able to
obtain the refund from the BIR.
Receivables from minority shareholders pertain to advances made to the minority shareholders of
IERCAG and WEPL. These are expected to be settled in 2011.
‘Others’ includes advances to employees, contractors and trading clients for foreign exchange
transactions. These outstanding receivables are due either on demand or within one year.
*SGVMC113951*
- 32 -
10. Other Current Assets
Prepaid expenses
Visa cards inventory
Office supplies
Miscellaneous
2010
P
=14,882,159
8,054,220
199,689
–
P
=23,136,068
2009
=10,376,432
P
9,308,037
443,118
1,811,793
=21,939,380
P
Prepaid expenses include prepayments for interest, rent, association dues and advertisements.
‘Miscellaneous’ pertains mainly to refundable deposits, which are due within one year.
11. Investments in Associates
The Parent Company’s investments in associates consist of the following:
Acquisition cost:
ISPL
HKHCL
Accumulated equity in net earnings:
Balance at beginning of year
Equity in net earnings during the year
Dividends
Balance at end of year
2010
2009
P
=12,600,000
3,573,974
16,173,974
=12,600,000
P
3,573,974
16,173,974
2,850,188
2,504,455
(596,381)
4,758,262
P
=20,932,236
11,099,925
6,146,792
(14,396,529)
2,850,188
=19,024,162
P
Acquisition of associates
HKHCL
On January 16, 2009, the Parent Company’s BOD approved the acquisition of 49.00% ownership
interest in HKHCL, for a consideration of NTD 2.45 million (P
=3.57 million). HKHCL is a
remittance business based in Taiwan. Accordingly, on July 1, 2009 (acquisition date), the Parent
Company remitted the cash payment to the existing stockholders of HKHCL.
ISPL
On June 2, 2007, the Parent Company’s BOD approved the acquisition of 49.00% ownership
interest in ISPL for a consideration of =
P12.60 million. ISPL is a remittance business based in
Singapore. Accordingly, on June 29, 2007, the Parent Company acquired 49.00% ownership
interest in ISPL through the execution of a deed of assignment by the previous stockholders (who
are also stockholders of the Parent Company) of the entity.
The Monetary Authority of Singapore has yet to approve the sale of 49.00% equity interest in
ISPL to the Parent Company. The Parent Company and its legal counsel believe that the
application for approval will merit favorable judgment and that any outcome will not affect the
Parent Company’s purchase of 49.00% interest in ISPL.
*SGVMC113951*
- 33 The following tables present the summarized financial information of the Parent Company’s
associates as of and for the years ended December 31, 2010 and 2009:
2010
Balance Sheets
Total
Total
Assets
Liabilities
HKHCL
ISPL
P
=69,159
61,209
P
=130,368
P
=53,006
40,638
P
=93,644
Statements of Income
Gross
Income
Net Income
Revenue
(In thousands)
P
=65,648
P
=22,037
P
=5,996
33,198
4,754
56,130
P
=121,778
P
=55,235
P
=10,750
2009
Balance Sheets
Total
Total
Liabilities
Assets
ISPL
HKHCL
P74,159
=
31,970
=106,129
P
P42,914
=
30,572
=73,486
P
Gross
Revenue
Income
(In thousands)
=38,046
P
=37,708
P
14,295
21,096
=59,142
P
=52,003
P
Net Income
(Loss)
=13,027
P
(966)
=12,061
P
12. Property and Equipment
The composition of and movements in this account follow:
2010
Office and
Communication
Equipment
Cost
Additions
Disposals
Exchange adjustments
Accumulated Depreciation and
Amortization
Depreciation and amortization
Disposals
Balance at the end of the year
Net Book Value at End of Year
Transportation
and Delivery
Equipment
Furniture
and Fixtures
Leasehold
Improvements
Total
= 38,536,745
P
6,135,953
(195,500)
(923,547)
43,553,651
P6,084,508
=
3,116,461
(2,202,818)
3,920
7,002,071
P9,454,682
=
1,074,464
(91,412)
(290,382)
10,147,352
= 27,086,081
P
3,712,282
–
(162,038)
30,636,325
P81,162,016
=
14,039,160
(2,489,730)
(1,372,047)
91,339,399
27,932,474
5,770,034
(88,344)
(539,029)
33,075,135
= 10,478,516
P
2,422,598
1,330,203
(708,790)
2,679
3,046,690
= 3,955,381
P
5,391,722
1,255,968
(25,900)
(124,394)
6,497,396
= 3,649,956
P
17,595,090
4,188,639
–
(76,859)
21,706,870
= 8,929,455
P
53,341,884
12,544,844
(823,034)
(737,603)
64,326,091
= 27,013,308
P
2009
Office and
Communication
Equipment
Cost
Additions
Disposals
Amortization
Transportation
and Delivery
Equipment
Furniture
and Fixtures
Leasehold
Improvements
Total
=34,525,351
P
3,301,124
–
710,270
38,536,745
=6,455,478
P
18,172
(415,002)
25,860
6,084,508
=9,479,976
P
9,088
–
(34,382)
9,454,682
=20,007,390
P
6,055,032
–
1,023,659
27,086,081
=70,468,195
P
9,383,416
(415,002)
1,725,407
81,162,016
21,332,936
5,866,750
732,788
27,932,474
=10,604,271
P
1,236,855
1,160,534
25,209
2,422,598
=3,661,910
P
4,079,445
1,667,444
(355,167)
5,391,722
=4,062,960
P
12,945,358
3,859,803
789,929
17,595,090
=9,490,991
P
39,594,594
12,554,531
1,192,759
53,341,884
=27,820,132
P
*SGVMC113951*
- 34 As of December 31, 2010 and 2009, the cost of fully depreciated property and equipment still in
use by the Group amounted to =
P22.64 million and =
P18.28 million, respectively.
Details of depreciation and amortization follow:
Property and equipment - net
Software cost - net (Note 14)
2010
=12,544,844
P
1,525,720
=14,070,564
P
Consolidated
2009
=12,554,531
P
1,665,896
=14,220,427
P
2008
=10,111,351
P
1,482,668
=11,594,019
P
13. Goodwill
Movements in goodwill follow:
Exchange adjustment
2010
P
=97,582,106
(4,489,988)
P
=93,092,118
2009
=91,517,043
P
6,065,063
=97,582,106
P
The Group’s goodwill relate to the excess of the acquisition cost over the ownership interest
acquired by the Parent Company in IGRL, IAPL, IRCL, LSML and WEPL, as follows:
IGRL and IAPL
interest in both IGRL and IAPL for a consideration of =
P8.55 million,
respectively. IGRL and IAPL are based in United Kingdom and Australia, respectively. These
entities, which are in the remittance business, have the same operations as the Parent Company.
Accordingly, on June 29, 2007, the Parent Company acquired 100.00% ownership interest in
IGRL and IAPL through the execution of deeds of assignment by the previous stockholders (who
are also the stockholders of the Parent Company) of both entities. Under the deeds of assignment,
the existing advances by the Parent Company to certain stockholders were applied as payment for
the purchase of IGRL and IAPL.
WEPL
On June 2, 2007, the Parent Company’s BOD also approved the acquisition of 20.00% ownership
interest in WEPL for a consideration of =
P5.60 million. WEPL was incorporated and is based in
Australia, and has the same operations as the Parent Company. Accordingly, on June 29, 2007,
the Parent Company acquired 20.00% ownership interest in WEPL through the execution of a
deed of assignment by the previous stockholders (who are also stockholders of the Parent
Company) of the entity. Under the deed of assignment, the existing advances of the Parent
Company to certain stockholders were applied as payment for the purchase of WEPL. On
September 4, 2007, an additional 15.00% ownership interest in WEPL was acquired by the Parent
Company for a consideration of =
P3.43 million.
As discussed in Note 1, WEPL is effectively 65.00% owned by the Parent Company through its
direct interest of 35.00% and indirect interest of 30.00% through IAPL. Accordingly, the financial
statements of WEPL have been included in the consolidated financial statements.
*SGVMC113951*
- 35 The following is a summary of the fair values of the assets acquired and liabilities assumed (which
approximate their respective carrying amounts) as of the dates of the acquisition:
IGRL
Cash on hand and in banks
Receivables
Investments
Property and equipment
Other noncurrent assets
Accounts payable
Due to related parties
Other liabilities
Net assets
Ownership interest acquired
Net assets acquired
Goodwill
Consideration satisfied by application of
advances to stockholders
Cash consideration
Total considerations
P19,332
=
25,827
–
2,049
3,814
51,022
29,890
19,915
–
49,805
1,217
100%
1,217
69,983
71,200
–
=71,200
P
IAPL
WEPL
(In thousands)
=17,011
P
=21,486
P
–
2,174
1,993
–
–
379
–
–
19,004
24,039
15,910
9,720
1,956
–
265
4,469
18,131
14,189
873
9,850
100%
35%
873
3,448
7,679
5,585
8,552
–
=8,552
P
5,600
3,433
=9,033
P
Total
P57,829
=
28,001
1,993
2,428
3,814
94,065
55,520
21,871
4,734
82,125
11,940
5,538
83,247
85,352
3,433
=88,785
P
IRCL
On October 1, 2004, the Parent Company’s BOD approved the acquisition of 65.00% of IRCL for
a consideration of =
P10.34 million. IRCL, which was incorporated on July 16, 2001, is based in
Canada, and has the same operations as the Parent Company. The fair value of the net assets of
IRCL at acquisition date is P
=8.25 million and the fair value of the 65.00% ownership interest was
=5.36 million. The difference of P
P
=4.98 million between the consideration paid and the fair value
of the interest acquired in IRCL was recognized as goodwill. On July 26, 2006, the additional
30.00% ownership interest from a minority stockholder in IRCL was transferred to the Parent
Company at no additional cost.
interest from a minority stockholder for a consideration of =
P3.10 million taking its ownership in
IRCL to 100.00%. Accordingly on June 29, 2007, IRCL’s minority stockholder executed a deed
of assignment to transfer the ownership interest to the Parent Company. Under the deed of
assignment, the existing advances by the Parent Company to a certain stockholder was applied as
payment for the purchase of IRCL. The fair value of the net assets of IRCL at acquisition date
was P
=11.50 million, and the fair value of the additional interest acquired was P
=0.57 million. The
difference of P
=2.53 million between the consideration paid and the minority interest acquired in
IRCL was recognized as goodwill.
LSML
LSML was incorporated on March 16, 2001, is based in Hong Kong, and has the same operations
as the Parent Company. On June 2, 2007, the Parent Company’s BOD approved the acquisition of
49.00% ownership interest in LSML from its minority stockholders for a consideration of
=
P24.70 million taking its ownership in LSML to 100.00%. Accordingly, on June 29, 2007, the
minority stockholder of LSML (who is also a stockholder of the Parent Company) executed a deed
of assignment to transfer its ownership interest to the Parent Company. Under the deed of
assignment, the existing advances by the Parent Company to the stockholder were applied as
payment for the purchase of LSML. The fair value of the net assets of LSML at acquisition date
was =
P8.23 million and the fair value of the additional interest acquired was P
=4.03 million. The
*SGVMC113951*
- 36 difference of =
P20.67 million between the consideration paid and the minority interest acquired in
LSML was recognized as goodwill.
Goodwill acquired through business combination has been allocated to five individual CGUs as
follows:
IGRL
LSML
IAPL
IRCL
WEPL
2010
P
=50,991,293
19,681,102
8,624,783
7,440,857
6,354,083
P
=93,092,118
2009
=55,479,979
P
20,804,330
7,930,154
7,525,310
5,842,333
=97,582,106
P
The recoverable amount of the CGUs have been determined based on value-in-use calculation
using cash flow projections from financial budgets approved by senior management covering a
five-year period. The discount rate applied to cash flow projections ranges from 7.31% to 8.83%
in 2010 and 7.41% to 9.13% in 2009 and cash flows beyond the five year-period are extrapolated
using a steady growth rate of 0.13% to 1.43% in 2010 and 1.00% in 2009.
The calculation of the value-in-use of the CGUs are most sensitive to the following assumptions:
·
·
Growth rate - The forecasted growth rate is based on a very conservative steady growth rate
that does not exceed the long term average rate for the industry.
Pre-tax discount rates - Discount rates reflect management’s estimate of the risks specific to
each CGU. This is the benchmark used by management to assess operating performance.
With regard to the assessment of the value-in-use of each CGU, management believes that no
reasonably possible change in any of the above key assumptions would cause the carrying value
of the goodwill to materially exceed its recoverable amount.
14. Software Costs - net and Other Noncurrent Assets
Movements in software costs follow:
Cost
Additions
Accumulated Amortization
Amortization (Note 12)
Exchange Adjustment
Net Book Value at end of year
2010
2009
P
=11,425,409
852,274
106,946
12,384,629
=9,247,962
P
2,177,447
–
11,425,409
8,720,725
1,525,720
56,438
10,302,883
P
=2,081,746
7,054,829
1,665,896
–
8,720,725
=2,704,684
P
*SGVMC113951*
- 37 Other noncurrent assets consist of:
Input VAT
Refundable deposits
Deferred input VAT
Others
2010
P
=28,493,804
14,099,442
350,550
44,000
P
=42,987,796
2009
=27,821,193
P
11,299,173
375,043
131,008
=39,626,417
P
The Parent Company has applied for tax credits on input VAT with the BIR and is awaiting for the
issuance of its tax credit certificates (TCCs). The Parent Company believes that it will be able to
obtain these TCCs for the outstanding input VAT.
Refundable deposits pertain to the security deposits made by the Parent Company and some of its
subsidiaries in relation to rental lease agreements for the office spaces in the Philippines, Hong
Kong, United Kingdom, Canada and Italy.
15. Beneficiaries and Other Payables
Beneficiaries
Accrued expenses
Withholding tax payable
Advances from related parties (Note 25)
Payable to government agency
Dividends payable
Others
2010
P
=144,960,550
44,773,236
2,958,634
2,701,805
2,045,708
1,431,156
620,661
–
5,165
P
=199,496,915
2009
=147,449,679
P
86,624,144
2,243,487
16,219,826
2,492,773
2,489,351
718,374
3,915,372
6,497,933
=268,650,939
P
Payables to beneficiaries, agents, couriers and trading clients are noninterest-bearing and are
normally settled within 1 to 30 days.
Accrued expenses include the Group’s accrual for various operating expenses such as vacation and
sick leave benefits, courier charges, training and development, professional fees and utilities.
16. Interest-Bearing Loans
This account pertains to the Parent Company’s unsecured, short-term interest-bearing pesodenominated bank loans.
As of December 31, 2010 and 2009, the outstanding loans payable of the Parent Company
amounted to =
*SGVMC113951*
- 38 In 2010, 2009 and 2008, these loans bear annual interest rates ranging from 5.50% to 6.00%,
7.00% to 8.00% and 8.75% to 13.00%, respectively. In 2010, 2009 and 2008, the Parent
Company recognized interest expense of =
P29.21 million, =
P48.68 million and P
=13.25 million,
respectively.
The Parent Company has an unused credit facility with various banks amounting to P
=1.02 billion
and P
=0.60 billion as of December 31, 2010 and 2009, respectively.
The loans outstanding as of December 31, 2010 were subsequently paid on various dates in
January and February 2011.
17. Equity
Capital Stock
As of December 31, 2010 and 2009, the Parent Company’s capital stock consists of:
Common stock
Authorized - =
P1.00 par value per share
Issued:
Balance at beginning and end of year
Less treasury stock
Issued and outstanding
Number
of Shares
Amount
1,000,000,000
=1,000,000,000
P
562,417,000
(9,329,000)
553,088,000
=562,417,000
P
(40,115,150)
=522,301,850
P
Dividends
On March 19, 2010, the BOD of the Parent Company declared cash dividends amounting to
=
P26.60 million or =
P0.0481 per share, payable to shareholders-of-record as of April 8, 2010. The
declaration was subsequently ratified and confirmed by the Parent Company’ shareholders during
their annual meeting held on July 23, 2010. The payment was made on May 5, 2010.
=
P26.01 million or =
P0.0471 per share, payable to shareholders-of-record as of April 7, 2009. The
their annual meeting held on July 17, 2009. The payment of dividends was made on May 6, 2009.
On April 25, 2008, the BOD of the Parent Company declared cash dividends amounting to
=
P21.99 million or =
P0.0391 per share, payable to shareholders-of-record as of May 15, 2008. The
their annual meeting held on July 31, 2008. The payment of dividends was made on June 10,
2008.
Treasury Stock
On August 15, 2008, the Parent Company’s BOD approved the Buy-back Program to acquire up
to ten million (10,000,000) of its shares, representing approximately 1.87% of the Parent
Company’s total outstanding common shares, from the market. The Parent Company purchased
9,329,000 shares (P
=40.12 million) in 2008 under the Buy-back Program and the same number of
shares is outstanding as of December 31, 2010 and 2009.
*SGVMC113951*
- 39 In 2009 and 2008, the Parent Company purchased 130,900 shares (P
=0.13 million) and
548,500 shares (P
=0.55 million), respectively, under the SSPP. The 808,100 shares (including
128,700 shares purchased in 2007) purchased under the SSPP, were subsequently transferred in
September 2009 to the retirement fund of the Parent Company (see Note 19).
Capital Management
The Group’s capital is composed of its equity, which amounts to P
=1.27 billion and P
=1.24 billion as
of December 31, 2010 and 2009, respectively.
The Group’s capital management activities seek to ensure that it maintains a healthy capital ratio
in order to support its businesses and maximize shareholder’s value by optimizing the level and
mix of its capital resources. Decisions on the allocation of capital resources are being performed
as part of the strategic planning review.
The Group manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may adjust the
dividend payment to shareholders, return capital to shareholders or issue new shares. No changes
were made in the objectives, policies or processes during the years ended December 31, 2010 and
2009.
The Group’s objective is to ensure that there are no known events that may trigger direct or
contingent financial obligation that is material to the Company, including default or acceleration
of an obligation.
The Group is not subject to externally imposed capital requirements.
18. Retirement Plan
The Parent Company has a noncontributory defined benefit retirement plan covering substantially
all of its regular employees. Under this retirement plan, all qualified employees are entitled to
cash benefits after satisfying age and service requirements.
Provisions for pension obligations are established for benefits payable in the form of retirement
pensions. Benefits are dependent on years of service and the respective employee’s latest monthly
salary.
The Parent Company determined its transitional liability for defined benefit retirement plan merely
as the present value of the obligation since the Parent Company had no plan assets at the date of
the adoption. Transitional liability is amortized prospectively over five (5) years starting on
January 1, 2005.
The latest actuarial valuation report on the retirement plan is dated December 31, 2010.
The principal actuarial assumptions used in determining the retirement liability of the Parent
Company as of January 1, 2010 and 2009 follow:
Discount rate
Future salary increases
Expected return on plan assets
Average remaining working life (in years)
2010
11.25%
9.00%
6.00%
31.8
2009
15.20%
5.00%
5.00%
31.0
*SGVMC113951*
- 40 The discount rates used to arrive at the present value of the obligation as of December 31, 2010
and 2009 are 9.69% and 11.25%, respectively.
The amounts recognized in the consolidated balance sheets follow:
2010
P
=21,847,360
15,196,930
6,650,430
(5,872,169)
P
=778,261
Present value of obligation
Fair value of plan assets
Deficit (surplus)
Unrecognized Actuarial (loss) gain
Retirement liability
2009
=10,080,515
P
12,421,022
(2,340,507)
5,972,130
=3,631,623
P
The movements in the fair value of plan assets in 2010 and 2009 are as follows:
2010
P
=12,421,022
5,229,490
(2,643,029)
738,073
(548,626)
P
=15,196,930
Contributions
Actuarial (loss) gain
Benefits paid from plan assets
2009
=3,168,050
P
4,800,000
4,452,972
–
–
=12,421,022
P
The actual return on the plan assets of the Parent Company in 2010 and 2009 amounted to a loss
of P
=1.90 million and a gain of =
The movements in the present value of obligation follow:
2010
P
=10,080,516
2,143,246
1,134,058
(548,626)
9,038,166
P
=21,847,360
Current service cost
Interest cost
Actuarial loss
2009
=6,574,511
P
1,819,273
999,326
–
687,406
=10,080,516
P
The amounts of retirement expense included in ‘Salaries, wages and employee benefits’ in the
consolidated statements of income follow:
Interest cost
Actuarial (gains) loss recognized
Amortization of transitional liability
2010
P
=2,143,246
1,134,058
(738,073)
(163,104)
–
P
=2,376,127
2009
=1,819,273
P
999,326
–
(53,418)
252,228
=3,017,409
P
2008
=1,988,492
P
788,666
–
32,268
252,227
=3,061,653
P
*SGVMC113951*
- 41 The movements in the retirement liability recognized in the balance sheets are as follows:
2009
=5,414,214
P
3,017,409
(4,800,000)
=3,631,623
P
2010
P
=3,631,624
2,376,127
(5,229,490)
P
=778,261
Retirement expense
Contributions
Movements in the unrecognized actuarial (gains) losses are as follows:
Actuarial loss (gain) during the year
Actuarial gain recognized
2010
(P
=5,972,130)
11,681,195
163,104
P
=5,872,169
2009
(P
=2,259,982)
(3,765,566)
53,418
(P
=5,972,130)
2010
P
=10,249,745
2,760,719
2,047,387
–
162,126
(23,047)
P
=15,196,930
2009
=5,091,030
P
1,764,648
4,843,861
700,000
32,842
(11,359)
=12,421,022
P
The major categories of plan assets follow:
Private equity securities*
Government debt securities
Deposits in banks
Due from BSP
Interest receivable
Trust fee payable
*This includes P
=0.81 million of the Parent Company’s own equity securities bought under SSPP (see Note 19).
The amounts of experience adjustments relating to the plan liabilities of the Parent Company
follow:
Deficit (surplus)
Changes in actuarial assumptions
Experience adjustments on plan
liabilities
Experience adjustments on plan assets
2010
P
=21,847,360
15,196,930
6,650,430
9,932,542
(894,376)
(2,643,029)
2009
P10,080,516
=
12,421,022
(2,340,506)
1,070,082
2008
P6,574,511
=
3,168,050
3,406,461
(3,766,312)
(382,676)
4,452,972
(206,448)
–
2007
=7,770,113
P
–
7,770,113
(9,785,892)
4,176,250
–
19. Special Stock Purchase Program (SSPP)
On July 20, 2007, the Parent Company’s BOD approved the proposal to set up a SSPP totaling
15,000,000 shares for the employees of the Parent Company who have been in the service for at
least one (1) calendar year as of June 30, 2007, as well as its BOD members, resource persons and
consultants (collectively referred to as “the Participants”). A Notice of Exemption under Section
10.2 of the Securities Regulations Code had been approved by the SEC on September 13, 2007.
Notwithstanding the aforesaid confirmation by the SEC of the exempt status of the SSPP shares,
the SEC nonetheless required the Parent Company to include the SSPP shares among the shares
of the Parent Company which were registered with the SEC prior to the conduct of its Initial
Public Offering in October 2007. The registration of the Parent Company shares, together with
the SSPP shares, was rendered effective on October 5, 2007.
*SGVMC113951*
- 42 All 15,000,000 shares were exercised. The shares subject to the SSPP were sold at par value or
=
P1.00 per share. Total shares amounting to P
=11.74 million were paid in full, while the difference
totaling P
=3.26 million were paid by way of salary loan. Shares acquired through SSPP are subject
to a lock-up period of two years from date of issue, which ended on September 19, 2009.
Parent Company prior to the expiration of the lock-up period, the shares purchased by such
resigning employee or officer shall be purchased at cost by the Parent Company as Treasury stock.
As of December 31, 2009, 24 employees resigned (9 in 2009, 13 in 2008 and 2 in 2007) and their
shares totaling 808,100 (130,900 in 2009, 548,500 in 2008 and 128,700 in 2007) were bought
back by the Parent Company at par value.
As approved by the Parent Company’s BOD, the fair value of the shares issued under the SSPP
was measured at the grant date using the price-earnings multiple model taking into account the
terms and conditions upon which the shares were granted. The fair value at grant date was
=1.33 per share. This transaction also resulted in an increase in equity by P
P
=1.53 million,
=2.16 million and =
P
P1.00 million recognized as ‘Share-based payment’ under equity in 2009, 2008
and 2007, respectively.
On September 19, 2009, which is the end of the lock up period, the 808,100 shares bought back at
cost was transferred to the Parent Company’s retirement fund upon reimbursement of the
=0.81 million paid by the Parent Company for those shares (see Note 18).
P
The expense arising from the share-based payment plan is recognized over the two-year lock-up
period. The expense recognized under ‘Salaries, wages and employee benefits’ in the statements
of income amounted to =
P1.53 million in 2009 and P
=2.16 million in 2008.
20. Operating Lease Commitments
The Parent Company has entered into the following lease agreements for its office spaces:
(a) On September 30, 2008, a lease agreement with Sta. Elena Divisoria Condo was made for a
period of 60 months commencing on October 1, 2008 to September 30, 2013 with a 10.00%
escalation rate effective on the second year up to the fifth year of the lease term. The contract
was cancelled in May 2009.
(b) A lease agreement with Wynsum Realty was entered into for a period of 36 months
commencing on September 1, 2008 to August 31, 2010 with a 5.00% escalation on the
monthly rental on the second year of the lease term. The contract was renewed for a period of
3 years commencing on September 1, 2010 to August 31, 2013.
(c) On February 7, 2007, a lease agreement with Oakridge Properties (Unit 2503) was made for a
period of 36 months commencing on February 1, 2007 to January 31, 2010 with a 10.00%
escalation on the monthly rental payable effective on the 13th and 25th month of the lease
term. The contract was renewed for another 2 years commencing on February 01, 2010 to
January 31, 2012.
(d) Operating lease agreements with Oakridge Properties (Unit 2603) were entered into for a
period of 12 months, which commenced on December 1, 2008 and expired on November 30,
2009. The contract was renewed for a period of 2 years commencing on December 1, 2009 to
November 30, 2011 with a 10.00% escalation on the aggregate monthly rental on the 13th
month of the lease term.
*SGVMC113951*
- 43 (e) In December 2005, a lease agreement with Oakridge Properties (Unit 2703) was entered into
for a period of 35 months, which commenced on February 1, 2006 and expires on January 31,
2009. Renewal of this contract was made on January 6, 2009 for a period of 24 months
commencing February 1, 2009 to January 31, 2011 with a 10.00% escalation rate on the
aggregate monthly rental effective on the 13th month of the lease term.
Total rent expense of the Parent Company amounted to P
=11.74 million, =
P11.11 million and
=9.95 million in 2010, 2009 and 2008, respectively (see Note 25).
P
The subsidiaries have their respective operating lease agreements for their office spaces. The
lease contracts are for periods ranging from 1 to 10 years and may be renewed under the terms and
conditions mutually agreed upon by the subsidiaries and the lessors. Rent expense of the Group
amounted to =
P50.38 million, =
P39.33 million, and =
P32.53 million in 2010, 2009 and 2008,
respectively.
Future minimum rentals payable under non-cancelable operating leases are as follows:
Within one year
After one year but not more than five years
More than five years
2010
P
=51,662,348
71,152,989
–
P
=122,815,337
2009
=39,529,430
P
79,221,914
6,145,388
=124,896,732
P
21. Marketing Expenses
Marketing and promotions
Advertising and publicity
2010
=34,637,750
P
8,883,266
=43,521,016
P
2009
P22,120,718
=
10,856,700
=32,977,418
P
2008
=52,311,765
P
5,269,536
=57,581,301
P
2010
P7,580,920
=
4,902,356
1,927,949
1,835,663
1,155,280
–
4,464,242
=21,866,410
P
2009
P4,531,430
=
4,634,302
2,066,643
1,726,711
1,209,115
1,338,804
2,673,515
=18,180,520
P
2008
P2,824,233
=
3,785,376
1,623,984
1,818,438
–
–
4,927,248
=14,979,279
P
22. Other Operating Expenses
Taxes and licenses
Repairs and maintenance
Association dues
Insurance
Donations and contributions
Disallowance of input VAT by BIR
Miscellaneous
‘Miscellaneous’ includes various expenses incurred for the business development of potential
foreign offices and other related expenses.
*SGVMC113951*
- 44 23. Realized Foreign Exchange Gains - Net and Other Income
‘Realized foreign exchange gains - net’ represents currency exchange income (net of losses)
arising primarily from trading third currencies to Philippine pesos. These third currencies are
collected from the remittance transactions.
‘Other income’ consists of:
Interest income (Notes 6 and 7)
Rebates
Unrealized foreign exchange gain - net
Others
2010
=12,514,490
P
6,728,713
1,769,202
6,120,474
=27,132,879
P
2009
P15,181,685
=
14,608,204
5,172,171
12,488,020
=47,450,080
P
2008
=7,213,676
P
–
4,722,355
12,847,617
=24,783,648
P
Interest income pertains to interest earned from deposits, short-term placements with banks and
financial assets at FVPL.
Rebates pertain to refunds of bank service charges and foreign exchange special rates relating to
the remittance transactions of WEPL.
‘Others’ pertains to sub-lease rental income of subsidiaries.
24. Other Charges
Other charges of the Group pertain mainly to filing and regulatory fees paid by foreign offices and
goods and services tax written off.
25. Related Party 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.
In the ordinary course of business, the Group transacts with its related parties. Under the Group’s
existing policies, these transactions are made substantially on the same terms and conditions as
transactions with other individuals and businesses of comparable risks. The Group engages in
transactions with related parties consisting primarily of the following:
(a) Delivery fees in the Group’s consolidated statements of income in 2010, 2009 and 2008,
including those arising from clients of associates are as follows:
HKHCL
ISPL
2010
P33,202,567
=
25,080,948
=58,283,515
P
2009
P25,364,567
=
27,016,303
=52,380,870
P
2008
=–
P
22,103,338
=22,103,338
P
*SGVMC113951*
- 45 (b) The Parent Company leases office spaces from Oakridge Properties. Rent expense amounted
to =
P9.25 million, P
=8.17 million and P
=8.02 million in 2010, 2009, and 2008, respectively.
Oakridge Properties is owned by JTKC, one of the stockholders of the Parent Company.
(c) In 2009, the Parent Company subleased an office space in Singapore with Surewell Equities
Pte Ltd., a stockholder. Rental income in 2009 amounted to =
P1.03 million.
(d) The Parent Company’s retirement fund is maintained with Sterling Bank of Asia (SBA), an
affiliate, as trustee (see Note 18).
(e) The Parent Company has deposits amounting to P
=118.62 million and P
=129.71 million with
SBA, an affiliate, as of December 31, 2010 and 2009, respectively. These deposits earned
=1.12 million and =
P
P1.16 million interest income in 2010 and 2009, respectively.
In addition to the related information disclosed elsewhere in the consolidated financial statements,
the following are the yearend balances in respect of transactions with related parties which were
carried in terms that prevail in arm’s length transactions during the year:
Advances to related parties (Note 9):
Affiliates
Subsidiaries:
IAPL
I-Remit-USA
INZL
LSML
IERCAG
PSAGL
WEPL
Associates
HKHCL
ISPL
Others
Advances from related parties (Note 15):
Affiliates
2010
2009
P
=6,977,436
=4,338,803
P
4,056,364
1,778,138
–
270,405
207,445
–
94,113
5,628,134
1,805,866
1,261,266
285,849
265,126
2,452
–
3,021,191
–
197,819
P
=16,602,911
2,944,333
2,181,783
213,813
=18,927,425
P
P
=1,431,156
=2,489,351
P
Advances to affiliates include cash advances to stockholders, officers and directors.
As of December 31, 2010 and 2009, no provision for credit losses has been recognized for the
advances to related parties.
In 2010, the Parent Company received dividend amounting to =
P0.60 million from dividends
declared by ISPL.
*SGVMC113951*
- 46 The compensation of the key management personnel of the Group in 2010, 2009 and 2008 are as
follows:
Short-term employee benefits
Post employee benefits
Share-based program
2010
=21,059,431
P
549,541
–
=21,608,972
P
2009
=19,232,031
P
721,632
435,303
=20,388,966
P
2008
=17,538,530
P
1,035,615
618,250
=19,192,395
P
2010
2009
2008
26. Income Taxes
The provision for income tax consists of:
Current:
RCIT
Final
Deferred
=28,576,367
P
643,945
(921,460)
=28,298,852
P
=40,862,007
P
1,534,105
(2,471,568)
=39,924,544
P
=57,164,870
P
1,052,470
–
=58,217,340
P
Parent Company
Republic Act (RA) No. 9337, An Act Amending National Internal Revenue Code, provides that the
RCIT rate shall be 35.00% until December 31, 2008. Starting January 1, 2009, the RCIT rate shall
be 30.00%. It also provides that the interest allowed as a deductible expense is reduced by an
amount equivalent to 42.00% until December 31, 2008 and 33.00% starting January 1, 2009 of
interest income subjected to final tax.
An MCIT of 2.00% on modified gross income is computed and compared with the RCIT. Any
excess of the MCIT over the RCIT is deferred and can be used as a tax credit against future
income tax liability for the next three years. In addition, current tax regulations provide for the
ceiling on the amount of entertainment, amusement and recreation (EAR) expenses that can be
claimed as a deduction against taxable income. The actual EAR expenses incurred by the Parent
Company was =
P2.84 million, =
P2.62 million and =
P4.08 million in 2010, 2009 and 2008,
respectively. The allowed EAR limit was P
=2.80 million, =
P2.74 million, and P
=3.13 million in 2010,
2009 and 2008, respectively. Under the regulation, EAR expenses allowed as deductible expense
for taxpayers engaged in the sale of services, including exercise of profession and use of lease
properties, like the Parent Company, is limited to the actual EAR paid or incurred but not to
exceed 1.00% of net revenue.
RA No. 9504, An Act Amending National Internal Revenue Code, provides that starting
July 1, 2008, the optional standard deduction (OSD) equivalent to 40.00% of gross income may be
claimed as an alternative deduction in computing for the RCIT. For the 2010 and 2009 RCIT
computation, the Parent Company elected to claim itemized expense deductions instead of the
OSD.
*SGVMC113951*
- 47 The table below shows the income tax rates provided on the assessable profit for the year of each
subsidiary:
PSAGL
LSML
IAPL
WEPL
INZL
IGRL
IRCL
2010
16.50%
16.50%
30.00%
30.00%
30.00%
21.00%
34.20%
2009
16.50%
16.50%
30.00%
30.00%
30.00%
21.00%
34.20%
As of December 31, 2010 and 2009, the deferred tax assets and liability recognized by the Group
relates to the tax effects of the following:
Deferred tax assets on:
Unused tax losses
Unused tax credits
Accumulated depreciation
Capital allowance
Subtotal
Less deferred tax liability on:
Capital allowance
Net deferred tax assets
2010
2009
P
=3,669,877
443,755
119,288
–
4,232,920
=2,848,750
P
321,002
98,338
13,605
3,281,695
29,765
P
=4,203,155
–
=3,281,695
P
The Parent Company did not set up deferred tax assets on the following temporary differences:
Temporary differences on:
Accrued interest
Accrued courier charges
Others
2010
2009
P
=2,074,213
393,793
381,961
P
=2,849,967
=1,894,391
P
2,085,271
1,068,597
=5,048,259
P
The management of the Parent Company believes that it is not highly probable that these
temporary differences will be realized in the future.
The Group did not recognize any deferred tax liabilities on unremitted earnings of the Group’s
investments in associates amounting to P
=4.76 million, P
=2.85 million and P
=11.10 million in 2010,
2009 and 2008, respectively (see Note 11).
*SGVMC113951*
- 48 A reconciliation of the statutory income tax rates and the effective income tax rates in 2010, 2009
and 2008 follows:
Statutory income tax
Tax effects of:
Nondeductible interest expense
Interest income subject to final tax
Unrecognized deferred tax asset
Others
Effective income tax
2010
30.00%
2009
30.00%
2008
35.00%
0.34
(3.98)
3.68
–
30.04%
0.45
(5.20)
(2.18)
–
23.07%
0.41
(0.42)
1.26
(5.32)
30.93%
27. Earnings Per Share
The basis of calculation for EPS attributable to equity holders of the Parent Company follows:
a. Net income attributable to equity holders
of the Parent Company
b. Weighted average number of outstanding
common shares of the Parent Company
c. Basic/diluted earnings per share (a/b)
2010
2009
2008
=77,551,227
P
=136,379,766
P
=130,785,730
P
553,088,000
=0.14
P
552,569,950
=0.25
P
558,695,875
=0.23
P
As of December 31, 2010, 2009 and 2008, there are no dilutive potential common shares.
28. Segment Reporting
The Group’s operating businesses are organized and managed separately according to
geographical areas representing strategic business units. These segments are the bases on which
the Group reports its segment information. Transactions among segments are conducted at market
rates on an arm’s length basis. The Group only reports a geographical segment analysis and no
secondary business segment was presented since all operations relate to the remittance business.
Segment assets are those operating assets that are employed by a segment in its operating activities
that are either directly attributable to the segment or can be allocated to the segment on a
reasonable basis.
Segment liabilities are those operating liabilities that result from the operating activities of a
segment and that are either directly attributable to the segment or can be allocated to the segment
on a reasonable basis.
*SGVMC113951*
- 49 Segment information as of and for the years ended December 31, 2010, 2009 and 2008 follow
(amounts in thousands):
2010
Philippines
Financial Performance
Revenue
Cost of services
Gross income
Operating expenses
Other income (expense)
Income before income tax
Provision for income tax
Net income
Non-controlling interest
Net income attributable to equity
holders of the Parent Company
Financial Position
Total assets
Total liabilities
Other Segment Information
Capital expenditures
Asia Pacific
Europe
P463,249
=
(180,569)
282,680
(204,595)
15,896
93,981
(16,430)
77,551
–
= 128,963
P
(2,665)
126,298
(67,535)
20,957
79,720
(11,242)
68,478
–
P68,640
=
(13,160)
55,480
(101,354)
529
(45,345)
(278)
(45,623)
–
= 77,551
P
= 68,478
P
(P
= 45,624)
P2,420,439
=
= 1,138,679
P
P256,831
=
= 53,107
P
P5,949
=
= 8,059
P
P1,015
=
= 1,800
P
North
Adjustments
America and eliminations
= 109,058
P
(11,532)
97,526
(97,186)
675
1,015
(349)
666
–
P–
=
–
–
–
(35,158)
(35,158)
–
(35,158)
11,637
Total
P769,910
=
(207,926)
561,984
(470,670)
2,899
94,213
(28,299)
65,914
11,637
= 667
P
(P
= 23,521)
= 77,551
P
P85,244
=
= 84,183
P
P62,144
=
= 40,718
P
(P
= 468,508)
(P
= 232,440)
P2,356,150
=
= 1,084,247
P
P6,081
=
= 2,137
P
= 994
P
= 2,075
P
P–
=
=–
P
P14,039
=
= 14,071
P
North
Adjustments
Total
2009
Philippines
Revenue
Cost of services
Gross income
Operating expenses
Net income
Financial Position
Total assets
Total liabilities
Asia Pacific
Europe
P473,446
=
(198,769)
274,677
(179,005)
60,933
156,605
(27,198)
129,407
–
=119,824
P
(2,502)
117,322
(69,321)
53,687
101,688
(9,060)
92,628
–
P73,103
=
(17,047)
56,056
(73,965)
2,167
(15,742)
(278)
(16,020)
–
=129,407
P
=92,628
P
(P
=16,020)
P2,404,902
=
=1,160,025
P
P248,228
=
=103,799
P
P1,914
=
=8,615
P
P1,192
=
=1,755
P
=112,284
P
(12,619)
99,665
(90,068)
517
10,114
(3,389)
6,725
–
=–
P
–
–
–
(79,592)
(79,592)
–
(79,592)
3,231
P778,657
=
(230,937)
547,720
(412,359)
37,712
173,073
(39,925)
133,148
3,231
=6,725
P
(P
=76,361)
=136,379
P
P73,889
=
=21,373
P
P81,580
=
=60,602
P
(P
=320,488)
(P
=110,115)
P2,488,111
=
=1,235,684
P
=729
P
=1,574
P
P5,548
=
=2,276
P
P–
=
=–
P
=9,383
P
P14,220
=
*SGVMC113951*
- 50 2008
Philippines
Revenue
Cost of services
Gross income
Operating expenses
Net income
Financial Position
Total assets
Total liabilities
Asia Pacific
Europe
(In thousands)
North
Adjustments
Total
P475,781
=
(162,302)
313,479
(207,181)
10,802
117,100
(38,669)
78,431
–
=118,790
P
(1,608)
117,182
(50,853)
13,707
80,036
(14,808)
65,228
–
P70,387
=
(21,394)
48,993
(67,519)
496
(18,030)
(35)
(18,065)
–
P97,095
=
(11,327)
85,768
(71,826)
606
14,548
(4,705)
9,843
–
=–
P
–
–
–
(5,459)
(5,459)
–
(5,459)
808
P762,053
=
(196,631)
565,422
(397,379)
20,152
188,195
(58,217)
129,978
808
=78,431
P
=65,228
P
(P
=18,065)
=9,843
P
(P
=4,651)
=130,786
P
=1,970,838
P
=873,605
P
P113,618
=
=40,170
P
=85,996
P
P117,103
=
P52,919
=
=33,039
P
(P
=249,793)
(P
=206,412)
=1,973,578
P
=857,505
P
P11,646
=
=7,561
P
=2,787
P
=875
P
P7,148
=
=1,756
P
P1,075
=
=1,402
P
P–
=
=–
P
P22,656
=
=11,594
P
The Group has no intersegment revenues and costs of services in 2010 and 2009.
The Group has no significant customers which contributes 10% or more of the consolidated
revenues.
Segment assets as of December 31, 2010 and 2009 do not include investments in subsidiaries
amounting to =
P228.98 million and inter-segment receivables amounting to =
P211.64 and
=107.98 million, respectively, which are eliminated on consolidation.
P
Capital expenditures, which pertain to property, plant and equipment acquired, are disclosed
according to the asset’s physical location.
The Group’s share in net income of associates amounting to =
P2.50 million, =
P6.15 million and
=8.87 million in 2010, 2009 and 2008, respectively, are included under Asia Pacific.
P
29. Contingencies
The Group has various contingencies arising in the ordinary conduct of business which have
pending decision with the courts or are being contested, the outcome of which are not presently
determinable.
In the opinion of management and its legal counsel, the eventual liability under these lawsuits or
claims, if any, will not have a material or adverse effect on the Group’s financial position and
results of operations. The information usually required by PAS 37 is not disclosed on the grounds
that it can be expected to prejudice the outcome of these lawsuits, claims and assessments.
30. Approval of the Release of the Financial Statements
The accompanying consolidated financial statements were approved and authorized for issue by
the Parent Company’s BOD on March 25, 2011.
*SGVMC113951*
I-Remit, Inc.
Parent Company Financial Statements
December 31, 2010 and 2009
and for the Years Ended December 31, 2010, 2009 and 2008
and
Independent Auditors’ Report
SyCip Gorres Velayo & Co.
I-REMIT, INC.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
1. Corporate Information
I-Remit, Inc. (the Parent Company) was incorporated in the Philippines and was registered with
the Securities and Exchange Commission (SEC) on March 5, 2001 and started commercial
operations on November 11, 2001.
The Parent Company, which is domiciled in the Philippines, has its registered office and principal
place of business at 26/F Discovery Centre, 25 ADB Avenue, Ortigas Center, Pasig City. The
Parent Company’s common shares were listed with the Philippine Stock Exchange on October 17,
2007.
The Parent Company and its subsidiaries (collectively referred to as “the Group”), except Power
Star Asia Group Limited (PSAGL), are primarily engaged in the business of fund transfer and
remittance services of any form or kind of currencies or monies, either by electronic, telegraphic,
wire or any other mode of transfer; delivery of such funds or monies, both in the domestic and
international market, by providing either courier or freight forwarding services; and conduct
foreign exchange transactions as may be allowed by law and other allied activities relative thereto.
PSAGL, on the other hand, provides advisory and other services.
The Parent Company’s subsidiaries and associates follow:
Country of
Incorporation
Subsidiaries:
International Remittance
(Canada) Ltd. (IRCL)
Lucky Star Management
Limited (LSML)
IRemit Global Remittance
Limited (IGRL)
(IAPL)
Worldwide Exchange Pty
Ltd (WEPL)*
IREMIT EUROPE
Remittance Consulting
AG (IERCAG)
I-Remit New Zealand
Limited (INZL)
Canada
Functional
Currency
Canadian
Dollar (CAD)
Hong Kong
Dollar (HKD)
Great Britain
Pound (GBP)
Australian
Dollar (AUD)
Australian
Dollar (AUD)
Effective Percentage of Ownership
December 31
2009
2008
2010
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
65.00
65.00
65.00
74.90
74.90
74.90
100.00
100.00
100.00
PSAGL
Hong Kong
100.00
100.00
Associates:
IRemit Singapore Pte Ltd
Singapore
(ISPL)
Singapore
Dollar (SGD)
49.00
49.00
Hwa Kung Hong & Co.,
New Taiwan
Ltd.(HKHCL)
Taiwan
Dollar (NTD)
49.00
49.00
* Consists of direct voting interest of 35.00% and indirect voting interest through IAPL of 30.00%
100.00
Hong Kong
United
Kingdom
Australia
Australia
Austria
New Zealand
Euro (EUR)
New Zealand
Dollar (NZD)
Hong Kong
Dollar (HKD)
49.00
–
The Parent Company is the ultimate parent company of the Group.
*SGVMC116162*
-2-
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying financial statements of the Parent Company have been prepared on a historical
cost basis. The Parent Company’s financial statements are presented in Philippine peso, the
Parent Company’s functional currency, and all values are rounded to the nearest peso except when
otherwise indicated.
Statement of Compliance
The accompanying financial statements of the Parent Company have been prepared in compliance
with Philippine Financial Reporting Standards (PFRS).
The accounting policies adopted in the preparation of the parent company financial statements are
consistent with those of the previous financial year except for the adoption of the following new
and amended PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations which
became effective on January 1, 2010. The adoption of these new standards, amendments and
interpretations did not have any impact on the financial statements of the Parent Company.
· PFRS 3, Business Combinations (Revised)
· PAS 27, Consolidated and Separate Financial Statements (Amended)
· Philippine Interpretation International Financial Reporting Interpretation Committee
(IFRIC) 17, Distributions of Non-Cash Assets to Owners
· PAS 39 Amendment - Eligible Hedged Items
· PFRS 2 Amendments - Group Cash-settled Share-based Payment Transactions
· PFRS 2, Share-based Payment
· PFRS 8, Operating Segments
· PAS 1, Presentation of Financial Statements
· PAS 7, Statement of Cash Flows
· PAS 17, Leases
· PAS 34, Interim Financial Reporting
· PAS 36, Impairment of Assets
· PAS 38, Intangible Assets
· PAS 39, Financial Instruments: Recognition and Measurement
· Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
· Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation
*SGVMC116162*
-3Foreign Currency Transactions and Translations
The functional and presentation currency of the Parent Company is the Philippine peso.
Transactions denominated in foreign currencies are recorded in Philippine peso at the transaction
date based on Philippine Dealing System (PDS) closing rates. Foreign currency-denominated
monetary assets and liabilities are translated to Philippine peso based on the PDS closing rate
prevailing at the balance sheet date and foreign currency-denominated income and expenses at the
PDS weighted average rate (PDSWAR) for the year. Foreign exchange differences arising from
revaluation and translation of foreign currency-denominated monetary assets and liabilities are
credited to or charged against operations in the year in which the rates change. 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.
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 from the dates of placement and that are subject to an insignificant risk of
changes in fair value.
Financial Instruments - Initial Recognition and Subsequent Measurement
Date of recognition
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or market convention are recognized on the settlement date. Settlement
date is the date on which the transaction is settled by delivery of the assets that are the subject of
the agreement. Settlement date accounting refers to (a) the recognition of an asset on the day it is
received by the Parent Company, and (b) the derecognition of an asset and recognition of any gain
or loss on disposal on the day that it is delivered by the Parent Company. Receivables,
beneficiaries and other payables, and interest-bearing loans are recognized when cash is received
by the Parent Company or advanced to the borrowers/beneficiaries.
The classification of financial instruments at initial recognition depends on the purpose for which
the financial instruments were acquired and their characteristics. All financial assets and financial
liabilities are recognized initially at fair value plus any directly attributable cost of acquisition or
issue, except in the case of financial assets and financial liabilities at FVPL. The Parent Company
categorizes its financial assets as: financial assets at FVPL, differentiating those that are held for
trading and those designated as such, loans and receivables, held-to-maturity (HTM) investments
and available-for-sale (AFS) investments. Financial liabilities are categorized into financial
liabilities at FVPL and other financial liabilities carried at amortized cost. Management
determines the classification of its instruments at initial recognition and, where allowed and
appropriate, re-evaluates such designation at every balance sheet date.
As of December 31, 2010 and 2009, the Parent Company has no financial assets and financial
liabilities at FVPL, AFS investments and HTM investments.
Receivables
Receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. After initial measurement, receivables are carried at amortized cost
using the effective interest method less any allowance for credit losses. Amortized cost is
calculated by taking into account any discount or premium on acquisition and fees and costs that
are an integral part of the effective interest rate (EIR). Gains and losses are recognized in the
parent company statement of income when the receivables are derecognized or impaired, as well
as through the amortization process. Receivables are classified as current assets when the Parent
Company expects to realize or collect the asset within twelve months from the balance sheet date.
Otherwise, these are classified as non-current assets.
*SGVMC116162*
-4Classified under this category are the Parent Company’s ‘Cash and cash equivalents’, ‘Accounts
receivable’, ‘Other receivables’ and refundable deposits included under ‘Other noncurrent assets’.
Other financial liabilities
Issued financial instruments or their components, which are not designated as at FVPL, are
classified as other financial liability, where the substance of the contractual arrangement results in
the Parent Company having an obligation either to deliver cash or another financial asset to the
holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another
financial asset for a fixed number of its own equity shares. These include liabilities arising from
operations or borrowings. 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.
After initial measurement, other financial liabilities are subsequently measured at amortized cost
using the effective interest method.
Other financial liabilities include ‘Beneficiaries and other payables’ and ‘Interest-bearing loans’.
Determination of fair value
The fair value for financial instruments traded in active markets at the balance sheet date is based
on their quoted market prices 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 ask prices
are not available, the price of the most recent transaction provides evidence of the current fair
value as long as there has not been a significant change in economic circumstances since the time
of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation methodologies. Valuation methodologies include net present value
techniques, comparison to similar instruments for which market observable prices exist, option
pricing models, and other relevant valuation models.
Day 1 difference
Where the transaction price in a non-active market is different from the fair value from other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from an observable market, the Parent Company recognizes the
difference between the transaction price and fair value (a Day 1 difference) in the parent company
statement of income unless it qualifies for recognition as some other type of asset. In cases where
use is made of data which is not observable, the difference between the transaction price and
model value is only recognized in the parent company statement of income when the inputs
become observable or when the instrument is derecognized. For each transaction, the Parent
Company determines the appropriate method of recognizing the Day 1 difference amount.
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 Parent Company retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third part under a ‘pass through’
arrangement; or
*SGVMC116162*
-5·
the Parent Company has transferred its rights to receive cash flows from the asset and either
(a) has transferred substantially all the risks and rewards of the asset, or (b) has neither
transferred nor retained substantially all the risks and rewards of the asset, but has transferred
control of the asset.
When the Parent Company has transferred its rights to receive cash flows from an asset or has
entered into a pass-through arrangement, and has neither transferred nor retained substantially all
the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the
extent of the Parent Company’s continuing involvement in the asset. Continuing involvement that
takes the form of a guarantee over the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount of consideration that the Parent Company
could be required to repay.
Financial liability
A financial liability is derecognized when the obligation under the liability is discharged,
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 the parent company statement of income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the 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 asset and settle the liability
simultaneously.
Impairment of Financial Assets
The Parent Company assesses at each balance sheet date whether there is an objective evidence
that a financial asset or group of financial assets is impaired. A financial asset or a group of
financial assets is deemed to be impaired if, and only if, there is an objective evidence of
impairment as a result of one or more events that has occurred after the initial recognition of the
asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated
future cash flows of the financial asset or the group of financial assets that can be reliably
estimated. Evidence of impairment may include indications that the borrower or a group of
borrowers is experiencing significant financial difficulty, default or delinquency in interest or
principal payments, the probability that they will enter bankruptcy or other financial
reorganization, and where there are observable data that indicates that there is a measurable
decrease in the estimated future cash flows, such as changes in arrears or economic conditions that
correlate with defaults.
Financial assets carried at amortized cost
For financial assets carried at amortized cost, the Parent Company first assesses whether objective
evidence of impairment exists individually for financial assets that are individually significant, or
collectively for financial assets that are not individually significant.
*SGVMC116162*
-6If 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 the
estimated future cash flows (excluding future credit losses that have not been incurred). The
carrying amount of the asset is reduced through the use of an allowance account and the amount of
loss is charged to the parent company statement of income. Interest income continues to be
recognized based on the original EIR of the asset. Receivables, together with the associated
allowance accounts, are written off when there is no realistic prospect of future recovery and all
collateral has been realized. If subsequently, the amount of the estimated impairment loss
decreases because of an event occurring after the impairment was recognized, the previously
recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is
later recovered, any amounts formerly charged are credited to profit or loss.
If the Parent Company determines that no objective evidence of impairment exists for an
individually assessed financial asset, whether significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses for impairment.
Those characteristics are relevant to the estimation of future cash flows for groups of such assets
by being indicative of the debtors’ ability to pay all amounts due according to the contractual
terms of the assets being evaluated. 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 for impairment.
The present value of the estimated future cash flows is discounted at the financial asset’s original
EIR. If a financial asset has a variable interest rate, the discount rate for measuring any
impairment loss is the current EIR, adjusted for the original credit risk premium.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis
of such credit risk characteristics as geographical classification. Future cash flows in a group of
financial assets that are collectively evaluated for impairment are estimated on the basis of
historical loss experience for assets with credit risk characteristics similar to those in the group.
Historical loss experience is adjusted on the basis of current observable data to reflect the effects
of current conditions that did not affect the period on which the historical loss experience is based
and to remove the effects of conditions in the historical period that do not exist currently.
Estimates of changes in future cash flows reflect, and are directionally consistent with changes in
related observable data from period to period (such as changes in payment status, or other factors
that are indicative of incurred losses in the group and their magnitude). The methodology and
assumptions used for estimating future cash flows are reviewed regularly by the Parent Company
to reduce any differences between loss estimates and actual loss experience.
Investments in Subsidiaries and Associates
Subsidiaries
Investments in subsidiaries in the parent company financial statements are accounted for under the
cost method of accounting. Subsidiaries of the Parent Company are shown in Note 1.
Associates
The Parent Company’s investments in its associates are accounted for using the cost method of
accounting. An associate is an entity in which the Parent Company has significant influence. The
Parent Company's investments in associates include its 49.00% interest in ISPL and HKHCL,
entities based in Singapore and Taiwan, respectively.
*SGVMC116162*
-7Under the cost method, the Parent Company recognizes income from the investment only to the
extent that the investor receives distributions from accumulated profits of subsidiaries and
associates arising after the date of acquisition and is reported as ‘Dividends’ under ‘Other income’
in the parent company statement of income. Distributions received in excess of such profits are
regarded as recovery of investment and are recognized as a reduction in the cost of the investment.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization and any
impairment in value.
The initial cost of property and equipment comprises its purchase price and any directly
attributable costs of bringing the property and equipment to its working condition and location for
its intended use.
Expenditures incurred after the property and equipment have been put into operation, such as
repairs and maintenance are normally charged to operations in the year in which the costs are
incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in
an increase in the future economic benefits expected to be obtained from the use of an item of
property and equipment beyond its originally assessed standard of performance, the expenditures
are capitalized as an additional cost of property and equipment.
Depreciation and amortization is calculated on a straight-line basis over the estimated useful life of
the property and equipment as follows:
Office and communication equipment
Transportation and delivery equipment
Furniture and fixtures
Leasehold improvements
3 years
3 to 5 years
3 to 5 years
5 years or the term of the lease,
whichever is shorter
The carrying values of property and equipment are reviewed for impairment when events or
changes in circumstances indicate the carrying value may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated recoverable amount, the asset
or cash-generating units (CGU) are written down to their recoverable amount (see policy on
Impairment of Nonfinancial Assets).
An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount of
the asset) is included in the parent company statement of income in the year the asset is
derecognized.
The asset’s residual values, useful lives and methods of depreciation and amortization are
reviewed, and adjusted if appropriate, at each financial year-end to ensure that these are consistent
with the expected pattern of economic benefits from the items of property and equipment.
Software costs
Software costs are carried at cost less accumulated amortization and any impairment in value. The
cost of the asset is the amount of cash or cash equivalents paid or the fair value of the other
considerations given up to acquire the asset at the time of its acquisition or production. Software
costs are amortized on a straight-line basis over its estimated useful life of three (3) years.
*SGVMC116162*
-8The asset’s amortization period and amortization method are reviewed at least at each balance
sheet date. Changes in the expected useful life or the expected pattern of consumption of future
economic benefits embodied in the asset is accounted for by changing the amortization period or
method, as appropriate, and treated as changes in accounting estimates.
Impairment of Nonfinancial assets
Investments in subsidiaries and associates
The Parent Company assesses at each balance sheet date whether there is any indication that its
investments in subsidiaries and associates may be impaired. If any indication exists, the Parent
Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher
of an asset’s or CGU’s fair value less cost to sell and its value in use. 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.
Property and equipment and software costs
At each balance sheet date, the Parent Company assesses whether there is any indication that its
property and equipment and software costs may be impaired. When an indicator of impairment
exists or when an annual impairment testing for an asset is required, the Parent Company makes a
formal estimate of recoverable amount. Recoverable amount is the higher of an asset’s (or CGU’s)
fair value less costs to sell and its value in use and is determined for an individual asset, unless the
asset does not generate cash inflows that are largely independent of those from other assets or
groups of assets, in which case the recoverable amount is assessed as part of the CGU to which it
belongs. Where the carrying amount of an asset (or CGU) exceeds its recoverable amount, the
asset (or CGU) is considered impaired and is written down to its recoverable amount. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset (or CGU). In determining fair value less cost to sell, recent market
transactions are taken into account, if available. If no such transactions can be identified, an
appropriate valuation model is used. These calculations are corroborated by available fair value
indicators.
An impairment loss is charged to operations in the year in which it arises, unless the asset is
carried at a revalued amount, in which case the impairment loss is charged to the revaluation
increment of the said asset.
An assessment is made at each balance sheet date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If such
indication exists, the recoverable amount is estimated. A previously recognized impairment loss is
reversed only if there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognized. If that is the case, the carrying amount of
the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying
amount that would have been determined, net of depreciation and amortization, had no impairment
loss been recognized for the asset in prior years. Such reversal is recognized in the parent
company statement of income unless the asset is carried at a revalued amount, in which case the
reversal is treated as a revaluation increase. After such a reversal, the depreciation and
amortization expense is adjusted in future years to allocate the asset’s revised carrying amount,
less any residual value, on a systematic basis over its remaining life.
Input Value Added Tax (VAT)
Input VAT represents VAT imposed on the Parent Company by its suppliers for the acquisition of
goods and services as required by Philippine taxation laws and regulations. This will be claimed
as tax credits. Input VAT is stated at its estimated net realizable values.
*SGVMC116162*
-9Revenue Recognition
The Parent Company assesses its revenue arrangements against specific criteria in order to
determine if it is acting as principal or agent. Revenue is recognized to the extent that it is
probable that the economic benefits will flow to the Parent Company and the revenue can be
reliably measured. The following specific recognition criteria must also be met before revenue is
recognized:
Delivery fees
Revenue from delivery fees is recognized when the service is rendered net of amounts payable to
principals (i.e., partner remittance companies) for fees billed on their behalf.
Interest income
Interest on financial instruments measured at amortized cost is recognized based on the effective
interest method of accounting.
The effective interest method is a method of calculating the amortized cost of a financial asset or a
financial liability and allocating the interest income or interest expense over the relevant period.
The EIR is the rate that exactly discounts estimated future cash payments or receipts throughout
the expected life of the financial instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability. When calculating the EIR, the Parent
Company estimates cash flows from the financial instrument (for example, prepayment options)
but does not consider future credit losses. The calculation includes all fees and points paid or
received between parties to the contract that are an integral part of the EIR, transaction costs and
all other premiums or discounts.
Once a financial asset or a group of financial assets has been written down as a result of an
impairment loss, interest income is recognized thereafter using the rate of interest used to discount
the future cash flows for the purpose of measuring the impairment loss.
Dividends
Dividend income is recognized when the Parent Company’s right to receive payment is
established.
Rebates
Rebates pertaining to refunds of bank service charges are recognized upon collection.
Costs and Expenses
Costs and expenses encompass losses as well as those expenses that arise in the course of the
ordinary business activities of the Parent Company. The following specific recognition criteria
must also be met before costs and expenses are recognized:
Cost of services
This includes all expenses associated with the specific delivery fees. Such costs are recognized
when the related delivery fees have been recognized.
Operating expenses
Operating expenses constitute costs incurred related to advertising and administering the business
and are recognized when incurred.
Taxes and licenses
This includes all other taxes, local and national, including real estate taxes, licenses and permit
fees included under ‘Other operating expenses’ in the parent company statement of income.
*SGVMC116162*
- 10 Retirement Benefits
The Parent Company has a noncontributory defined benefit retirement plan administered by a
trustee, covering its permanent employees.
The retirement cost of the Parent Company is determined using the projected unit credit method.
Under this method, the current service cost is the present value of retirement benefits payable in
the future with respect to services rendered in the current period.
The liability recognized in the parent company balance sheet in respect of defined benefit
retirement plan is the present value of the defined benefit obligation at the balance sheet date less
the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses
and past service costs. The defined benefit obligation is calculated annually by an independent
actuary using the projected unit credit method. The present value of the defined benefit obligation
is determined by discounting the estimated future cash outflows using interest rates on Philippine
government bonds that have terms to maturity approximating the terms of the related retirement
liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are credited to or charged against income when the net cumulative unrecognized
actuarial gains and losses at the end of the previous period exceeded 10.00% 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 plan.
Past-service costs, if any, are recognized immediately in income, unless the changes to the
retirement plan are conditional on the employees remaining in service for a specified period of
time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis
over the vesting period.
The defined benefit asset or liability comprises the present value of the defined benefit obligation
less past service costs not yet recognized and less the fair value of plan assets out of which the
obligations are to be settled directly. The value of any asset is restricted to the sum of any past
service cost not yet recognized and the present value of any economic benefits available in the
form of refunds from the plan or reductions in the future contributions to the plan.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of
the arrangement at the 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 inception of the lease only if one of the following applies:
(a) there is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) a renewal option is exercised or extension granted, unless the term of the renewal or extension
was initially included in the lease term;
(c) there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
(d) there is a substantial change to the asset.
When a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios (a), (c), or (d) and at the date
of renewal or extension for scenario (b).
*SGVMC116162*
- 11 Parent Company as a lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as an operating lease. Operating lease payments are recognized as an expense in the
parent company statement of income on a straight-line basis over the lease term.
Parent Company as a lessor
Leases in which the Parent Company 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.
Share-based Payment
The Parent Company granted a stock purchase program to certain officers, employees and
individuals (see Note 17) that is subject to a lock-up or vesting period of two (2) years and which
ended on September 19, 2009 . The Parent Company accounted for the share-based payment as an
equity-settled transaction. The cost of equity-settled transactions is measured by reference to the
fair value of the equity instrument at the date at which they are granted. The expense is
recognized as part of ‘Salaries, wages and employee benefits’ in the parent company statement of
income, together with a corresponding increase in equity, over the lock-up period of two (2) years.
The cumulative expense recognized for equity-settled transactions at each balance sheet date until
the vesting date reflects the extent to which the vesting period has expired and the Parent
Company’s best estimate of the number of equity instruments that will ultimately vest. The
expense in the parent company statement of income for the period represents the movement in
cumulative expense recognized at the beginning and end of the period.
Income Taxes
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantively enacted at the balance sheet
date.
Deferred tax
Deferred tax is provided, using the balance sheet liability method, on all temporary differences at
the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, including asset
revaluations. Deferred tax assets are recognized for all deductible temporary differences,
carryforward of unused tax credits from excess minimum corporate income tax (MCIT) over the
regular corporate income tax (RCIT), if any, and unused net operating loss carryover (NOLCO), if
any, to the extent that it is probable that taxable income will be available against which the
deductible temporary differences and carryforward of unused tax credits from excess MCIT over
RCIT and unused NOLCO can be utilized.
Deferred tax liabilities are not provided on non-taxable temporary differences associated with
investments in subsidiaries and associates.
*SGVMC116162*
- 12 The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable income will be available to allow all
or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at
each balance sheet date and are recognized to the extent that it has become probable that future
taxable income will allow the deferred tax assets to be recovered.
Deferred tax assets and deferred tax liabilities are measured at the tax rates that are applicable to
the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the balance sheet date.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable
entity and the same taxation authority.
Current tax and deferred tax relating to items recognized directly in equity are also recognized in
equity and not in the parent company statement of income.
Borrowing Costs
Borrowing costs are recognized as an expense when incurred.
Equity
Capital stock is measured at par value for all shares issued and outstanding. When the shares are
sold at a premium, the difference between the proceeds and the par value is credited to ‘Capital
paid-in excess of par value’ account. Direct costs incurred related to equity issuance, such as
underwriting, accounting and legal fees, printing costs and taxes are chargeable to ‘Capital paid-in
excess of par value’. If the ‘Capital paid-in excess of par value’ is not sufficient, the excess is
charged against the ‘Retained earnings’.
When the Parent Company issues more than one class of stock, a separate account is maintained
for each class of stock and the number of shares issued.
‘Retained earnings’ represents accumulated earnings (losses) of the Parent Company less
dividends declared.
Own equity instruments which are reacquired (treasury shares) are recognized at cost and
deducted from equity as ‘Treasury stock’. No gain or loss is recognized in the parent company
statement of income on the purchase, sale, issue or cancellation of the Parent Company’s own
equity instruments. Any difference between the carrying amount and the consideration is
recognized in ‘Capital paid-in excess of par value’.
Dividends on Common Shares
Dividends on common shares are recognized as a liability and deducted from equity when
declared and approved by the BOD of the Parent Company. Dividends for the year that are
approved after the balance sheet date are dealt with as an event after the balance sheet date.
Provisions
Provisions are recognized when the Parent Company has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of assets embodying
economic benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation. Where the Parent Company expects a provision to be reimbursed,
the reimbursement is recognized as a separate asset but only when the reimbursement is virtually
certain. The expense relating to any provision is presented in the parent company statement of
income, net of any reimbursement.
*SGVMC116162*
- 13 Contingencies
Contingent liabilities are not recognized in the parent company financial statements. These are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. A contingent asset is not recognized in the parent company financial statements but
disclosed when an inflow of economic benefits is probable.
Events After the Reporting Period
Post year-end events that provide additional information about the Parent Company’s financial
position at the balance sheet date (adjusting events) are reflected in the parent company financial
statements. Post year-end events that are not adjusting events are disclosed in the notes to the
Parent Company’s financial statements when material.
Standards Issued but not yet Effective
The Parent Company will adopt the following standards and interpretations enumerated below
when these become effective. Except as otherwise indicated, the Parent Company does not expect
the adoption of these new and amended PFRS and Philippine Interpretations to have significant
impact on its financial statements.
Effective in 2011
PAS 24 (Amended), Related Party Disclosures
The amended standard, effective for annual periods beginning on or after February 1, 2010,
clarifies the definition of a related party to simplify the identification of such relationships and to
eliminate inconsistencies in its application.
PAS 32, Financial Instruments: Presentation (Amendment) - Classification of Rights Issues
The amendment to PAS 32 is effective for annual periods beginning on or after February 1, 2010.
It amends the definition of a financial liability classifying rights issues (and certain options or
warrants) as equity instruments in cases where such rights are given pro rata to all of the existing
owners of the same class of an entity’s non-derivative equity instruments, or to acquire a fixed
number of the entity’s own equity instruments for a fixed amount in any currency.
Philippine Interpretation IFRIC 14 (Amendment) - Prepayments of a Minimum Funding
Requirement
The amendment to Philippine Interpretation IFRIC 14 is effective for annual periods beginning on
or after January 1, 2011, with retrospective application. The amendment provides guidance on
assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat
the prepayment of a minimum funding requirement as an asset.
Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments
Philippine Interpretation IFRIC 19 is effective for annual periods beginning on or after
July 1, 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a
financial liability qualify as consideration paid. The equity instruments issued are measured at
their fair value. In case that this cannot be reliably measured, the instruments are measured at the
fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or
loss.
*SGVMC116162*
- 14 Improvements to PFRSs 2010
Improvements to IFRSs is an omnibus of amendments to PFRSs. The amendments have not been
adopted as they become effective for annual periods on or after either July 1, 2010 or
January 1, 2011. The adoption of the following amendments will result in changes to accounting
policies but will not have any impact on the financial position or performance of the Parent
Company.
·
·
·
·
·
PFRS 3, Business Combinations
PFRS 7, Financial Instruments: Disclosures
PAS 1, Presentation of Financial Statements
PAS 27, Consolidated and Separate Financial Statements
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
PAS 12, Income Taxes (Amendment) - Deferred Tax: Recovery of Underlying Assets
The amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012.
It provides a practical solution to the problem of assessing whether recovery of an asset will be
through use or sale. It introduces a presumption that recovery of the carrying amount of an asset
will, normally, be through sale.
Effective in 2012
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This Interpretation covers accounting for revenue and associated expenses by entities that
undertake the construction of real estate directly or through subcontractors. This Interpretation
requires that revenue on construction of real estate be recognized only upon completion, except
when such contract qualifies as a 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 rewards of ownership are transferred to the buyer on a
continuous basis will also be accounted for based on stage of completion.
PFRS 7, Financial Instruments: Disclosures (Amendments) - Disclosures-Transfers of Financial
Assets
The amendments to PFRS 7 are effective for annual periods beginning on or after July 1, 2011.
The amendments will allow users of financial statements to improve their understanding of
transfer transactions of financial assets (for example, securitizations), including understanding the
possible effects of any risks that may remain with the entity that transferred the assets. The
amendments also require additional disclosures if a disproportionate amount of transfer
transactions are undertaken around the end of a reporting period.
Effective in 2013
PFRS 9, Financial Instruments: Classifications and Measurement
PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and
applies to classification and measurement of financial assets and financial liabilities as defined in
PAS 39. In subsequent phases, hedge accounting and derecognition will be addressed. The
completion of this project is expected in early 2011.
The Parent Company will assess the impact of these amendments on financial its
position/performance when they become effective.
*SGVMC116162*
- 15 -
3. Significant Accounting Judgments and Estimates
The preparation of the parent company financial statements in compliance with PFRS requires the
Parent Company to make judgments and estimates that affect the reported amounts of assets,
liabilities, income and expenses and disclosure of contingent assets and contingent liabilities.
Future events may occur which will cause the assumptions used in arriving at the estimates to
change. The effects of any change in estimates are reflected in the parent company financial
statements as they become reasonably determinable.
Judgments and estimates are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Judgments
a. Functional Currency
PAS 21 requires management to use its judgment to determine the entity’s functional currency
such that it most faithfully represents the economic effects of the underlying transactions,
events and conditions that are relevant to the entity. In making this judgment, the Parent
Company considers the following:
·
·
·
the currency that mainly influences sales prices for financial instruments and services (this
will often be the currency in which sales prices for its financial instruments and services
are denominated and settled);
the currency in which funds from financing activities are generated; and
the currency in which receipts from operating activities are usually retained.
The Parent determined its functional currency to be Philippine peso, being the currency that
mainly influences the Parent Company’s revenues and cost and expenses.
b. Operating leases
Parent Company as lessee
The Parent Company has entered into commercial property leases as a lessee for its office
premises. The Parent Company has determined, based on an evaluation of the terms and
conditions of the arrangements (i.e., the lease does not transfer ownership of the asset to the
lessee by the end of the lease term, the lessee has no option to purchase the asset at a price that
is expected to be sufficiently lower than the fair value at the date the option is exercisable, and
the lease term ranges from one - ten years only), that all significant risks and rewards of
ownership of the properties it leases are not transferable to the Parent Company.
Parent Company as lessor
The Parent Company has entered into commercial property leases as lessor. The Parent
Company has determined, based on an evaluation of the terms and conditions of the
arrangements that it retains all the significant risks and rewards of ownership of these
properties and accounts for the contracts as operating leases.
c. Fair value of financial instruments
The fair values of financial instruments that are not quoted in active markets are determined
using valuation techniques. The carrying values of financial assets and financial liabilities of
the Parent Company approximate their market values since these are short-term in nature.
*SGVMC116162*
- 16 d. Contingencies
The Parent Company is currently involved in various proceedings. The estimate of the
probable costs for the resolution of these claims has been developed in consultation with
outside counsel handling the defense in these matters and is based upon an analysis of
potential results. The Parent Company currently does not believe these proceedings will have
a material effect on the Parent Company’s financial position. It is possible, however, that
future results of operations could be materially affected by changes in the estimates or in the
effectiveness of the strategies relating to these proceedings (see Note 24).
e. Determination of whether the Parent Company is acting as a principal or an agent
The Parent Company assesses its revenue arrangements against the following criteria to
determine whether it is acting as a principal or an agent:
·
·
·
·
whether the Parent Company has primary responsibility for providing the goods and
services;
whether the Parent Company has inventory risk;
whether the Parent Company has discretion in establishing prices; and
whether the Parent Company bears the credit risk.
If the Parent Company has determined it is acting as a principal, revenue is recognized on a
gross basis with the amount remitted to the other party being accounted for as part of costs and
expenses.
If the Parent Company has determined it is acting as an agent, only the net amount retained is
recognized as revenue.
The Parent Company assessed its revenue arrangements and concluded that it is acting as
principal in some arrangements and as an agent in other arrangements.
f.
Going concern
The Parent Company’s management has made an assessment of the Parent Company’s ability
to continue as a going concern and is satisfied that the Parent Company has the resources to
continue in business for the foreseeable future. Furthermore, management is not aware of any
material uncertainties that may cast significant doubt upon the Parent Company’s ability to
continue as a going concern. Therefore, the parent company financial statements continue to
be prepared on the going concern basis.
Estimates
a. Credit losses on receivables
The Parent Company reviews its receivables at each balance sheet date to assess whether an
allowance for credit losses should be recorded in the parent company balance sheet. In
particular, judgment by management is required in the estimation of the amount and timing of
future cash flows when determining the level of allowance required. Such estimates are based
on assumptions about a number of factors such as length of the Parent Company’s relationship
with counterparties (i.e., agents and couriers), current credit status, average age of accounts,
collection and historical loss experience. Actual results may differ, resulting in future changes
to the allowance.
*SGVMC116162*
- 17 As of December 31, 2010, accounts receivable and other receivables are carried in the parent
company balance sheet at =
P1.12 billion and =
P0.16 billion, respectively. As of
December 31, 2009, accounts receivable and other receivables are carried in the balance sheet
at P
=1.18 billion and P
=0.13 billion, respectively. No allowance for credit losses on the
outstanding balances of receivables have been recorded since the Parent Company has
assessed that there was no objective evidence of impairment as of December 31, 2010 and
2009.
b. Impairment of nonfinancial assets
(i) Investments in subsidiaries and associates
The Parent Company assesses impairment on its investments in subsidiaries and associates
whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Among others, the factors that the Parent Company
considers important, which could trigger an impairment review on its investments in
subsidiaries and associates, include the following:
·
·
·
deteriorating or poor financial condition;
recurring net losses; and
significant changes with an adverse effect on the subsidiary/associate have taken place
during the period, or will take place in the near future, in the technological, market,
economic, or legal environment in which the subsidiary/associate operates.
(ii) Property and equipment and software costs
The Parent Company assesses impairment on property and equipment and software costs
whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. The factors that the Parent Company considers important, which
could trigger an impairment review, include the following:
·
·
·
significant underperformance relative to expected historical or projected future
operating results;
significant changes in the manner of use of the acquired assets or the strategy for
overall business; and
significant negative industry or economic trends.
The Parent Company recognizes an impairment loss whenever the carrying amount of the
asset exceeds its recoverable amount. The recoverable amount is determined based on the
asset’s value in use computation, which considers the present value of estimated future cash
flows expected to be generated from the continued use of the asset.
As of December 31, 2010 and 2009, no impairment losses were recognized on the Parent
Company’s nonfinancial assets. The carrying values of the Parent Company’s nonfinancial
assets as of December 31 follow:
Investments in subsidiaries and associates (Note 10)
Property and equipment - net(Note 11)
2010
P
=245,149,252
9,493,115
1,868,072
2009
=245,149,252
P
11,761,787
2,704,684
*SGVMC116162*
- 18 c. Estimated useful lives of property and equipment and software costs
The Parent Company reviews the estimated useful lives of property and equipment and
software costs annually based on the expected asset utilization after considering the expected
future technological developments and market behavior. Significant changes in these estimates
resulting from changes in the factors aforementioned could possibly affect the future results of
operations. Any decrease in the estimated useful life of the property and equipment and
software costs would decrease their respective balances and increase the recorded depreciation
and amortization.
As of December 31, the carrying values of Property and equipment and Software costs follow:
Property and equipment - net (Note 11)
2010
P
=9,493,115
1,868,072
2009
=11,761,787
P
2,704,684
d. Recognition of deferred tax assets
The Parent Company reviews the carrying amounts of deferred tax assets at each balance sheet
date and reduces it to the extent that it is no longer probable that sufficient taxable income will
be available to allow all or part of the deferred tax assets to be utilized. Significant judgment
is required to determine the amount of deferred tax assets that can be recognized, based upon
the likely timing and level of future taxable income together with future tax planning
strategies.
As of December 31, 2010 and 2009, the Parent Company did not recognize net deferred tax
assets on existing deductible temporary differences amounting to P
=2.85 million and
=5.05 million, respectively. Management believes that it is not highly probable that these
P
temporary differences will be realized in the future (see Note 23).
e. Present value of net retirement obligation
The cost of defined benefit retirement plan and other post employment benefits are determined
using actuarial valuations. The actuarial valuation involves making assumptions about
discount rates, expected rates of return on assets, future salary increases, mortality rates and
future retirement increases. Due to the long-term nature of these benefits, such estimates are
subject to significant uncertainty.
The assumed discount rates were determined using the market yields on Philippine
government bonds with terms consistent with the expected employee benefit payout as of the
consolidated balance sheet date. Refer to Note 16 for the details of assumptions used in the
calculation. As of December 31, 2010 and 2009, the present value of the net retirement
obligation of the Parent Company amounted to =
P0.78 million and P
=3.63 million, respectively
(see Note 16).
f.
Share-based payment transactions
The Parent Company determined the cost of its equity-settled stock purchase program at grant
date using the price earnings multiple model taking into account the terms and conditions
upon which the shares were granted. At year end, the Parent Company estimates the number
of equity instruments that will ultimately vest. The Parent Company recognized cost of
equity-settled share based payments amounting to P
=1.53 million and P
=2.16 million 2009 and
2008, respectively (see Note 17). The vesting period of the stock purchase program ended on
September 19, 2009.
*SGVMC116162*
- 19 4. Fair Value Measurement
The following tables summarize the carrying amounts and fair values of the Parent Company’s
financial assets and financial liabilities:
2009
2010
Carrying Value
Financial Assets
Cash and cash equivalent
Accounts receivable
Other receivables:
Related parties
Dividend
Others
Refundable deposits
Total
P
=727,665,919
1,115,685,946
Fair Value Carrying Value
Fair Value
=694,662,397
P
1,177,175,491
=694,662,397
P
1,177,175,491
P
=727,665,919
1,115,685,946
32,043,965
32,043,965
78,581,573
78,581,573
16,520,681
16,520,681
39,981,243
39,981,243
23,296,068
23,296,068
–
–
43,527,627
43,527,627
23,394,429
23,394,429
3,601,557
3,601,557
4,099,931
4,099,931
=1,990,827,786 P
=1,990,827,786
P
=1,989,409,041 P
=1,989,409,041 P
Other Financial Liabilities
Beneficiaries
147,449,679
147,449,679
P
=144,960,550
P
=144,960,550
Advances from related parties
501,577
501,577
74,161,090
74,161,090
46,987,240
46,987,240
27,101,817
27,101,817
Accrued expenses
6,996,450
6,996,450
6,250,462
6,250,462
2,243,487
2,243,487
2,958,634
2,958,634
Others
7,987,973
7,987,973
803,350
803,350
930,000,000
930,000,000
877,000,000
877,000,000
=1,142,166,406 P
=1,142,166,406
Total
P
=1,133,235,903 P
=1,133,235,903 P
The following methods and assumptions were used to estimate the fair value of the financial
instruments:
Cash and cash equivalents, Accounts receivable, Other receivables, Beneficiaries and other
payables and Interest-bearing loans - carrying amounts approximate fair values due to the
relatively short-term maturities of these instruments.
Refundable deposits - carrying amounts are deemed to approximate fair values since the fair value
of certain deposits cannot be reasonably and reliably estimated.
As of December 31 2010 and 2009, the Parent Company has no financial instruments carried at
fair value.
5. Financial Risk Management Objectives and Policies
The Parent Company’s principal financial instruments mainly comprise of short-term loans from
banks. The main purpose of these financial instruments is to raise funds for the Parent Company’s
fulfillment or delivery of remittance transactions to beneficiaries. The Parent Company also has
various other financial assets and liabilities such as cash and cash equivalents, accounts receivable
and accounts payable to beneficiaries, which arise directly from its remittance operations.
The main risks arising from the Parent Company’s financial instruments are credit risk, foreign
currency risk, cash flow interest rate risk, and liquidity risk. The BOD reviews and approves
policies for managing each of these risks and these are summarized below:
*SGVMC116162*
- 20 Credit Risk
Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform its
obligations during the life of the transaction. This includes risk of non-payment by borrowers or
issuers, failed settlement of transactions and default on contracts.
The nature of its business exposes the Parent Company to potential risk from difficulties in
recovering transaction money from foreign partners. Receivables from foreign offices and agents
arise as a result of its remittance operations in various regions of the globe. In order to address
this, the Parent Company has maintained the following credit policies: (a) implement a contract
that incorporates a bond and advance payment cover such that the full amount of the transaction
will be credited to the Parent Company prior to their delivery to the beneficiaries, which applies
generally to all new agents and in certain cases to old agents; (b) all foreign offices and agents
must settle their accounts following the next banking day settlement policy, otherwise, the
fulfillment or delivery of their remittance transactions will be put on hold; (c) evaluation of
individual potential partners and preferred associates’ creditworthiness, as well as a close look into
the other pertinent aspects of their partners’ businesses which assures the Parent Company of the
financial soundness of their partner firms; and (d) receivable balances are monitored daily by the
regional managers with the result that the Parent Company’s exposure to bad debts is not
significant.
The Parent Company’s receivables from agents and courier companies are highly collectible and
have a turnover ranging from 1 to 5 days and 30 to 60 days, respectively. The other receivables,
which include advances to related parties, are also highly collectible and are due in less than one
year.
The table below shows the maximum credit exposure of the Parent Company per account
classification as of December 31, 2010 and 2009 (see Notes 6, 7, 8 and 12):
Cash and cash equivalents*
Accounts receivable
Other receivables:
Related parties
Dividend
Others
Refundable deposits
Total
2010
2009
P
=685,920,368
1,115,685,946
=652,582,294
P
1,177,175,491
78,581,573
39,981,243
–
23,394,429
32,043,965
16,520,681
23,296,068
43,527,627
4,099,931
P
=1,947,663,490
3,601,557
=1,948,747,683
P
* excludes cash on hand
The table below shows the maximum credit exposure of the Parent Company per geographical
classification as of December 31, 2010 and 2009:
Asia Pacific
Middle East
North America
Europe
Total
2010
P
=1,742,386,664
98,796,778
54,214,381
52,265,667
P
=1,947,663,490
2009
=1,601,347,252
P
68,374,703
206,577,577
72,448,151
=1,948,747,683
P
*SGVMC116162*
- 21 There are no past due receivables as of December 31, 2010 and 2009. The Parent Company
classifies its receivables as high grade. High grade financial assets with credit ratings of excellent,
strong, good, or satisfactory, wherein the borrower has low probability of default and could
withstand the normal business cycle.
Foreign Currency Risk
Foreign currency risk is the risk to earnings or capital arising from changes in foreign exchange
rates. It is the Parent Company’s policy that all daily foreign currencies, which arise as a result of
its remittance transactions, must be traded daily with bank partners only at prevailing foreign
exchange rates in the market. The daily closing foreign exchange rates shall be the guiding rate in
providing wholesale rates and retail rates to foreign offices and agents, respectively. The trading
proceeds will be used to pay out bank loans and other obligations of the Parent Company.
The tables below summarize the Parent Company’s exposure to foreign exchange risk. Included
in the tables are the Parent Company’s foreign currency-denominated monetary assets and
liabilities and their PHP equivalent.
2010
Currency
CAD
USD
EUR
SGD
AUD
NTD
HKD
NZD
GBP
QAR
Net exposure
2009
Cash and Cash
Equivalents
Receivables
Total
139,422
1,026,855
321,739
89,587
184,346
–
–
7,518
14,752
275
3,312,925
901,651
515,999
1,254,112
783,071
23,731,378
1,553,760
212,371
–
–
3,452,347
1,928,506
837,738
1,343,699
967,417
23,731,378
1,553,760
219,889
14,752
275
Php Cash and Cash
Equivalent
Equivalents
= 151,305,487
P
84,545,703
48,567,036
45,565,156
43,141,040
35,581,120
8,753,014
7,364,909
1,002,493
3,312
= 425,829,270
P
20
1,218,815
13,298
5,654
1
–
–
–
14,752
–
Receivables
Total
4,372,293
1,311,537
203,192
1,443,109
1,903,567
51,271,915
1,780,852
298,940
721,629
–
4,372,313
2,530,352
216,490
1,448,763
1,903,568
51,271,915
1,780,852
298,940
736,381
–
PHP
Equivalent
=193,799,626
P
116,902,262
14,383,643
47,642,803
78,051,047
73,431,637
10,605,294
9,778,208
54,446,892
–
=599,041,412
P
The following tables set forth for the year indicated the impact of reasonably possible changes in
the rates of other currencies on pretax income.
2010
Currency
EUR
USD
CAD
HKD
SGD
NTD
NZD
AUD
GBP
QAR
Change in
nominal
foreign currency
exchange rate
+8.87
+3.55
+1.75
+0.41
+0.32
+0.01
+1.03
+0.13
+8.01
+1.73
Effect on
pretax income
P
=7,430,736
6,846,196
6,041,607
637,042
429,984
237,314
226,486
125,764
118,164
476
Change in
nominal
foreign currency
exchange rate
-3.04
-1.61
-2.09
-0.08
-1.87
-0.12
-3.09
-7.05
-3.57
-4.08
Effect on
pretax income
(P
= 2,546,724)
(3,104,895)
(7,215,405)
(124,301)
(2,512,717)
(2,847,765)
(679,457)
(6,820,290)
(52,665)
(1,122)
*SGVMC116162*
- 22 -
Currency
EUR
USD
CAD
HKD
SGD
NTD
NZD
AUD
GBP
Change in nominal
foreign currency
exchange rate
+4.75
+3.00
+1.36
+0.78
+1.38
+1.73
+1.73
+3.51
+7.52
2009
Change in nominal
Effect on foreign currency
pretax income
exchange rate
=1,028,328
P
-7.32
7,591,056
-0.33
5,946,346
-7.19
1,389,065
-0.97
1,999,293
-2.19
88,700,413
-4.08
517,166
-4.08
6,681,524
-11.67
5,537,585
-11.25
Effect on
pretax income
(P
=1,584,707)
(835,016)
(31,436,930)
(1,727,426)
(3,172,791)
(209,189,413)
(1,219,675)
(22,214,639)
(8,284,286)
There is no other impact on the Parent Company’s equity other than those already affecting the
profit or loss.
Cash Flow Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash
flows of financial instruments.
As of December 31, 2010 and 2009, the Parent Company’s exposure to cash flow interest rate risk
is minimal. The Parent Company’s policy is to manage its interest cost by entering only into fixed
rate short-term loans from banks.
Liquidity Risk
Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet
commitments associated with financial instruments.
The Parent Company’s objective is to maintain a balance between continuity of funding and
flexibility through the use of short-term debts. In addition, the Parent Company maintains credit
facilities with local banks. As of December 31, 2010 and 2009, the Parent Company has unused
credit facilities amounting to P
=1.02 billion and P
=0.60 billion, respectively (see Note 14).
Financial assets
Maturity profile of financial assets held for liquidity purposes is shown below. The analysis is
based on the remaining period from the end of the reporting period to the contractual maturity
date, or if earlier, the expected date the assets will be realized.
The maturity grouping is based on the remaining period from the end of the reporting period to the
contractual maturity date. When a counterparty has a choice of when the amount is paid, the
liability is allocated to the earliest period in which the Group can be required to pay.
*SGVMC116162*
- 23 The tables below summarize the maturity profile of the Parent Company’s financial instruments
based on undiscounted contractual payments.
Less than 5 days
Financial assets
Accounts receivable
Beneficiaries and other
payables:
Beneficiaries
Advances from related
parties
Agents, couriers and
trading clients
Accrued expenses
Others
Beneficiaries and other
payables:
Beneficiaries
Advances from related
parties
Agents, couriers and
trading clients
Accrued expenses
Others
Total
=727,665,919
P
1,115,685,946
=1,843,351,865
P
P–
=
–
=–
P
P–
=
=727,665,919
P
– 1,115,685,946
=– =
P
P1,843,351,865
=144,960,550
P
=–
P
=–
P
=144,960,550
P
–
–
74,161,090
74,161,090
27,101,817
–
–
–
395,273,055
=567,335,422
P
–
–
–
–
483,077,528
=483,077,528
P
Less than 5 days
Financial assets
Accounts receivable
2010
5 to 30 days 30 to 60 days
–
27,101,817
6,250,462
6,250,462
2,958,634
2,958,634
803,350
803,350
–
878,350,583
=84,173,536 P
P
=1,134,586,486
2009
5 to 30 days 30 to 60 days
Total
=644,360,241
P
1,177,175,491
=1,821,535,732
P
=50,326,462
P
–
=50,326,462
P
P–
=
=694,686,703
P
– 1,177,175,491
=– =
P
P1,871,862,194
=147,449,679
P
=–
P
=–
P
=147,449,679
P
–
–
501,577
501,577
46,987,240
–
–
–
–
=194,436,919
P
–
–
–
–
833,145,972
=833,145,972
P
–
46,987,240
6,996,450
6,996,450
2,243,487
2,243,487
7,987,973
7,987,973
150,979,514
984,125,486
=168,709,001 P
P
=1,196,291,892
6. Cash and Cash Equivalents
Cash on hand
Cash in banks (Note 22)
Short-term deposits
2010
P
=41,745,551
685,920,368
–
P
=727,665,919
2009
=42,080,103
P
602,280,138
50,302,156
=694,662,397
P
*SGVMC116162*
- 24 Cash in banks earn interest at the respective bank deposit rates. Short-term deposits are made for
varying periods of up to three months and earn interest at the respective short-term deposit rates.
In 2010, 2009 and 2008, interest income included in ‘Other income’ amounted to P
=3.22 million,
=7.67 million and =
P
P5.26 million, respectively (see Note 21).
The Parent Company’s cash and cash equivalents denominated in foreign currency, with
corresponding Philippine peso (PHP) equivalent, are as follows:
USD
EUR
AUD
CAD
SGD
GBP
NZD
QAR
December 31, 2010
1,026,855
=45,017,323
P
321,739
18,652,502
184,346
8,220,734
139,422
6,110,427
89,587
3,037,917
14,752
1,002,493
7,518
251,806
275
3,312
=82,296,514
P
December 31, 2009
1,218,815
=56,309,253
P
13,298
883,522
1
41
20
886
5,654
185,933
14,752
1,077,432
–
–
–
–
=58,457,067
P
Cash in banks earn interest rates ranging as follows:
PHP
Foreign Currency Denominated
2010
1.00% to 2.00%
1.00% to 2.00%
2009
1.00% to 2.00%
1.00% to 2.00%
2008
1.00% to 2.00%
1.00% to 2.00%
7. Accounts Receivable
Accounts receivable pertains mainly to the Parent Company’s receivables from agents and
couriers. Receivables from agents pertain to advances made to fund the remittance transactions to
beneficiaries. These are settled within 1 to 5 days from transaction date. Receivables from
couriers pertain to advances made to courier companies to ease up the door-to-door delivery of the
remittances to the beneficiaries. These are settled within 30 to 60 days from transaction date.
8. Other Receivables
Related parties (Note 22)
Bureau of Internal Revenue (BIR)
Dividend
Others
2010
P
=78,581,573
39,981,243
13,160,535
–
23,394,429
P
=155,117,780
2009
=32,043,965
P
16,520,681
13,160,535
23,296,068
43,527,627
=128,548,876
P
Receivable from the BIR pertains to the excess payments made by the Parent Company in 2007
for the Initial Public Offering (IPO) percentage tax. As of December 31, 2010, the case is pending
resolution with the Court of Tax Appeals. The Parent Company believes that it will be able to
obtain the refund from the BIR.
*SGVMC116162*
- 25 Receivable from the minority shareholders pertains to the Parent Company’s advances to the
minority shareholders of IERCAG (see Note 10) and WEPL.
‘Others’ includes advances to employees, contractors and trading clients for foreign exchange
transactions. These outstanding receivables are due either on demand or within one year.
9. Other Current Assets
Visa cards inventory
Prepaid expenses
Office supplies
2010
P
=8,054,220
1,895,811
199,689
P
=10,149,720
2009
=9,308,037
P
3,929,033
443,118
=13,680,188
P
Prepaid expenses include prepayments for interest, rent, association dues and advertisements.
10. Investments in Subsidiaries and Associates
As of December 31, 2010 and 2009, the Parent Company’s investments in subsidiaries and
associates consist of the following:
Amounts
Subsidiaries:
IERCAG
IGRL
LSML
IRCL
WEPL
IAPL
PSAGL
INZL
Associates:
ISPL
HKHCL
=78,200,341
P
71,200,000
42,554,665
13,444,000
9,033,072
8,552,000
5,958,800
32,400
12,600,000
3,573,974
=245,149,252
P
Establishment of subsidiaries
IERCAG
The Parent Company’s BOD approved IERCAG’s incorporation on July 8, 2005 as a stock
corporation to be organized and registered in Austria. Accordingly, the Parent Company made an
investment of =
P3.55 million on July 18, 2005.
*SGVMC116162*
- 26 On December 21, 2009, the shareholders of IERCAG made a non-refundable shareholders’
contribution amounting to EUR 1.50 million (P
=99.66 million) to the entity to strengthen its equity.
The additional investments were taken from the outstanding receivables of the Parent Company
from IERCAG amounting to =
P91.16 million and were recognized by the latter as capital reserves
to wipe out its accumulated deficit amounting to GBP 0.56 million (P
=52.41 million). As a result
of the application of receivables, the Parent Company recognized a receivable amounting to
=16.52 million from the minority shareholder. The remaining P
P
=8.49 million was recognized as a
receivable from the minority shareholder in the separate financial statements of IERCAG. On
September 28, 2010, the Parent Company advanced the =
P8.49 million to IERCAG as payment of
the receivable from the minority shareholder. This resulted to the increase in the Parent
Company’s receivable by =
P8.49 million (see Note 8). The existing ownership ratio of 74.90% and
25.10% was maintained after the additional contribution was made.
INZL
On August 17, 2007, the Parent Company’s BOD approved the incorporation of INZL as a stock
corporation to be organized and registered in New Zealand. Accordingly, the Parent Company
made an investment of NZD 1,000 (P
=32,400). INZL started commercial operation on
February 13, 2008.
Acquisition of subsidiaries
IGRL and IAPL
interest in both IGRL and IAPL for a consideration of =
P8.55 million,
respectively. IGRL and IAPL are based in United Kingdom and Australia, respectively. These
two entities, which are in the remittance business, have the same operations as the Parent
Company. Accordingly, on June 29, 2007, the Parent Company acquired 100.00% ownership
interest in IGRL and IAPL through the execution of deeds of assignment by the previous
stockholders (who are also the stockholders of the Parent Company) of the two entities. Under the
deeds of assignment, the existing advances by the Parent Company to certain stockholders were
applied as payment for the purchase of IGRL and IAPL.
WEPL
On June 2, 2007, the Parent Company’s BOD also approved the acquisition of 20.00% ownership
interest in WEPL for a consideration of =
P5.60 million. WEPL was incorporated and is based in
Australia, and has the same operations as the Parent Company. Accordingly, on June 29, 2007,
the Parent Company acquired 20.00% ownership interest in WEPL through the execution of a
deed of assignment by the previous stockholders (who are also stockholders of the Parent
Company) of the entity. Under the deed of assignment, the existing advances of the Parent
Company to certain stockholders were applied as payment for the purchase of WEPL. On
September 4, 2007, an additional 15.00% ownership interest in WEPL was acquired by the Parent
Company for a consideration of =
P3.43 million.
As discussed in Note 1, WEPL is effectively 65.00% owned by the Parent Company through its
direct interest of 35.00% and indirect interest of 30.00% through IAPL.
IRCL
On October 1, 2004, the Parent Company’s BOD approved the acquisition of 65.00% of IRCL for
a consideration of =
P10.34 million. IRCL was incorporated on July 16, 2001 and is based in
Canada and has the same operations as the Parent Company. On July 26, 2006, the additional
30.00% ownership interest from a minority stockholder in IRCL was transferred to the Parent
Company at no additional cost.
*SGVMC116162*
- 27 On June 2, 2007, the Parent Company’s BOD approved the acquisition of 5.00% ownership
interest from minority stockholder for a consideration P
=3.10 million taking its ownership in IRCL
to 100.00%. Accordingly on June 29, 2007, IRCL minority stockholder executed a deed of
assignment to transfer the ownership interest to the Parent Company. Under the deed of
assignment, the existing advances by the Parent Company to certain stockholder were applied as
payment for the purchase of IRCL.
PSAGL
On November 28, 2008, the Parent Company’s BOD ratified the acquisition of 100.00%
ownership interest in PSAGL for a consideration of =
P5.96 million. PSAGL is based in Hong
Kong and was incorporated on April 28, 2008 to engage in foreign currencies trading services.
LSML
LSML was incorporated on March 16, 2001 and is based in Hong Kong and has the same
operations as the Parent Company. On April 2001, the Parent Company’s BOD approved the
acquisition of 51.00% ownership interest in LSML for a consideration of =
P17.85 million. On
June 2, 2007, the Parent Company’s BOD approved the acquisition of the 49.00% ownership
interest in LSML from its minority stockholders for a consideration of =
P24.70 million.
Accordingly on June 29, 2007, the minority stockholder of LSML (who is also a stockholder of
the Parent Company) executed deed of assignment to transfer its ownership interest to the Parent
Company. Under the deeds of assignment, the existing advances by the Parent Company to
certain stockholder were applied as payment for the purchase of LSML.
Acquisition of associates
HKHCL
On January 16, 2009, the Parent Company’s BOD approved the acquisition of 49.00% ownership
interest in HKHCL, for a consideration of NTD 2.45 million (P
=3.57 million). HKHCL is a
remittance business based in Taiwan. Accordingly, on July 1, 2009 (acquisition date), the Parent
Company remitted the cash payment to the existing stockholders of HKHCL.
ISPL
interest in ISPL for a consideration of =
P12.60 million. ISPL is based in Singapore. ISPL, which is
in the remittance business, has the same operations as the Parent Company. Accordingly on
June 29, 2007, the Parent Company acquired 49.00% ownership interest in ISPL through the
execution of a deed of assignment by the previous stockholders (who are also stockholders of the
Parent Company) of the entity.
The Monetary Authority of Singapore has yet to approve the sale of 49.00% equity interest in
ISPL to the Parent Company. Management and its legal counsel believe that the Parent
Company’s application for approval will merit favorable judgment and that any outcome will not
affect the Parent Company’s purchase of 49.00% interest in ISPL.
*SGVMC116162*
- 28 The following tables present the summarized financial information of the Parent Company’s
subsidiaries and associates as of and for the years ended December 31, 2010 and 2009:
2010
Balance Sheets
Total
Total
Assets
Liabilities
Subsidiaries:
PAGL
IERCAG
IRCL
LSML
WEPL
IGRL
INZL
IAPL
Associates:
HKHCL
ISPL
Gross
Net Income
Income
Revenue
(Loss)
(In thousands)
P
=193,141
68,553
62,144
24,435
21,785
16,662
11,870
5,600
404,190
P
=1,722
70,507
40,718
14,722
17,111
13,645
18,025
1,526
177,976
P
=62,610
13,400
109,058
25,562
30,546
55,240
9,618
628
306,662
P
=62,413
11,711
97,525
25,553
29,226
43,769
8,798
308
279,303
P
=63,271
(46,642)
666
6,107
200
1,019
(1,129)
29
23,521
69,159
61,209
P
=534,558
53,006
40,638
P
=271,620
65,648
56,130
P
=428,440
22,037
33,198
P
=334,538
5,996
4,754
P
=34,271
2009
Balance Sheets
Total
Total
Assets
Liabilities
Subsidiaries:
PAGL
IRCL
IERCAG
IAPL
WEPL
LSML
IGRL
INZL
Associates:
ISPL
HKHCL
Gross
Revenue
Income
(In thousands)
Net Income
(Loss)
=156,824
P
81,580
57,672
28,877
27,696
21,719
16,217
13,113
403,698
P19,388
=
60,602
7,355
25,058
23,595
17,771
14,018
17,987
185,774
P55,647
=
112,284
10,750
590
33,940
21,404
62,353
8,243
305,211
P55,480
=
99,665
9,146
244
32,627
21,392
46,910
7,580
273,044
=86,354
P
6,725
(17,022)
3,719
2,975
2,236
1,003
(2,654)
83,336
74,159
31,970
=509,827
P
42,914
30,572
=259,260
P
38,046
21,096
=364,353
P
37,708
14,295
=325,047
P
13,027
(966)
=95,397
P
*SGVMC116162*
- 29 -
11. Property and Equipment - net
The composition of and movements in this account follow:
2010
Office and
Communication
Equipment
Cost
Additions
Disposals
Amortization
Disposals
Transportation
and Delivery
Equipment
Furniture
and Fixtures
Leasehold
Improvements
Total
= 22,623,757
P
2,621,930
(195,500)
25,050,187
P5,920,959
=
3,116,461
(2,202,818)
6,834,602
= 3,692,945
P
177,934
(91,412)
3,779,467
= 11,762,843
P
32,500
–
11,795,343
= 44,000,504
P
5,948,825
(2,489,730)
47,459,599
18,066,791
3,521,442
(88,344)
21,499,889
= 3,550,298
P
2,350,632
1,303,027
(708,790)
2,944,869
= 3,889,733
P
2,594,128
415,880
(25,900)
2,984,108
= 795,359
P
9,227,166
1,310,452
–
10,537,618
= 1,257,725
P
32,238,717
6,550,801
(823,034)
37,966,484
= 9,493,115
P
2009
Office and
Communication
Equipment
Cost
Additions
Disposals
Amortization
Transportation
and Delivery
Equipment
Furniture
and Fixtures
Leasehold
Improvements
Total
=21,070,345
P
1,553,412
–
22,623,757
=6,335,961
P
–
(415,002)
5,920,959
=3,683,857
P
9,088
–
3,692,945
=11,410,992
P
351,851
–
11,762,843
=42,501,155
P
1,914,351
(415,002)
44,000,504
13,967,073
4,099,718
18,066,791
=4,556,966
P
1,222,924
1,127,708
2,350,632
=3,570,327
P
2,155,720
438,408
2,594,128
= 1,098,817
P
7,944,365
1,282,801
9,227,166
= 2,535,677
P
25,290,082
6,948,635
32,238,717
=11,761,787
P
As of December 31, 2010 and 2009, the cost of fully depreciated property and equipment still in
use by the Parent Company amounted to P
=18.28 million, respectively.
Details of depreciation and amortization follow:
Property and equipment
Software cost (Note 12)
2010
P
=6,550,801
1,507,900
P
=8,058,701
2009
=6,948,635
P
1,665,896
=8,614,531
P
2008
=6,078,228
P
1,482,668
=7,560,896
P
*SGVMC116162*
- 30 -
12. Software Costs - net and Other Noncurrent Assets
Movements in software costs follow:
Cost
Additions
Accumulated Amortization
Amortization (Note 11)
Net Book Value at end of year
2010
2009
P
=11,425,409
671,288
12,096,697
=9,247,962
P
2,177,447
11,425,409
8,720,725
1,507,900
10,228,625
P
=1,868,072
7,054,829
1,665,896
8,720,725
=2,704,684
P
2010
P
=28,493,804
4,099,931
350,550
44,000
P
=32,988,285
2009
=27,821,193
P
3,601,557
375,043
44,000
=31,841,793
P
Other noncurrent assets consist of:
Input VAT
Refundable deposits
Deferred input VAT
Others
The Parent Company has applied for tax credits on input VAT with the BIR and is awaiting for the
issuance of tax credit certificates (TCCs). Management believes that the Parent Company will be
able to obtain these TCCs for the outstanding input VAT.
Refundable deposits pertain to the security deposits made by the Parent Company in relation to
rental lease agreements for its office spaces.
13. Beneficiaries and Other Payables
Beneficiaries
Advances from related parties (Note 22)
Accrued expenses
Withholding tax payable
Payable to government agency
Others
2010
P
=144,960,550
74,161,090
27,101,817
6,250,462
2,958,634
814,996
7,754
803,350
P
=257,058,653
2009
=147,449,679
P
501,577
46,987,240
6,996,450
2,243,487
1,109,836
472,972
7,987,973
=213,749,214
P
Payables to beneficiaries, agents, couriers and trading clients are noninterest-bearing and are
normally settled within 1 to 30 days.
*SGVMC116162*
- 31 Accrued expenses include accruals for various operating expenses such as vacation and sick leave
benefits, courier charges, training and development, professional fees and utilities.
14. Interest-Bearing Loans
This account pertains to the Parent Company’s unsecured, short-term interest-bearing pesodenominated bank loans.
As of December 31, 2010 and 2009, the outstanding loans payable of the Parent Company
amounted to =
In 2010, 2009 and 2008, these loans bear annual interest rates ranging from 5.50% to 6.00%,
7.00% to 8.00% and 8.75% to 13.00%, respectively. In 2010, 2009 and 2008, the Parent
Company recognized interest expense of =
P29.21 million, =
P48.68 million and P
=13.25 million,
respectively.
The Parent Company has an unused credit facility with various banks amounting to P
=1.02 billion
and P
The loans outstanding as of December 31, 2010 were subsequently paid on various dates in
January and February 2011.
15. Equity
Capital Stock
As of December 31, 2010 and 2009, the Parent Company’s capital stock consists of:
Number of
Shares
Common stock
Authorized - =
P1 par value per share
Issued:
Balance at beginning and end of year
Less treasury stock
Issued and outstanding
Amount
1,000,000,000 P
=1,000,000,000
562,417,000 =
P562,417,000
(9,329,000)
(40,115,150)
553,088,000 P
=522,301,850
Dividends
=
P26.60 million or =
P0.0481 per share, payable to shareholders-of-record as of April 8, 2010.
The declaration was subsequently ratified and confirmed by the Parent Company’ shareholders
during their annual meeting held on July 23, 2010. The payment was made on May 5, 2010.
=
P26.01 million or =
P0.0471 per share, payable to shareholders-of-record as of April 7, 2009.
during their annual meeting held on July 17, 2009. The payment of dividends was made on
May 6, 2009.
*SGVMC116162*
- 32 On April 25, 2008, the BOD of the Parent Company declared cash dividends amounting to
=21.99 million or P
P
=0.0391 per share, payable to shareholders-of-record as of May 15, 2008.
during their annual meeting held on July 31, 2008. The payment of dividends was made on
June 10, 2008.
Treasury Stock
On August 15, 2008, the Parent Company’s BOD approved the Buy-back Program to acquire up
to ten million (10,000,000) of its shares, representing approximately 1.87% of the Parent
Company’s total outstanding common shares, from the market. The Parent Company purchased
9,329,000 shares (P
=40.12 million) in 2008 under the Buy-back Program and the same number of
shares is outstanding as of December 31, 2010 and 2009.
In 2009 and 2008, the Parent Company purchased 130,900 shares (P
=0.13 million) and
548,500 shares (P
=0.55 million), respectively, under the SSPP. The 808,100 shares (including
128,700 shares purchased in 2007) purchased under the SSPP, were subsequently transferred on
September 2009 to the retirement fund of the Parent Company (see Note 17).
Capital Management
The Parent Company’s capital is composed of its equity, which amounts to =
P1.16 billion and
P
The Parent Company’s capital management activities seek to ensure that it maintains a healthy
capital ratio in order to support its businesses and maximize shareholder value by optimizing the
level and mix of its capital resources. Decisions on the allocation of capital resources are being
performed as part of the strategic planning review.
The Parent Company manages its capital structure and makes adjustments to it, in light of changes
in economic conditions. To maintain or adjust the capital structure, the Parent Company may
adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
No changes were made in the objectives, policies or processes during the years ended
December 31, 2010 and 2009.
The Parent Company’s objective is to ensure that there are no known events that may trigger direct
or contingent financial obligation that is material to the Company, including default or
acceleration of an obligation.
The Parent Company is not subject to externally imposed capital requirements.
16. Retirement Plan
The Parent Company has a noncontributory defined benefit retirement plan covering substantially
all of its regular employees. Under this retirement plan, all qualified employees are entitled to
cash benefits after satisfying age and service requirements.
Provisions for pension obligations are established for benefits payable in the form of retirement
pensions. Benefits are dependent on years of service and the respective employee’s latest monthly
salary.
*SGVMC116162*
- 33 The Parent Company determined its transitional liability for defined benefit retirement plan merely
as the present value of the obligation since the Parent Company had no plan assets at the date of
the adoption. Transitional liability is amortized prospectively over five (5) years starting on
January 1, 2005.
The latest actuarial valuation report on the retirement plan is dated December 31, 2010.
The principal actuarial assumptions used in determining the retirement liability of the Parent
Company as of January 1, 2010 and 2009 are as follows:
2010
11.25%
9.00%
6.00%
31.8
Discount rate
Future salary increases
Average remaining working life (in years)
2009
15.20%
5.00%
5.00%
31.0
The discount rates used to arrive at the present value of the obligation as of December 31, 2010
and 2009 are 9.69% and 11.25%, respectively.
The amounts recognized in the parent company balance sheets follow:
Deficit (surplus)
Unrecognized amortization:
2010
21,847,360
15,196,930
6,650,430
2009
=10,080,515
P
12,421,022
(2,340,507)
(5,872,169)
P
=778,261
5,972,130
=3,631,623
P
The movements in the fair value of plan assets in 2010 and 2009 are as follows:
Contributions
2010
P
=12,421,022
5,229,490
738,073
(548,626)
(2,643,029)
P
=15,196,930
2009
=3,168,050
P
4,800,000
–
–
4,452,972
=12,421,022
P
The actual return on the plan assets of the Parent Company in 2010 and 2009 amounted to a loss
of P
=1.90 million and a gain of =
The movements in the present value of obligation are as follows:
Interest cost
Actuarial loss
2010
P
=10,080,516
2,143,246
1,134,058
(548,626)
9,038,166
P
=21,847,360
2009
=6,574,511
P
1,819,273
999,326
–
687,406
=10,080,516
P
*SGVMC116162*
- 34 The amounts of retirement expense included in ‘Salaries, wages and employee benefits’ in the
parent company statements of income are as follows:
Interest cost
Actuarial (gains) loss recognized
Amortization of transitional liability
2009
=1,819,273
P
999,326
–
(53,418)
252,228
=3,017,409
P
2010
P
=2,143,246
1,134,058
(738,073)
(163,104)
–
P
=2,376,127
2008
=1,988,492
P
788,666
–
32,268
252,227
=3,061,653
P
The movements in the ‘Retirement liability’ recognized in the parent company balance sheets are
as follows:
2009
=5,414,214
P
3,017,409
(4,800,000)
=3,631,623
P
2010
P
=3,631,624
2,376,127
(5,229,490)
P
=778,261
Retirement expense
Contributions
Movements in the unrecognized actuarial (gains) losses are as follows:
Actuarial loss (gain) during the year
Actuarial gain recognized
2010
(P
=5,972,130)
11,681,195
163,104
P
=5,872,169
2009
(P
=2,259,982)
(3,765,566)
53,418
(P
=5,972,130)
2010
P
=10,249,745
2,760,719
2,047,387
–
162,126
(23,047)
P
=15,196,930
2009
=5,091,030
P
1,764,648
4,843,861
700,000
32,842
(11,359)
=12,421,022
P
The major categories of plan assets follow:
Private equity securities*
Government debt securities
Deposits in banks
Due from BSP
Interest receivable
Trust fee payable
*This includes P
=0.81 million of the Parent Company’s own equity securities bought under SSPP (see Note 17).
The amounts of experience adjustments relating to the plan liabilities of the Parent Company
follow:
Deficit (surplus)
Changes in actuarial assumptions
Experience adjustments on plan
liabilities
Experience adjustments on plan assets
2010
P
=21,847,360
15,196,930
6,650,430
9,932,542
(894,376)
(2,643,029)
2009
P10,080,516
=
12,421,022
(2,340,506)
1,070,082
2008
P6,574,511
=
3,168,050
3,406,461
(3,766,312)
(382,676)
4,452,972
(206,448)
–
2007
=7,770,113
P
–
7,770,113
(9,785,892)
4,176,250
–
*SGVMC116162*
- 35 17. Special Stock Purchase Program (SSPP)
On July 20, 2007, the Parent Company’s BOD approved the proposal to set up an SSPP totaling
15,000,000 shares for the employees of the Parent Company who have been in the service for at
least one (1) calendar year as of June 30, 2007, as well as its BOD members, resource persons and
consultants (collectively referred to as “the Participants”). A Notice of Exemption under
Section 10.2 of the Securities Regulations Code had been approved by the SEC on
September 13, 2007. Notwithstanding the aforesaid confirmation by the SEC of the exempt
status of the SSPP shares, the SEC nonetheless required the Parent Company to include the SSPP
shares among the shares of the Parent Company which were registered with the SEC prior to the
conduct of its Initial Public Offering in October 2007. The registration of the Parent Company
shares, together with the SSPP shares, was rendered effective on October 5, 2007.
All 15,000,000 shares were exercised. The shares subject to the SSPP were sold at par value or
=1.00 per share. Total shares amounting to =
P
P11.74 million were paid in full, while the difference
totaling =
P3.26 million were paid by way of salary loan. Shares acquired through SSPP are subject
to a lock-up period of 2 years from date of issue, which ended on September 19, 2009.
Parent Company prior to the expiration of the lock-up period, the shares purchased by such
resigning employee or officer shall be purchased at cost by the Parent Company as Treasury
stock. As of December 31, 2009, 24 employees resigned (9 in 2009, 13 in 2008 and 2 in 2007)
and their shares totaling 808,100 (130,900 in 2009, 548,500 in 2008 and 128,700 in 2007) were
bought back by the Parent Company.
As approved by the Parent Company’s BOD, the fair value of the shares issued under the SSPP
was measured at the grant date using the price-earnings multiple model taking into account the
terms and conditions upon which the shares were granted. The fair value at grant date was
=1.33 per share. This transaction also resulted in an increase in equity by P
P
=1.53 million,
=2.16 million and =
P
P1.00 million recognized as ‘Share-based payment’ under equity in 2009, 2008
and 2007, respectively.
On September 19, 2009, which is the end of the lock up period, the 808,100 shares bought back at
cost was transferred to the Parent Company’s retirement fund upon reimbursement of the
=0.81 million paid by the Parent Company for those shares (see Note 16).
P
The expense arising from the share-based payment plan is recognized over the two-year lock-up
period. The expense recognized under ‘Salaries, wages and employee benefits’ in the parent
company statements of income amounted to P
=1.53 million in 2009 and P
=2.16 million in 2008.
18. Operating Lease Commitments
The Parent Company has entered into the following lease agreements for its office spaces:
(a) On September 30, 2008, a lease agreement with Sta. Elena Divisoria Condo was made for a
period of 60 months commencing on October 1, 2008 to September 30, 2013 with a 10.00%
escalation rate effective on the second year up to the fifth year of the lease term. The contract
was cancelled in May 2009.
*SGVMC116162*
- 36 (b) A lease agreement with Wynsum Realty was entered into for a period of 36 months
commencing on September 1, 2008 to August 31, 2010 with a 5.00% escalation on the
monthly rental on the second year of the lease term. The contract was renewed for a period of
3 years commencing on September 1, 2010 to August 31, 2013.
(c) On February 7, 2007, a lease agreement with Oakridge Properties (Unit 2503) was made for a
period of 36 months commencing on February 1, 2007 to January 31, 2010 with a 10.00%
escalation on the monthly rental payable effective on the 13th and 25th month of the lease
term. The contract was renewed for another 2 years commencing on February 01, 2010 to
January 31, 2012.
(d) Operating lease agreements with Oakridge Properties (Unit 2603) were entered into for a
period of 12 months, which commenced on December 1, 2008 and expired on
November 30, 2009. The contract was renewed for a period of 2 years commencing on
December 1, 2009 to November 30, 2011 with a 10.00% escalation on the aggregate monthly
rental on the 13th month of the lease term.
(e) In December 2005, a lease agreement with Oakridge Properties (Unit 2703) was entered into
for a period of 35 months, which commenced on February 1, 2006 and expires on
January 31, 2009. Renewal of this contract was made on January 6, 2009 for a period of 24
months commencing February 1, 2009 to January 31, 2011 with a 10.00% escalation rate on
the aggregate monthly rental effective on the 13th month of the lease term
Total rent expense of the Parent Company amounted to P
=11.74 million, =
P11.11 million and
=9.95 million in 2010, 2009 and 2008, respectively (see Note 22).
P
Future minimum rentals payable under non-cancelable operating leases are as follows:
Within one year
After one year but not more than five years
2009
=7,615,824
P
6,159,385
=13,775,209
P
2010
P
=11,225,119
3,122,961
P
=14,348,080
19. Marketing Expenses
Marketing and promotions
Advertising and publicity
2010
P
=27,448,244
4,950,676
P
=32,398,920
2009
=11,465,823
P
3,378,503
=14,844,326
P
2008
=38,631,019
P
5,269,536
=43,900,555
P
*SGVMC116162*
- 37 20. Other Operating Expenses
Repairs and maintenance
Taxes and licenses
Association dues
Insurance
Donations and contributions
Disallowance of input VAT by BIR
Miscellaneous
2010
P
=799,563
6,085,301
1,927,949
613,229
1,155,280
–
4,464,242
P
=15,045,564
2009
P508,566
=
2,253,135
2,066,643
754,666
1,209,115
1,338,804
2,673,515
=10,804,444
P
2008
P585,834
=
2,450,304
1,623,984
956,624
–
–
6,220,904
=11,837,650
P
‘Miscellaneous’ includes various expenses incurred for the business development of potential
foreign offices and other related expenses.
21. Realized Foreign Exchange Gains - Net and Other Income
‘Realized foreign exchange gains - net’ represents currency exchange income (net of losses)
arising primarily from trading third currencies to Philippine pesos. These third currencies are
collected from the remittance transactions.
‘Other income’ consists of:
Interest income (Note 6)
Rebates
Unrealized foreign exchange
gain - net
Dividends
Others
2010
P
=3,219,724
687,509
2009
=7,670,526
P
2,595,006
2008
=5,262,353
P
–
1,769,202
596,381
1,831,287
P
=8,104,103
5,172,171
34,242,442
2,594,154
=52,274,299
P
4,722,355
11,124,039
3,197,424
=24,306,171
P
Interest income pertains to interest earned from deposits and short-term placements with banks.
Rebates pertain to the refund of bank service charges.
22. Related Party 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.
*SGVMC116162*
- 38 In the ordinary course of business, the Parent Company transacts with its subsidiaries and with
directors, officers, stockholders and other related interests. Under the Parent Company’s existing
policies, these transactions are made substantially on the same terms and conditions as
transactions with other individuals and businesses of comparable risks. The Parent Company
engages in transactions with related parties consisting primarily of the following:
(a) Delivery fees in the Parent Company’s statements of income in 2010, 2009 and 2008, include
those arising from clients of subsidiaries and associates as follows:
IRCL
HKHCL
IAPL and WEPL
ISPL
IGRL
LSML
IERCAG
INZL
2010
=55,227,017
P
33,202,567
26,166,135
25,080,948
21,562,260
10,342,216
3,899,549
3,498,875
=178,979,567
P
2009
P51,071,109
=
25,364,567
30,787,242
27,016,303
22,736,884
9,633,356
4,368,628
2,697,639
=173,675,728
P
2008
=42,169,099
P
–
27,782,207
22,103,338
27,348,257
7,102,659
2,737,852
454,796
=129,698,208
P
(b) The Parent Company leases office spaces from Oakridge Properties. Rent expense amounted
to =
P9.25 million, P
=8.17 million and P
=8.02million in 2010, 2009, and 2008, respectively.
Oakridge Properties is owned by JTKC, one of the stockholders of the Parent Company.
(c) In 2009, the Parent Company subleased an office space in Singapore with Surewell Equities
Pte Ltd., a stockholder. Rental income in 2009 amounted to =
P1.03 million.
(d) The Parent Company’s retirement fund is maintained with Sterling Bank of Asia (SBA), an
affiliate, as trustee (see Note 16).
(e) The Parent Company has deposits amounting to P
=129.71 million with
SBA, an affiliate, as of December 31, 2010 and 2009, respectively. These deposits earned
=1.12 million and =
P
P1.16 million interest income in 2010 and 2009, respectively.
In addition to the related information disclosed elsewhere in the Parent Company’s financial
statements, the following are the yearend balances in respect of transactions with related parties
which were carried in terms that prevail in arm’s length transactions during the year:
Advances to related parties (Note 8):
Affiliates
Subsidiaries:
IAPL
I-Remit-USA
INZL
LSML
IERCAG
PSAGL
IGRL
2010
2009
P
=–
=3,743,285
P
–
1,778,138
9,285,149
4,454,735
54,579,655
–
5,099,127
1,261,382
1,805,866
10,617,540
2,791,720
–
878,984
5,548,649
(Forward)
*SGVMC116162*
- 39 -
IRCL
WEPL
Associates:
HKHCL
ISPL
Others
Advances from related parties (Note 13):
Subsidiaries:
PSAGL
WEPL
IAPL
2010
71,646
94,113
2009
56,610
–
3,021,191
–
197,819
78,581,573
2,944,333
2,181,783
213,813
=32,043,965
P
P
=70,214,989
–
3,946,101
P
=74,161,090
=494,322
P
7,255
–
=501,577
P
Advances to affiliates include cash advances to stockholders, officers and directors.
As of December 31, 2010 and 2009, no provision for credit losses has been recognized for the
advances to related parties.
In 2010, the Parent Company recognized dividend income amounting =
P0.60 million from
dividends declared by ISPL. In 2009, the Parent Company’s dividend income includes dividends
declared by ISPL (P
=14.40 million), IRCL (P
=9.54 million), WEPL (P
=3.93 million), IAPL (P
=3.30)
and PSAGL (P
=3.07 million). In 2008, the Parent Company’s dividend income includes dividends
declared by LSML (P
=2.55 million) and WEPL (P
=13.91 million).
The compensation of the key management personnel of the Parent Company in 2010, 2009 and
2008 are as follows:
Short-term employee benefits
Post employee benefits
Share-based program
2010
P
=19,605,330
549,541
–
=20,154,871
P
2009
=17,836,472
P
721,632
435,303
=18,993,407
P
2008
=16,227,206
P
1,035,615
618,250
=17,881,071
P
2010
2009
2008
P
=15,785,947
643,945
P
=16,429,892
=25,662,740
P
1,534,105
=27,196,845
P
=37,616,889
P
1,052,470
=38,669,359
P
23. Income Taxes
The provision for income tax consists of:
Current
RCIT
Final
Republic Act (RA) No. 9337, An Act Amending National Internal Revenue Code, provides that the
RCIT rate shall be 35.00% until December 31, 2008. Starting January 1, 2009, the RCIT rate shall
be 30.00%. It also provides that the interest allowed as a deductible expense is reduced by an
amount equivalent to 42.00% until December 31, 2008 and 33.00% starting January 1, 2009 of
interest income subjected to final tax.
*SGVMC116162*
- 40 An MCIT of 2.00% on modified gross income is computed and compared with the RCIT. Any
excess of the MCIT over the RCIT is deferred and can be used as a tax credit against future
income tax liability for the next three years. In addition, current tax regulations provide for the
ceiling on the amount of entertainment, amusement and recreation (EAR) expenses that can be
claimed as a deduction against taxable income. The actual EAR expenses incurred by the Parent
Company was =
P2.84 million, =
P2.62 million and =
P4.08 million in 2010, 2009 and 2008,
respectively. The allowed EAR limit was P
=2.80 million, =
P2.74 million, and P
=3.13 million in 2010,
2009 and 2008, respectively. Under the regulation, EAR expenses allowed as deductible expense
for taxpayers engaged in the sale of services, including exercise of profession and use of lease
properties, like the Parent Company, is limited to the actual EAR paid or incurred but not to
exceed 1.00% of net revenue.
RA No. 9504, An Act Amending National Internal Revenue Code, provides that starting
July 1, 2008, the optional standard deduction (OSD) equivalent to 40.00% of gross income may be
claimed as an alternative deduction in computing for the RCIT. For the 2010 and 2009 RCIT
computation, the Parent Company elected to claim itemized expense deductions instead of the
OSD.
As of December 31, 2010 and 2009, the deferred tax assets and liability recognized by the Parent
Company relates to the tax effects of the following:
Deferred tax assets on:
Subtotal
Less deferred tax liability on unrealized foreign
exchange gain
Net deferred tax assets
2010
2009
P
=281,692
249,069
530,761
=1,143,728
P
407,923
1,551,651
530,761
P
=–
1,551,651
=–
P
The Parent Company did not set up deferred tax assets on the following temporary differences:
Temporary differences on:
Accrued interest
Others
2010
2009
P
=2,074,213
393,793
381,961
P
=2,849,967
=1,894,391
P
2,085,271
1,068,597
=5,048,259
P
The management of the Parent Company believes that it is not highly probable that these
temporary differences will be realized in the future.
*SGVMC116162*
- 41 A reconciliation of the statutory income tax rates and the effective income tax rates in 2010, 2009
and 2008 follows:
Statutory income tax
Tax effects of:
Unrecognized deferred tax asset
Interest income subject to final tax
Nondeductible interest expense
Others
Effective income tax
2010
30.00%
(1.15)
(0.57)
0.56
–
28.84%
2009
30.00%
(2.59)
(0.77)
0.76
–
27.40%
2008
35.00%
2.02
(0.67)
0.66
(3.98)
33.03%
24. Contingencies
The Parent Company has various contingencies arising in the ordinary conduct of business which
have either pending decision by the courts or are being contested, the outcome of which are not
presently determinable.
In the opinion of management and its legal counsel, the eventual liability under these lawsuits or
claims, if any, will not have a material or adverse effect on the Parent Company’s financial
position and results of operations. The information usually required by PAS 37 is not disclosed on
the grounds that it can be expected to prejudice the outcome of these lawsuits, claims and
assessments.
25. Approval of the Release of the Parent Company Financial Statements
The accompanying financial statements of the Parent Company were approved and authorized for
issue by the BOD on March 25, 2011.
26. Supplementary Information Required Under Revenue Regulations No. 15-2010
The Parent Company reported and/or paid the following types of taxes in 2010:
Value added tax (VAT)
The Parent Company’s sales are subject to output VAT while its purchases from other VATregistered individuals or corporations are subject to input VAT. The VAT rate is 12.0%.
a. Output VAT for 2010
Zero-rated sales of goods and services consists of export sales and those rendered to persons
or entities whose exemptions are provided under special laws or international agreements to
which the Philippines is a signatory.
The Parent Company, being engaged in the business of fund transfer and remittance services
of any form or kind of currencies or monies, is registered as a zero-rated VAT taxpayer under
Section 108 (B)(2) of NIRC .
*SGVMC116162*
- 42 b. Input VAT
Balance at January 1, 2010
Current year’s domestic purchases/payments for:
Goods other than for resale or manufacture
Capital goods subject to amortization
Capital goods not subject to amortization
Services lodged under other accounts
Total
Adjustments
Balance at December 31, 2010
Amount
=27,821,193
P
3,961
24,493
5,357
754,737
788,548
(115,937)
=28,493,804
P
c. Withholding taxes
Details of total remittances in 2010 and balance as of December 31, 2010 of withholding taxes
are as follows:
Withholding taxes on compensation and benefits
Expanded withholding taxes
Total
Remittances
=9,573,703
P
4,193,197
=13,766,900
P
Balance
=225,036
P
589,960
=814,996
P
d. Taxes and licenses
Other taxes and licenses includes all other taxes, local and national, and are recognized as
‘Taxes and licenses’ included under ‘Other operating expenses’. Details follow:
Amount
Documentary stamp taxes:
Applied on loans
Applied on other transactions
Licenses and permits
Others
=3,000,344
P
2,892
2,236,950
845,115
=6,085,301
P
*SGVMC116162*