SRC Form 17-A

Transcription

SRC Form 17-A

IONICS, INC. and SUBSIDIARIES
ANNUAL REPORT
December 31, 2007
(SRC Form 17-A)
SEC Number:
107432
File
Number:________
IONICS, INC. AND SUBSIDIARIES
(Company’s Full Name)
Ionics Building
Circuit Street,
Light Industry and Science Park of the Philippines, Cabuyao, Laguna
(Company’s Address)
(049) 546 - 0095
(Telephone Number)
December 31, 2007
(Fiscal Year Ending)
(month & day)
Annual Audited Financial Statements
(SRC Form 17-A)
Form Type
Amendment Designation (if applicable)
Period Ended Date
Secondary License Type and File Number
1
TABLE OF CONTENTS
SEC FORM 17-A
Page
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
5
10
11
11
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
11
13
22
24
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9
Item 10
Item 11
Directors and Executive Officers of the Issuer
Executive Compensation
Security Ownership of Certain Beneficial
Owners and Management
Item 12
Certain Relationships and Related Transactions
25
28
30
31
PART IV - CORPORATE GOVERNANCE
Item 13
Corporate Governance
31
PART V - EXHIBITS AND SCHEDULES
Item 14
a. Exhibits and Reports on SEC Form 17-C
b. Reports on SEC Form 17-C (Current Report)
33
33
SIGNATURES
34
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES
35
INDEX TO EXHIBITS
111
2
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended December 31, 2007
2. SEC Identification Number
107432
3. BIR Tax Identification No.
000-124-671-000
4. Exact name of issuer as specified in its charter IONICS, INC.
5.
Philippines............................................................... 6.
(SEC Use Only)
Province, Country or other jurisdiction of
Industry Classification Code:
incorporation or organization
7. Circuit Street, Light Industry and Science Park of the Philippines,
Bo. Diezmo, Cabuyao, Laguna
Address of principal office
Postal Code
4025
(049) 546-0095 and Fax Number (049) 546-0073
Issuer's telephone number, including area code
9.
In 1996, the Company changed its principal place of business from Makati, Metro Manila to Cabuyao,
Laguna.
10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the SRC
Title of Each Class
Common
Number of Shares of Common Stock Outstanding
and Amount of Debt Outstanding
$0.01 par value, issued and outstanding,
428,287,496 shares (net of 1.4 million shares of
treasury stock with cost of $240,008)
11. Are any or all of these securities listed on a Stock Exchange.
Yes [ x ]
No [ ]
If yes, state the name of such stock exchange and the classes of securities listed therein:
Philippine Stock Exchange
Common
3
12. Check whether the issuer:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11
of the SRC and SRC Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the
Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was
required to file such reports);
Yes [ x ]
No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [ x ]
No [ ]
13. Based on the closing price at the Philippine Stock Exchange on December 31, 2007 at $0.033 per share, the
Company’s common shares held by non affiliates as of December 31, 2007 would have a current market
price of $10,428,438.
14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of the Code
subsequent to the distribution of securities under a plan confirmed by a court or the Commission.
Yes [ x ]
No [ ]
4
PART I - BUSINESS AND GENERAL INFORMATION
Item 1. Business
Ionics, Inc. and Subsidiaries (The Group)
Ionics, Inc. (the Parent Company)
The Parent Company was incorporated in the Philippines on September 10, 1982 and started commercial
operations in July 1987. Since 1987, the Parent Company diversified its operations to include the assembly of
printed circuit boards and the assembly and packaging of finished products or box built, otherwise known as
Electronic Manufacturing Services.
In September 1999, the Parent Company spun off its Electronic Manufacturing Services to a wholly owned
subsidiary, Ionics EMS, Inc. (Ionics EMS). Net assets with a book value of P530 million as of April 30, 1999
were transferred to EMS under a tax-free exchange for shares of stock of EMS. Accordingly, the Parent
Company ceased to be a manufacturing company and amended its primary purpose from that of a manufacturing
entity to that of a holding company.
Ionics EMS (The Spin-off Subsidiary)
Ionics EMS was incorporated on September 21, 1999 to take over the Electronic Manufacturing Services
business of the Parent Company. Certain assets and liabilities of the Parent Company were transferred to Ionics
EMS in a restructuring exercise that took effect on May 1, 1999. Its operations include printed circuit board
assembly, box build assembly (finished product assembly), disk drive, magnetic head assembly, compact disk
read-write assembly, systems and subsystems assembly, as well as design and testing services.
On February 25, 2000, Ionics EMS offered its shares of stock to the public and became a public company listed in
the Singapore Exchange Securities Trading Limited (Singapore Exchange).
In late 2004, Ionics EMS established a manufacturing facility in the People’s Republic of China which is
managed by IEL, a subsidiary registered in the Cayman Islands. IEL started its operations in 2006. On
September 23, 2007, EMS entered into a share purchase agreement with a third party, wherein the latter will
purchase 50% of the total shares of EMS.
In relation to this agreement, both parties executed a shareholders’ agreement transforming IEL into a joint
venture between EMS and the third party, with corresponding changes in the board of directors and key
management personnel.
In December 2007, IEL filed for a change of its corporate name to Ionote, Limited.
Ionics Properties, Inc. (IPI)
IPI was incorporated on July 8, 1997 primarily to own the land, buildings, houses, apartments and other
structures of whatever kind of the Ionics Group of Companies. IPI started commercial operations in January
1998.
Ionics Circuits Limited (ICL)
Formerly Rising Moon Limited, ICL was incorporated in the Cayman Islands on July 5, 2000 with limited
liability. On February 14, 2001 Rising Moon changed its corporate name to ICL.
Iomni Precision, Inc. (I-Omni)
Iomni Precision, Inc. was incorporated in the Philippines on June 20, 2000 primarily to manufacture, assemble,
build, trade, distribute, and to sell on a wholesale basis plastic products, plastic parts, plastic molds and injection
molds and related products of every kind and description, and other disposition of plastic parts and related
products, for its own account as principal or in a representative capacity.
5
The Company’s registered office address is No. 14 Mountain Drive, Light Industry and Science Park of the
Philippines II, Barangay La Mesa, Calamba City, Laguna.
Subsequently on January 20, 2008, the Parent Company acquired the full ownership of Iomni. Iomni will house the
Groups’ newly acquired contract with a Silicon Valley solar cell company for the solar cell market.
Synertronix, Inc. (SI)
SI was registered with the Securities and Exchange Commission on May 10, 1990, to manufacture, purchase or
otherwise acquire, buy and sell retail and wholesale, assemble, produce, or otherwise dispose of, and generally
deal in components, parts and devices of all kinds and types used in connection with electronic and electrical
machinery, appliances and equipment including but not limited to capacitors, semi-conductors, condensers,
transformers, for export abroad and for constructive exports to local companies. SI started commercial
operations in June 1998.
On August 15, 2003, the Parent Company decided to discontinue the operations of SI. Accordingly, the accounts of
SI are reflected in the consolidated financial statements as a separate line under discontinued operations.
Line of Business
There are basically two general categories of electronics manufacturers or assemblers in the region, the Original
Equipment Manufacturer (OEM) and the Contract Electronics Manufacturer (CEM). OEMs are companies
engaged in the manufacture of electronic products and components with patent or design owned by a foreign
affiliate or parent company. These firms include the local subsidiaries of multinational companies like Motorola,
Philips, Texas Instruments, Intel, and Matsushita.
On the other hand, CEMs are firms involved in the production of electronic items similar to those produced by
OEMs. These firms are basically independent, third party manufacturers or assemblers, which do not have any
corporate affiliations with their respective customers. CEMs therefore undertake subcontracting work only, and
generally provide labor and manufacturing overhead as their basic inputs in the assembly of electronic products.
The Group is essentially a CEM. Most of the Group’s “end” products, therefore, are components and
subassembly which are eventually used as inputs for the finished products of its customers. The Group can
accommodate most types of electronic manufacturing and assembly projects. Customers provide the
specifications and blue print or prototype of a component or product that they want to be manufactured or
assembled and the Group delivers the finished item.
The Group provides “On Consignment” or “Turnkey” manufacturing arrangements to its clients. Under an “On
Consignment” arrangement, the Group furnishes labor and manufacturing overhead inputs, while the product
design and raw or input materials are provided by the customer. Under the “Turnkey” arrangement, the Group
provides all production inputs for its clients. The product design, however, is still provided and owned by the
client.
In 2002, one of the Group’s subsidiaries had successfully offered design services to its customer and also added an
Original Design Manufacturer (ODM) component to its business line.
Products
The following is a brief description of the primary products produced by the Group:
Printed Circuit Board Assembly (PCBA) - This is the component for Hard Disk Drive Controller Card,
Floppy Disk Drive Controller Card, Facsimile Card, Tuners, Industrial Equipment Boards, Medical
Equipment, Computer Board, Transreceivers.
Printed Circuit Boards (PCB) - A multilayered PCB for third party users.
6
Phone, Communication Boards - Audio card, Keyboard card and Mother Board for notebook (laptop)
Computer.
Chip-on-board Assembly - This is the component for Watch Modules, Programmable Boards, Thick
Film Hybrids and PCMCIA.
Head Carriage Assembly - This is the component for Hard and Floppy Disk Drive Heads.
Wire Harness Assembly - This is the component for the Cable and Panel Assembly for Computers.
Coil Winding and Level Assembly - This is the component for Voice Coil and Meter Coil.
Component Assembly - This is the component for Bridge Rectifiers, Photo Detectors, and IR Devices.
Flexible Printed Circuit Board Assembly - This is the component for Hard Disk Drive Magnetic Heads
(HSA).
Display Assembly - This is the component for Numeric Clock Display.
Finished Product Assembly/Box Built - This is the component for Radar Detector, Facsimile, Remote
Control, Floppy and Hard Disk Drive, Notebook Computer, Cellular Phone, Pager, Satellite Receiver, and
CD ROM.
CD-RW - This is a combination of the Printed Circuit Board (PCB) Assembly and Drive Assembly
contained in a single metal package called as CD-RW Assembly.
M-SystemDisk on Key/Thumb Drive Project - The DiskOnKey is a unique patented solution storage
media which offers consumers trusted quality, reliability, extreme security and the industry’s leading
product warranty.
System in Package Solution (SiPS) - A PCBA composed of 0201 components and flip chips. For
Cellular Phone application.
AV Engine - This component is used for DVDR application.
RF Tuners and Amplifiers - Modules that deliver high-performance, cost-effective TV, DTV and FM
radio to mainstream PC desktop and mobile platforms.
Electronic Reader/Electronic Book - A portable device specifically for reading applications.
Irecord - personal media recorder that records video and audio data onto USB mass storage devices,
including the Apple Ipod and Sony Playstation.
Assembly of Amplifer or Spliter (VP-200N)/ distributor switch (VP211DS)
Information on export sales and the relative contribution of each segment (based on product line) to total sales is
fully disclosed in Note 28 to Consolidated Financial Statements.
Significant Customers
The top four customers collectively accounted for 68% and 55% of the Group’s sales in 2007 and 2006,
respectively. The Group anticipates that concentration of business in major customers will continue in the
foreseeable future, although the Group’s management is starting new relationships with other customers.
7
Distribution Method
The bulk of the Group’s products are intermediate products which are shipped to the customers’ manufacturing
plants in Asia, USA and Europe for incorporation or further assembly into the final finish products.
Competition, Status of New Products and Business Risk
The Group competes with other electronic manufacturers both domestic and foreign. The market for PCBA and the
other product lines of the Group are subject to normal price, service, and quality competition. Among the Group’s
top competition are from the following:
a) Integrated Microelectronics Inc. g) Foxconn
b) Flextronics
h) Jabil Circuit
c) Sanmina-SCI
i) Elcoteq Network
d) Celestica
j) Venture Manufacturing
e) Benchmark Elec.
k) Viasystems Group
f) Laguna Electronics Inc.
While, the traditional PC peripheral business has driven to build Ionics EMS’ strength in the
telecommunications, automotive electronics and medical and consumer product lines, EMS has shifted its
resources and established more flexible and adaptable manufacturing platforms so it can readily shift production into
various products and components on the same production floor. In 2003, there was a growing trend for most endcustomers to outsource product design and design-for-manufacturing functions to its EMS partners.
Accordingly, on this year EMS has started focusing on ODM services and is making good headway in this field.
The EMS China operations which started in March 2006 has contributed on the revenue front, but its overall
performance fell below expected levels. Nevertheless, it continues to be upbeat about its potential as numerous
business opportunities are in the pipeline.
On September 23, 2007, the EMS entered into a share purchase agreement with Note AB, a Swedish Company, on
the sale of its 4,500,000 shares in Ionics EMS limited or equivalent to 50% equity interest. The closing date was
on November 12, 2007. On December 07, 2007 the shareholders approved the change of name of the
Corporation from Ionics EMS Limited to Ionote Limited to reflect the entry of Note AB as the Company’s
partner in its China.
The new partnership has open the gateway to Ionics, EMS membership to “EMS-Alliance”, a coalition of five
independent EMS providers from Europe, North America, India, Brazil and the Philippines cooperating to fulfill the
new demands of customers across global markets.
The members aggregate their purchasing specialties, capabilities and volumes for optimized global pricing using
a common web-based technology platform. Aside from the material procurement benefits, the group links to
ensure swift information sharing in “best of the best” global practices and seamless transfer of production and
materials through flexible logistics. The synergy will increase our cost competitiveness with prospective
customers.
Further, to enhance its competitiveness in the industry, equal emphasis is given to overhaul the existing
integrated supply chain management system and controls.
Groups’ newly acquired contract with a Silicon Valley solar cell company for the solar cell market.
8
Sources and Availability of Raw Materials
The customers under a consignment arrangement supply the bulk of raw material components needed in the
manufacturing of their products. However, in response to global competition, the Group started building up its
raw materials inventory for turnkey transactions. Among the principal suppliers of the Group are the following:
Transtechnology Pte., Ltd.
Avnet Asia Pte. Ltd.
Samsung Asia Pte. Ltd.
ECI Telecom, Inc.
Siix Logistics Phils., Inc.
Sierra Monolithics
Oriental Printed Circuits Board
Future Electronics
Eastronics.
Nisko Projects Electronics Com
The Group has no major purchase commitment to any of its suppliers. Purchases of raw materials and supplies are
based on ordinary purchase transactions covered by a purchase order. See related discussion on Note 33 to the
Audited Consolidated Financial Statement.
Sales
The Group’s revenue is purely from export sales except for IPI and the Parent Company, which derive their
revenue from the lease of properties. Amounts of revenue, profitability, and identifiable assets attributable to the
Group’s operations for 2007, 2006, and 2005 are as follows:
(In US Dollars)
Export sales
Loss on Operation
Total Assets
2007
118,252,200
(13,393,429)
72,908,900
2006
127,338,228
(4,459,414)
81,593,710
2005
62,575,556
(11,508,370)
67,424,450
See related discussion on Note 28 of the Consolidated Financial Statements.
Transaction with and/or dependence on related parties
The Group has no significant transactions that are dependent on related parties except for the transactions
discussed in Item 12 of this report and in Note 22 of the Consolidated Financial Statements.
Patents, trademarks, licenses, franchises, concessions, royalty agreements, or labor contracts, including
duration.
Not Applicable to the Group.
Need for any governmental approval of principal products or services.
None
Effect of existing or probable governmental regulations on the business.
None
9
Estimate of amount spent for research and development activities of the last completed fiscal year.
None
Cost and effects of compliance with Environmental Laws:
Ionics EMS’ plants are located in industrial parks with a centralized water treatment system.
Employees
As of December 31, 2007, the Group has a total of 2,713 employees consisting of forty nine (49) managers,
seven hundred eight (708) administrative personnel and one thousand nine hundred fifty six (1,956) factory
workers.
Aside from basic salaries, employees receive vacation and sick leave credit, transportation allowance, free
medical and dental, group insurance benefits and funeral assistance.
There is no existing collective bargaining agreement or labor union in the Group.
Debt Issues
Investment Company Securities
Item 2. Properties
As of December 31, 2007 the Group’s manufacturing operations are conducted in the following plants:
The EMS-2 Plant is located at the Carmelray Industrial Park II in Calamba, Laguna and has an area of 12,918
square meters. The land and building are owned by IPI. The property is leased to EMS for a period of ten (10)
years from June 8, 2005 to June 7, 2015.
The EMS-3 Plant is located at the Light Industry Science Park of the Philippines (LISPP) in Cabuyao, Laguna and
has an area of 5,589 square meters. The EMS-4 Plant is also located at the LISPP in Cabuyao, Laguna and has an
area of 3,753 square meters. Plants 3 & 4 are leased from Valmora Realty Corp. (formerly, “Crismida Realty
Corp.”), a company controlled by one of the Parent Company’s stockholders. On January 1, 2006, the Company
entered into a new lease agreement with Valmora Realty, Inc. for the re-opening of Plant 3. The new lease is for a
period of five years commencing on January 1, 2006 with annual escalation rate of 10%.
The EMS-5 and EMS-6 Plants are also located at the LISPP in Cabuyao, Laguna and have an aggregate area of
11,557 square meters. The land and the building thereon are owned by the Parent Company. The plants are
leased to EMS for a period of five (5) years from May 1, 2004 to April 30, 2009. Monthly rental is $4.35 per
square meter in the first year with an annual escalation rate of 5%.
The EMS-7 Plant is located at the LISSP II also in Calamba, Laguna and has an aggregate area of 17,710 square
meters. The land and building thereon are owned by IPI. The property is leased to EMS for a period of five (5)
years from January 1, 2001 to December 31, 2005. On June 1, 2005, EMS terminated its lease agreement for
Plant 7 and the facility was rented out to another PEZA registered company.
10
The EMS-8 Plant (China Factory) is located at the Xin Yang Road, Lin Cun Industrial Center, Tangxia,
Donguan Guangdong, P.R.C. with aggregate area of 11,245 square meters. The land and building facilities are
owned by Lin Chun Industrial and Dev’t. Co.
The Plant of Iomni Precision, Inc. is located at the Mountain Drive LISPP II Barangay La Mesa, Calamba,
Laguna. It has an aggregate total area of 10,748.86 square meters of covered factory building and paved open
space.
SI’s plant has an aggregate area of 18,617 square meters and is located at Barangay Batino, Calamba, Laguna. SI
owns the land and the building.
Currently, the Company has no plan of acquiring properties in the next twelve (12) months.
Item 3. Legal Proceedings
As of December 31, 2007, there are no material pending legal proceedings to which the Parent Company or any of
its subsidiaries is a party or of which any of their property is subject except for the matters discussed in Note 30 to
the Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders for the fourth quarter of 2007.
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matter.
Stock Prices
Latest price as of
April 10, 2008
2007
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2006
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2005
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(Amounts in US Dollar)
HIGH
LOW
HIGH
(Amounts in PhP)
LOW
0.056
0.056
1.10
1.10
0.047
0.049
0.040
0.033
0.047
0.049
0.040
0.033
2.30
2.30
1.86
1.42
2.30
2.30
1.86
1.42
0.027
0.040
0.039
0.044
0.027
0.040
0.039
0.044
1.36
2.14
1.98
2.18
1.34
2.10
1.96
2.16
0.027
0.021
0.019
0.021
0.027
0.021
0.019
0.021
1.52
1.20
1.06
1.10
1.48
1.18
1.06
1.10
The Company’s common stock is listed in the Philippine Stock Exchange.
The number of shareholders of record as of February 28, 2008 is 1,300 holding a total of outstanding common
shares of 428,287,496 exclusive of 1.4 million treasury stock with a cost of $240,008.
11
The following were the top 20 stockholders based on the number of shares held and percentage to total shares
outstanding as of February 28, 2008:
%
Name
No. of Shares
167,576,550
45,814,500
36,400,000
26,884,000
21,669,850
11,844,325
11,476,000
10,212,500
10,051,380
7,548,000
5,780,800
5,007,300
4,281,175
3,821,000
3,588,550
3,248,681
2,668,354
2,515,750
2,442,200
2,320,308
Aqua Holdings, Inc.
Social Security System
Leonardo Siguion Reyna
Lu &/or Yang Huang Un-Chyong, Yang Tah
UNICAPITAL Securities, Inc.
Abacus Securities Corporation
Mandarin Securities Corporation
Guillermo D. Luchangco
Lawrence C. Qua
ATR-KIM Eng Securities
Guild Securities, Inc.
CITIBANK N.A. - CITIOMNIFOR
Raymond C. Qua
BDO Securities Corp.
BPI Securities Corp.
Meliton C. Qua
Cecilia Q. Chua
SB Equities, Inc.
CITISECURITIES, Inc.
Ma. Asuncion Q. Cedilla
39.13
10.66
8.50
6.28
5.04
2.76
2.67
2.38
2.35
1.76
1.35
1.17
1.00
0.89
0.84
0.76
0.62
0.59
0.57
0.54
Dividends per Share
2007 None
2006 None
2005 None
Dividends shall be declared at such time and in such percentage as the Board of Directors may determine, but no
dividends shall be declared or paid except from the surplus profits arising from its business nor shall any
dividends be declared that will impair the capital of the Parent Company.
Recent Sales of Unregistered or Exempt Sales
Description of Registrants Securities
The registrant has an authorized common stock of 1,000,000,000 shares at par value of $0.01.
outstanding shares as of December 31, 2007 is 428,287,496 net of 1.4 million treasury shares.
The issued and
No transfer of stock or interests which will reduce the ownership of Filipino citizens to less than the required
percentage of the capital stock as provided by existing laws shall be allowed or permitted to be recorded in the
books of the Company.
Debt Securities
Stock Options
12
Securities Subject to Redemption or Call
Warrants
Market information for Securities Other Than Common Equity
Other Securities
Item 6. Management Discussion and Analysis or Plan of Operation.
MANAGEMENT PLAN FOR THE YEAR 2008
Facing the challenges of the 2007 performance, the Group moving forward commit for improved financial
results in 2008. We expect that the painful but necessary adjustments we have undertaken will result in more
efficient operations and allow us to develop new customers and markets with a much stronger competitive
position. We are in a very dynamic industry and properly positioned, a company with our experience and
manufacturing expertise can have a strong recovery.
Currently EMS’ has undertaken the following:
Subject to regulatory approval, application of additional paid-in capital to reduce the deficit;
Implementation of measures to improve its receivable position, inventory management, product
profitability;
Implementation of cost-saving measures; and
Major management restructuring.
Together with a fifty percent buy-in of NOTE AB, a Swedish EMS firm, of IONOTE Limited, a subsidiary
registered in the Cayman Islands, we see a good and promising relationship. Cooperating to fulfill the new
demands of customers across global markets, with members aggregate their purchasing specialties and
seamless transfer of production and materials through flexible logistics. The synergy will increase our cost
of competitiveness with prospective customers.
Designing its own or collaborating with customers on their product designs will get increasing attention.
The evident shift in the EMS industry towards original design manufacturing is gradually laying the
groundwork for this eventual development. These developments attest to EMS’s confidence in the recovery
of its business starting this year.
Groups newly acquired contract with a Silicon Valley solar cell company, for the solar cell market. The said solar
solar technology company with extensive expertise in the optics and semi conductor industries together with
Iomni’s management team that had vast experience in manufacturing in both plastics injection and
assembly, will be working hand in hand to generate revenues and to compete successfully on the world market.
The parent company is financially committed to support the operations of Iomni and EMS .
13
Synertronix facilities are available as alternative plant site or available for lease or sale whichever opportunity
comes first to convert this non-performing facility into a working asset.
Ionics Properties, Inc. expects to continue to generate income in 2008. As
of the filing date, the management of the Group is not aware of:
A. any significant expenditures for products research and development;
B. any expected significant change in number of employees; except for the item discussed in Note 35 to the
Consolidated Financial Statement;
C. any known trends, events or uncertainties that have or are reasonably likely to have a material impact on the
registrant’s short term or long term liquidity;
D. any event that will trigger direct or contingent financial obligation that is material to the company, including
any default or acceleration of an obligation;
E. any 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;
F. any known trends, events or uncertainties that have or that are reasonably expected to have a material impact
on the net sales or revenues or income from continuing operations; and
G. any seasonal aspects that had a material effect on the financial condition or results of operations.
IPI, a wholly owned subsidiary, acquired the leasehold and land rights over two (2) parcels of land located in an
export zone in Carmelray II, Calamba City, Laguna and a factory thereon. In addition, IPI acquired the
leasehold improvements of Ionics EMS in Plant 7.
Sources of liquidity are from operations of the Group, disposal of non-performing assets and borrowings.
Below are the Consolidated Key Financial Ratios for the years ended December 31, 2007 and December 31,
2006.
December 31
2007
%
Revenue Growth
Gross Profit (Loss) Margins
Net Income (Loss) Margins
Return on Equity
Current Ratio
Leverage Ratio
(7.14)
(6.23)
(9.87)
(18.01)
1.65
34.52
December 31
2006
%
103.49
0.31
2.26
5.74
1.87
35.80
1) Revenue Growth
The revenue growth is the Group’s increase in revenue for a given period. Revenue growth is computed from
current revenue less revenue of the prior year divided by revenue of the prior year. The result is expressed in
percentage.
2) Gross Profit Margin
The gross profit margin reflects the management’s policies related to pricing and production efficiency.
computed by dividing gross profit by net sales. The result is expressed in percentage.
3) Net Income Margin
Net income margin is the ratio of the Group’s net income after tax for a given period.
dividing net income by net sales. The result is expressed in percentage.
14
This is
This is computed by
4) Return on Equity
The return on equity ratio is the ratio of the Group’s net income to stockholders’ equity. This is computed by
dividing net income by total stockholders’ equity. The result is expressed in percentage. This measures the
management’s ability to generate returns on their investments.
5) Current Ratio
The current ratio is the ratio of the Group’s current resources and its current obligation.
dividing current assets by current liabilities. The result is expressed in percentage.
This is computed by
6) Leverage Ratio
Leverage ratio shows the balance that the Group’s management has struck between forces of risk versus cost.
This is computed by dividing total net liabilities by shareholders’ equity and net liabilities.
FINANCIAL PERFORMANCE
2007
CONSOLIDATED RESULTS OF OPERATIONS
The Group’s turnover in 2007 decreased by $9,086 thousand or 7% from $127,338 thousand in 2006 to $118,252
thousand in 2007. The decrease in turnover was brought about by the lower market demand and some customers of
the Group have reached their end-of-life mode. The Group performance resulted in a gross loss of $7,368
thousand in 2007 from a gross income of $394 thousand in 2006. The major reasons for the higher gross loss are
inventory provision and losses, valuation allowances and low capacity utilization.
Operating expenses increased by $1,172 thousand from $4,853 thousand in 2006 to $6,026 thousand in 2007 due to
increase in sales from customers which are subject to commission and impairment losses.
The Group posted a net non-operating loss of $13,394 thousand in 2007 as compared to $4,459 thousand in 2006
due to the following:
1.
2.
3.
4.
5.
6.
Net interest expense increased from $163 thousand in 2006 to $643 thousand in 2007 due to decrease in
interest income from money market placement and increase in bank borrowings.
The Group reported a foreign exchange loss of $462 thousand in 2007 from a foreign exchange gain
position of $62 thousand in 2006.
Equity in net losses of associates decreased by $28 thousand from an equity loss of $275 thousand in
2006 to an equity net loss of $247 thousand in 2007.
Non-operating income decreased by US$3,440 from the gain on sale of available-for-sale investment of
$1,769 thousand in 2007 from the gain on sale of investment of $5,209 in 2006.
Rent income of the Group increased by $48 thousand from $2,046 thousand in 2006 to $2,094 thousand
in 2007.
The Group reported other income of $76 thousand in 2007 from $96 thousand in 2006.
On August 15, 2003, the Parent Company decided to discontinue the operations of SI. Accordingly, the net
assets of SI were written down to its net realizable value. Loss from discontinued operations for the periods
ended December 31, 2007 and 2006 amounted to $221 thousand and $174 thousand, respectively.
With the foregoing, the Group reported a consolidated net loss of $7,749 thousand in 2007 from consolidated net
income of $2,873 thousand.
The summarized revenues and net income (losses) of the Group for the year ended December 31, 2007 are
presented as follows:
15
COMPANY
Parent
EMS
IPI
Ionics Circuits, Limited
Iomni Precision, Inc.
Loss from discontinuing operations
TOTAL
Reclass/Eliminating entries
Consolidated
(In US Dollars)
REVENUE NET INCOME (LOSS)
633,665
(16,317,657)
116,604,679
(14,044,606)
2,527,910
1,960,522
617,571
875,431
3,276,096
(665,793)
(220,776)
123,659,921
(28,412,879)
(5,407,721)
20,664,462
118,252,200
(7,748,417)
CONSOLIDATED FINANCIAL POSITION
As of December 31, 2007, the consolidated assets of the Group amounted to $72,909 thousand which is $8,685
thousand lower than the $81,594 thousand as of December 31, 2006. Major factors attributed to the decrease in
the Group’s total assets were the decrease in receivables and inventories due to lower production in business
activity during the year.
Current ratio declined from 189% in 2006 to 165% in 2007. Simultaneously, the Group’s liability to equity ratio
(leverage ratio) increased from 63% in 2006 to 70% in 2007. The decline in current ratio and increase in liability to
equity ratio were due to the increase in payables which in turn, were attributable to the production demand of new
customers.
At the end of December 31, 2007, the Group has no long-term debt.
INDIVIDUAL RESULT OF OPERATIONS
The individual performance of the subsidiaries for the year ended December 31, 2007 are as follows:
Ionics EMS, Inc.
EMS’s turnover in 2007 decreased by $10,733 thousand or 8.43% from $127,338 thousand in 2006 to $116,605
thousand in 2007. The decrease in turnover was brought about by the lower market demand and some customers
have reached their end-of-life mode. The Group performance resulted in a gross loss of $8,151 thousand in 2007
from a gross loss of $607 thousand in 2006. The major reasons for the higher gross loss are inventory provision and
losses, valuation allowances and low capacity utilization.
Operating expenses increased by $844 thousand from $4,003 thousand in 2006 to $4,847 thousand in 2007 due to
increase in commission brought about by the increase in sales . Other charges increased from $795 thousand in
2006 to $1,047 thousand in 2007 due to foreign exchange loss and increase in interest expense from interestbearing
advances from parent company, affiliates and bank loans.
With the foregoing, the 2007 net loss reached $14,045 thousand or from the net loss of 2006 of $5,455 thousand.
Ionics Properties, Inc.
IPI contributed intercompany rental income of $434 thousand for each year in 2007 and 2006, respectively. The
Company also contributed third-party rent income of $2,094 thousand in 2007 and $2,046 thousand in 2006.
Operating expenses amounted to $620 thousand in 2007 and $612 thousand in 2006. Net income amounted to
$1,961 thousand and $1,758 thousand in 2007 and 2006, respectively.
16
ICL reported a net income amounting to $875 thousand in 2007 compared to $5,359 thousand in
2006, which are attributable to the sale of available-for-sale investments to a third party.
Synertronix, Inc.
SI are reflected in the consolidated financial statements as a separate line under discontinued operations (see
related discussion on Note 29 to the Consolidated Financial Statements).
Iomni turnover in 2007 amounted to US$3,276 thousand and posted a net loss amounting to $674 thousand in
2007.
2006
The Group’s consolidated sales of $127,338 thousand during the year 2006 surpassed the 2005 sales
performance of $62,576 thousand or an increase of $64,762 thousand or 103% brought about by several factors,
including the significant increase in the number of customers, capacity expansion, volume ramp up of China
plant through Ionics EMS, Limited (a wholly-owned subsidiary of EMS) and the reopening of a plant in the
Philippines.
As a result, the consolidated cost of sales increased by $58,748 thousand or 86% from $68,196 thousand to
$126,944 thousand in 2005 and 2006, respectively.
The Group performance posted a consolidated gross profit of $394 thousand in 2006 from a gross loss of $5,620
thousand in 2005.
Consolidated operating expenses decreased by $1,035 thousand from $5,888 thousand in 2005 to $4,853
thousand in 2006 due to streamlining of administrative expenses.
The Group posted a net non-operating income of $6,783 thousand in 2006 as compared to $2,371 thousand in 2005
due to the following:
1.
Net interest income decreased from $437 thousand in 2005 to an interest expense of $163
thousand in 2006 due to the termination of money market placements and the increase in the
interest expense from interest-bearing advances from affiliates.
2. The Group reported a foreign exchange gain of $62 thousand in 2006 from a foreign exchange
loss position of $52 thousand in 2005.
3. Equity in net earnings of affiliates decreased by $617 thousand from an equity income of $342
thousand in 2005 to an equity net loss of $275 thousand in 2006.
4. Non-operating income increased by US$5,209 thousand for the three quarters of 2006 due to
the gain on sale of investment.
5. Rent income of the Group increased by $691 thousand from $1,355 thousand in 2005 to $2,046
thousand in 2006.
6. The Group reported other charges of $96 thousand in 2006 from other income of $289
thousand in 2005.
assets of SI were written down to its net realizable value. Loss from discontinued operations for the periods
17
With the foregoing, the Group reported a consolidated net income of $1,509 thousand for the period ended
December 31, 2006, from the consolidated net loss of 9,188 thousand during the same period in 2005.
COMPANY
Parent
EMS
IPI
TOTAL
Consolidated
(In US Dollars)
REVENUES NET INCOME (LOSS)
567,041
199,157
127,338,228
(5,455,332)
2,479,527
1,757,662
5,358,567
(174,472)
130,384,796
1,685,582
(3,046,568)
1,187,542
127,338,228
2,873,124
As of December 31, 2006, the consolidated assets of the Group amounted to $81,594 thousand which is $14,170
thousand higher than the $67,424 thousand as of December 31, 2005. Major factors attributed to the increase in the
Group’s total assets were the increase in receivables and inventories due to higher customer demand.
Current ratio declined from 375% in 2005 to 187% in 2006. Simultaneously, the Group’s liability-to-equity ratio
(leverage ratio) increased from 19% in 2005 to 63% in 2006. The declined in current ratio and increase in
liability-to-equity ratio were due to the increase in payables which in turn, were attributable to the production
demand of new customers.
At the end of December 31, 2006, the Group has no long-term debt.
INDIVIDUAL RESULT OF OPERATIONS
The individual performance of the subsidiaries for the year ended December 31, 2006 are as follows:
Ionics EMS, Inc.
EMS’s turnover in 2006 increased by $64,762 thousand or 103% from $62,576 thousand in 2005 to $127,338
thousand in 2006. The Company’s performance resulted in a decrease in gross loss by $6,033 thousand or 91%
from $6,640 thousand in 2005 to $607 thousand in 2006.
Operating expenses decreased from $5,075 thousand in 2005 to $4,003 thousand in the same period of 2006 due to
streamlining of administrative expenses. Other income decreased by $1,848 thousand or 175% from Other
Income of $1,053 thousand in 2005 to Other Charges of $795 thousand in 2006 due to a decrease in interest
income which resulted from the termination of the money market placements and an increase in interest expense
from interest-bearing advances from Parent Company, affiliates and bank loans..
With the foregoing, the net loss of the Company continuously decreased to $5,455 thousand in 2006 as compared to a
net loss of $10,662 thousand in 2005.
18
IPI contributed intercompany rental income of $434 thousand and $478 thousand in 2006 and 2005, respectively. The
Company also contributed rent income of $2,046 thousand in 2006 and $1,355 thousand in 2005 from a third
party. Operating expenses amounted to $612 thousand in 2006 and $476 thousand in 2005. Net income
amounted to $1,758 thousand and $1,298 thousand in 2006 and 2005, respectively.
ICL reported a net income amounting to $5,359 thousand in 2006 compared to $749 thousand in the same period
2005, due to gain on sale of available-for-sale investment.
Synertronix, Inc.
2005
The Group’s consolidated sales of $62,576 thousand during the year 2005 fell behind the 2004 sales performance of
$77,073 thousand or a decrease of $14,497 thousand or 19% which was attributed to low customers’ demand.
As a result of the decrease in volume, the consolidated cost of sales decreased by $13,235 thousand or 15% from
$81,431 thousand to $68,196 thousand in 2004 and 2005, respectively.
The consolidated gross loss increased by $1,262 thousand from $4,358 thousand in 2004 to $5,620 thousand in
2005. The consolidated gross loss rate is 3% from 6% to 9% in 2004 and 2005, respectively.
Consolidated operating expenses increased by $1,995 thousand from $3,893 thousand in 2004 to $5,888
thousand in 2005 due to expenses incurred in maintaining a manufacturing facility in China and the increase in
depreciation of newly acquired facilities.
The Group posted a net non-operating income of $2,371 thousand in 2005 compared to $546 thousand in 2004 due
to the following:
1.
2.
3.
4.
5.
Net interest income increased from $392 thousand in 2004 to $437 thousand in 2005 due to interest income
earned from dollar savings account and money market placements.
The Group reported a foreign exchange loss of $52 thousand in 2005 from $19 thousand in 2004.
Equity in net earnings of affiliates increased by $471 thousand from equity loss of $129 thousand in 2004 to
equity net earnings of $342 thousand in 2005.
Rent income of the Group increased by $1,049 thousand from $306 thousand in 2004 to $1,355 thousand in
2005.
The Group reported other income of $289 thousand in 2005 due to a gain on sale of machineries and
equipment.
assets of SI were written down to its net realizable value. Loss from discontinuing operations for the periods
With the foregoing, the Group reported a consolidated net loss of $6,522 thousand for the period ended
December 31, 2005, $10 thousand lower than the consolidated net loss of $6,532 thousand during the same
period in 2004.
19
COMPANY
Parent
EMS
IPI
TOTAL
Consolidated
(In US Dollars)
REVENUE NET INCOME (LOSS)
541,891
415,856
62,575,556
(10,662,922)
1,833,415
1,297,992
749,222
(95,796)
64,950,862
(8,295,649)
(2,375,306)
1,772,748
62,575,556
(6,522,901)
As of December 2005, the consolidated assets of the Group amounted to $67,424 thousand which is $2,260
thousand lower than the $69,684 thousand as of December 31, 2004. Major factors attributing to the decrease in the
Group’s total assets were the decrease in cash due to the acquisition of properties and equipment and the
expenses incurred in the manufacturing facility in China, and the decrease in net book value of machineries and
equipment due to depreciation charges for the year.
Current ratio declined from 490% in 2004 to 375% in 2005. Simultaneously, the Group’s liability-to-equity ratio
increased from 15% in 2004 to 19% in 2005.
As of December 31, 2005, the Group has no long-term debt.
INDIVIDUAL RESULTS OF OPERATIONS
The individual performance of the subsidiaries for the year ended December 31, 2005 is as follows:
Ionics EMS, Inc.
EMS’s turnover in 2005 decreased by $14,497 thousand or 19% from $77,073 thousand in 2004 to $62,576
thousand in 2005, while gross loss increased by $1,238 thousand or 23% from a gross loss of $5,402 thousand in
2004 to $6,641 thousand in 2005, due to low customers’ demand.
Operating expenses increased from $3,599 thousand in 2004 to $5,075 thousand in the same period of 2005 due to
pre operating expenses incurred by IEL. Other income increased by $653 thousand or 163% from $400
thousand in 2004 to $1,053 thousand in 2005 due to the increase in interest income earned from the Company’s
dollar savings account and money market placements and the gain on the sale of a property to an affiliate.
With the foregoing, the Company incurred a net loss of $10,662 thousand in 2005 compared to a net loss of
$8,601 thousand in 2004.
IPI contributed intercompany rental income of $478 thousand and $707 thousand in 2005 and 2004, respectively. The
Company also contributed third-party rent income of $1,355 thousand in 2005. Operating expenses
amounted to $476 thousand in 2005 and $218 thousand in 2004. Net income amounted to $1,298 thousand and
$764 thousand in 2005 and 2004, respectively.
20
ICL reported a net income amounting to $749 thousand in 2005 compared to $173 thousand in the same period of
2004 due to the equity take-up in the net income of equity investments.
Synertronix, Inc.
Below is the summary of Balance Sheet Accounts with more than 5% increase (decrease)
December 31
2007
2006
%
%
Cash and cash equivalents
Accounts Receivable - net
Short - term investment
Inventories
Prepayment and other current assets
Investment (including available-for-sale)
Property, Plant and Equipment - net
Investment Property
Deferred Tax Asset
Deposits and Others
Assets pertaining to discontinuing operations
108
(27)
N/A
(16)
23
(37)
(8)
(7)
N/A
58
40
(64)
79
(100)
132
(78)
(50)
61
N/A
(100)
5
(49)
LIABILITIES
Accounts payable and accrued expenses
Liabilities under trust receipts
Pension Obligations
Refundable Deposit
Deferred Rent Income
Deferred Tax Liabilities
Liabilities pertaining to discontinued operations
(20)
(34)
(49)
8
(10)
42
11
177
100
294
14
5
100
N/A
ASSETS
2007
Cash and cash equivalents increased mainly due to collection from customer, advances from Parent Company,
affiliates and bank loans. The decrease in receivables and inventories is attributable to lower production and
business activity during the year. The increase in prepayments and other current assets was due to amortization of
prepaid insurance carried over from 2006. Decrease in investment is due to provision for impairment loss in
investment and the disposal of 50% interest in China plant. Deposit and other assets increased due to the increase in
rental deposit of a subsidiary. Assets pertaining to discontinuing operations increased due to cash proceeds
received from advances to affiliates. Accounts payable and accrued expenses decreased mainly because of
payment to suppliers and in relation to decrease in inventories. Pension obligations decreased to lower
manpower for the year. Refundable deposit increased due to additional deposit of a lessee.
21
2006
Cash and cash equivalents decreased mainly due to the acquisition of machineries and equipment as well as
payments made to suppliers. The increase in receivables is attributable mainly to the increase in business
activity for the year. The decrease in short-term investments was due to the termination of money market
placements. Inventory increased due to higher production demand. The decrease in prepayments and other
current assets was due to the amortization of prepaid insurance carried over from 2005. Investments decreased
due to sale of an investment. Property, plant and equipment increased due to the acquisition of machineries and
equipment for the re-opened plant in the Philippines and the plant in China. Deferred tax assets decreased due to
the consummation of advance rental. Deposits and other assets increased due to the increase in rental deposit of
a subsidiary. Assets pertaining to discontinuing operations decreased due to advances to a subsidiary. Accounts
payable increased mainly due to purchases of materials for the production demand of new customers. Pension
obligations increased due to high manpower for the year. Refundable deposit increased due to additional deposit
of a lessee.
Item 7. Financial Statements
The Group’s consolidated financial statements and schedules listed in the accompanying Index to Financial
Statements and Supplementary Schedules (page 35) are filed as part of this Form 17-A
General Notes to Financial Statements:
See Consolidated Financial Statements
Assets subject to lien and restriction on sales of assets.
Not Applicable to the Group
Restriction which limit the availability of Retained Earnings for dividend declaration.
None
Commitments and Contingent Liabilities.
See related discussion on Note 33 of the Consolidated Financial Statements.
Material Related Party Transactions which affect the Financial Statements.
The Company has no significant related party transactions with its subsidiaries, affiliates and stockholders that
affect the Financial Statements except for the matters discussed in Note 22 to the Consolidated Financial
Statements.
Bonus, Profit Sharing and Other Similar Plans.
The Group has an Employee Car Plan, a Christmas bonus for officers and employees, and profit sharing for its
Board of Directors and Management.
Interest Cost.
Ionics EMS paid interest on bank loans and liabilities under trust receipts.
Subsidiaries
22
As of December 31, 2007, the details of investments and advances to consolidated subsidiaries are as follows:
Subsidiaries
EMS
IPI
ICL
IOMNI
% owned
75
100
100
70
Investment
$24,467,451
1,535,578
6,507,345
1,079,408
Advances
$13,762,033
431,689
9,648,629
401,994
Cash and Cash Equivalents
Out of the total cash and cash equivalent of $6,809,565 of December 31 2007, $428,506 is peso-denominated. This
represents savings deposit and current accounts in local banks.
Accounts Receivable - Others
Receivable from customers other than sales
Claims against SSS and other government agencies
Advances to suppliers
Advances to officers and employees (see page 102)
Others
$1,967,609
137,894
972,251
99,333
1,990,039
Inventories
Inventories decreased relative to the volume of the business.
Property, Plant and Equipment
As of December 31, 2007 the Group has no equipment pending installation as discussed in Note 12 to the
Consolidated Financial Statements.
General and Administrative Expenses - Please see schedule in page 112
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
1. External Audit Fees and Services
(a) Audit and Audit - Related Fees
The Auditing firm of SGV & Co. has been the external auditor of the Company since 1992. The Auditing
partner in charge of the accounts of the Company for the financial year ended December 31, 2005 is Ms. Vicky
Lee-Salas. Audit fee for the period ended December 31, 2007 and 2006 remains the same at $0.02 million. The
fees are generally based on the complexity of the issues involved and the work to be performed, the special skills
required to complete the work, the experience level of the team members and most importantly, to provide the
auditors’ report expressing an opinion on the financial statements of the Company.
(b) All Other Fees
Any additional services that the Company may request will be the subject of a separate written arrangement.
23
(c) The Audit Committee’s approval policies and procedures for the above services
The Audit Committee noted and acted on the reports of the External Auditor and validated the financial reports
prepared by Management.
2. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The Group had no disagreement with accountants on financial statement disclosure during the two most recent
fiscal years.
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Registrant
The Executive Officers of the Registrant
Position
Director, Chairman and
President
Director
Director
Director
Director
Director
Director
Director
Director
Director - Independent
Director - Independent
Corp. Secretary
Asst. Corp. Secretary
Vice President
Vice President
Senior Asst. Vice President
1
Name
Lawrence C. Qua
Meliton C. Qua
Raymond Ma. C. Qua
Corazon Dela Paz
Virginia Judy Q. Dy
Yang Tah Lu
Cecilia Q. Chua
Rizalino S. Navarro
Alfredo de Borja
Manuel R. Roxas
Anna Melissa Lichaytoo
Judy C. Qua
Henry S. Malicdem1
Ronan R. Andrade
Term
Period
Served
1 year
1 year
1 year
1 year
1 year
1 year
1 year
1 year
1 year
1 year
1 year
1 year
1 year
24
14
18
6
14
18
14
16
1
1
4
12
11
Age
61
64
56
66
68
85
68
77
55
69
63
58
42
58
43
37
Mr. Henry S. Malicdem ceased to be connected with the Company beginning August 1, 2007.
All of the above-named directors, were elected directors of the Corporations at the annual stockholders’ meeting
held on June 19, 2007.
Messrs. Rizalino Navarro and Alfredo R. de Borja were elected as independent directors.
Lawrence C. Qua, 61, is the founding Chairman and Chief Executive Officer (CEO) of Ionics EMS Inc., the
Chairman, President & CEO of Ionics Inc., the Philippines’ leading electronics manufacturing services group
and its executive director since 1985. He is also the President and CEO of Iomni Precision, Inc. and Chairman
and Director of Aqua Holdings, Inc. He is, further, a director and member of the investment committee of ICCP
Venture Partners, Inc. and a director of various companies engaged in retailing and property development. He has
been a trustee of the Semiconductor & Electronics Industry of the Philippines Inc. since its organization. Mr. Qua
graduated from De La Salle University with Bachelor of Science degree in Mechanical Engineering.
Alfredo R. de Borja, 63, has been an independent director of Ionics, Inc. since 2004 and is currently nominated to
the Board of Directors of Ionics EMS, Inc. also as an independent director, for the ensuing year. He is the
incumbent President and Director of Makiling Ventures, Inc., a real estate development company, and President and
Director of E. Murio, Inc., a furniture manufacturer and importer. He is also a director of ICCP Venture
24
Partners, Inc. (where he is a Chairman of Inv’t Com), ICCP Management Corp., Rustans Supercenters, Inc.
(Shopwise), Pueblo de Oro Dev’t Corp., Regatta Properties, Inc., Cebu Light Industrial Park, Inc., Araneta
Properties, Inc, a listed company with the Philippine Stock Exchange, and Philippine Coastal Storage & Pipeline
Corp. He was the President of Gervel, Inc. from 1973 to 1977; Professional Lecturer of the University of the
Philippines-Graduate School of Business Administration from 1971 to 1977; Executive Assistant to the Vice
President of Philippine Long Distance Telephone Co. from 1970 to 1973; and Executive Assistant to the Vice
President of Investment Manager, Inc. from 1966 to 1968. He holds a Master of Business Administration degree
from Harvard University and a Bachelor of Science in Economics from the Ateneo de Manila University.
Corazon S. de la Paz, 66, Filipino, was first elected as a member of the Board of Directors on 23 November
2001. A Business Administrative graduate (magna cum laude) from the University of the East in 1960, she then
topped the CPA Board Exams in the same year. In 1965, she earned her Masters in Business Administration
degree at Cornell University under a Fulbright grant and a UE CPA Topnotcher Scholarship. She is the first
female President and Chief Executive Officer of the Social Security System, the state pension fund. She
concurrently sits as Vice-Chairman of the Social Security Commission. Also, she is the first woman and first
Asian to lead the International Social Security Association (ISSA). Prior to this post, she was the Chairperson and
Senior partner of Joaquin Cunanan & Co. for twenty years, ISSA Committee on Management Review, MAP
Foundation, Inc., Committee on US_ASEAN Affairs and FINEX Foundation, Inc. She is also a director of San
Miguel Corp., PLDT, BDO Unibank Inc., PCI Leasing and Finance Inc., Equitable Cardnetwork, Philex Mining
Corporation and Republic Glass Holdings. She is also a member of the Board of Directors of Jaime Ongpin
Foundation, Inc., MFI Foundation, Inc. (Treasurer), Cornell University Council, Miriam College, and Philippine
Health Insurance Corporation and Philippine Business for the Environment.
Virginia Judy Q. Dy, 67, Filipino, has been a member of the Board of Directors of Ionics since 1991. In the last
five years, she is connected with Aqua Holdings, Inc. as Director. Previous corporate affiliations include
Philippine Commercial and International Bank as Branch Manager, Insular Bank of Asia & America as Branch
Manager, Ladtek Corporation/Interphase Development System as Accounting Manager and the International
Corporate Bank as Branch Manager. Ms. Dy received her Bachelor of Science in Commerce degree from the
Assumption Convent and is a Certified Public Accountant, having passed the government board exams in 1963.
Guillermo D. Luchangco, 68, has been a member of the Board of Directors of Ionics, Inc. since 1991. He is the
Chairman and Chief Executive Officer of the Investment & Capital Corporation of the Philippines (“ICCP”), a
Philippine investment house whose principal activities are investment banking and venture capital with affiliated
companies involved in property development and investments. Before founding ICCP in 1988, he served as
Vice Chairman and President of Republic Glass Corporation. Between 1969 and 1980, Mr. Luchangco worked
with SGV Group, the Philippines’ leading auditing and consulting firm.
He started as Manager in the
management services division of the firm and rose to the position of Managing Director and Regional
Coordinator for management services. Mr. Luchangco serves on a number of Boards, including those of Planters
Development Bank and the following publicly-listed companies in the Philippine Stock Exchange: Bacnotan
Consolidated Industries, Inc., Globe Telecom, Inc. and Ionics, Inc. He holds a Master of Business
Administration degree from Harvard Business School and a Bachelor of Science degree in Chemical
Engineering (magna cum laude) from De La Salle University, Philippines.
Meliton C. Qua, 64, held key positions in several companies which included the Philippine Bank of
Communications as Senior Vice President, Bancnet as Director, Citibank N.A. as Vice President and Aqua
Holdings, Inc as Director. Mr. Qua has been a director of Ionics, Inc. since 1985. He received his Bachelor of
Science degree in Business Administration from De La Salle University, Philippines.
Raymond Ma. C. Qua, 56, has been a member of the Board of Directors of Ionics EMS, Inc. and hold the
position of Treasurer and Senior Vice President. He is also a director of Ionics EMS, Inc. Previously, he was the
Senior Vice President and General Manager of Synertronix Inc. and the Vice President for Administration of
Ionics, Inc. Mr. Qua is presently affiliated with various organizations, and 14 associations serving as head,
ranking officer or member. Mr. Qua received a Bachelor of Science degree in Commerce from De la Salle
University.
25
Leonardo T. Siguion-Reyna, 87, is a member of the Board of Directors of Ionics Inc. since 1985. He is the
Chairman of the Siguion Reyna Montecillo and Ongsiako Law Offices, Asea Brown Boveri (Philippines),
Electrolux Philippines, Picop Resources, Inc., Valmora Investment and Management Corporation, and Phimco
Industries, and a member of the Board of Directors of leading Philippine corporations such as Goodyear
Philippines, Unilever Philippines, Republic Cement Corporation, Petronas Pilipinas Inc. and Etsi Technologies
Inc., among others. Atty. Siguion Reyna received his Bachelor of Laws degree from the Ateneo de Manila
University and University of Sto. Tomas and his Liberal Arts degree from the University of the Philippines.
Tah Lu Yang, 77, Taiwanese, was a Director of Ionics, Inc. from 1985 thru 2000. He was re-elected to the Board of
Ionics, Inc. in 2003 and has served as director since then. He was the President of Andez Ionics, Inc. and Vice
President for Operations of Ionics, Inc. from 1985 until his retirement in 1998, when he retired. Previous to that, he
was the PC and Testing Manager for Phico Ford Semiconductor Corp. and Plant Manager for General
Investment Corp. (Taiwan), Eurosil Corp (Singapore), and Asionics Corp. (Taiwan). Mr. Yang is an Air Force
Communication and Electronics College graduate.
Rizalino S. Navarro, 69, was first elected as a member of the Board of Directors of Ionics, Inc. on 19 June 2007 as
an independent director. He is currently an Executive Committee Member and Senior Adviser of the Rizal
Commercial Banking Corporation. He is the Chairman of, among others, Bankard Corporation, Petroenergy
Corporation, Seafront Resources Corporation, Clark Development Corporation and Upline Food Corporation. He also
serves as a member of the Board of Directors of the Mapua Institute of Technology, Malayan Insurance
Company, Great Pacific Life Insurance Corporation, House of Investments, Inc. and YGC Corporate Services. He
was a former member of the Monetary Board of the Central Bank of the Philippines and was the
ChairmanManaging Partner of SGV & Co from 1982 to 1992. Mr. Navarro graduated from the University of the
East and is a Certified Public Accountant. He holds a MBA Degree from Harvard Business School.
Cecilia Q. Chua, 55, was a director of Ionics, Inc. from 1997 to 2000. She is the Treasurer of B-Pack
Corporation and has been the Purchasing Manager of Ionics Circuits, Inc. since 1986. In 2007, she was
elected as director for the year 2007-2008. Previous corporate affiliations include Complete Electronics
Corporation, Interphase Development Corporation, Ladtek Corporation and Pimeco, Vice President of CQ BPack
Corporartion and Vice President of Kribral Food Corporation.
OFFICERS
Judy Qua, 58, is the Company’s Vice President for Corporate Affairs. She is concurrently the representative of the
head office to Ionics China at Tangxia. She further functions as the Executive Assistant to the Chairman and CEO
on special assignments. Prior to joining Ionics, she was in college teaching, advertising and marketing practice,
data management, and a resource for Ionics in people management and corporate communications from 1987 to
1997. Ms. Qua is a motivational psychologist, a professional lecturer, a certified faculty for the American
Management Association and the Swedish-based CELEMI management simulation learning systems, and an author
of four (4) books on life essays. She holds a Master of Arts degree in Social and Industrial Psychology from
Ateneo de Manila University and a Master of Business Administration degree from KelloggHKUST Business
School of Northwestern University
Manuel R. Roxas, 58, Filipino, has been the Company’s Corporate Secretary for the past twelve (12) years. His
professional experience covers general corporate law practice as counsel to various companies engaged in
banking, investments, pharmaceuticals, shipping, and manufacturing. Atty. Roxas received his Bachelor of
Science degree in Economics from the University of Pennsylvania in 1970 and Bachelor of Laws degree from the
University of the Philippines in 1975. His other professional affiliations include: Roxas de los Reyes Laurel &
Rosario as Partner, Tax Management Association of the Philippines as past President, President Manuel A. Roxas
Foundation, Inc., Mother Rosa Memorial Foundation, Inc. as Secretary, and Integrated Bar of the
Philippines, Philippine Bar Association, the Wharton Club of the Philippines as member.
26
Anna Melissa R. Lichaytoo, 42, Filipino, has been the Assistant Corporate Secretary for the past eleven (11)
years. Ms. Lichaytoo is a partner in the Roxas de los Reyes Laurel & Rosario Law Offices. Her professional
experience covers general corporate practice as counsel to various companies engaged in the manufacturing,
banking, investments and trading sector. She also serves as Corporate Secretary of Next Stage, Inc. which is listed
with the Philippine Stock Exchange. She received her Bachelor of Laws degree from the Ateneo Law School in
1990. She is a member of the Philippine Bar Association and the Integrated Bar of the Philippines.
Ronan R. Andrade, 37, is the Vice President for Internal Audit. He graduated from San Beda College in 1991
and passed the CPA Board Examination in the same year. He worked with Sycip Gorres & Velayo Auditing
Firm - Audit Division from 1992 to 1998, starting as an audit staff until he became audit supervisor. He joined
Ionics, Inc. in 1999 as Senior Manager for Finance and became Assistant Vice President and Acting Finance
Head of the Company, prior to his transfer to Internal Audit.
The Directors of the Company are elected at the annual stockholders’ meeting to hold office until the next
succeeding annual meeting and until their respective successors have been elected.
Messrs. Lawrence C. Qua, Meliton C. Qua, Raymond C. Qua, Virginia Judy Q. Dy and Cecilia Q. Chua are all
related within the second degree of consanguinity.
No director has transacted with the Group in his/her personal capacity.
During the past five years, there was no bankruptcy petition filed by or against any business of which a director
was a general partner or executive officer either at the time of the bankruptcy or within two years to that time; nor
was any director convicted by final judgment in a criminal proceeding, domestic or foreign, or was subject to a
criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses; or was subject to
any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court competent
jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise liaise
limiting involvement in any type of business, securities, commodities or banking services; or was found by a
domestic or foreign court of competent jurisdiction (in a civil action), the commission or comparable foreign
body, or a domestic or foreign exchange or electronic marketplace or self-regulatory organization, to have
violated a securities or commodities law.
None of the directors has informed the Group that he/she intends to oppose any action to be taken by the
Company at the meeting.
While all employees are equally valued, none are expected to contribute more significantly than the others to the
business of the Company.
Item 10. Executive Compensation.
The following table summarizes the compensation of the five highest paid executive officers of the Group and the
aggregate compensation of all officers and directors as a group for the last two completed calendar years, and the
estimated aggregate compensation of the said officers and directors for the present calendar year.
27
SUMMARY COMPENSATION TABLE
Annual Compensation
Executive Officer and four (4)
most highly compensated
executive officers
All officers and directors as a
group unnamed
Year
Salary
Bonus
Others*
2008
(estimate)
2007
13,254,799
0
485,122
15,339,358
0
4,501,466
2006
29,983,945
0
120,000
2008
(estimated)
26,272,725
0
660,000
2007
29,117,335
0
7,902,443
2006
38,467,556
0
660,000
The following are the Group’s CEO and five (5) most highly compensated executive officers:
1.
2.
3.
Mr. Lawrence C. Qua. is the Chairman of the Board of Directors, the Chief Executive Officer and the
President of the Company.
Ms. Judy Qua is the Vice President for Corporate Affairs.
Mr. Ronan Andrade is the Vice President for Internal Audit of the Group.
Directors who are not officers of the Company are entitled to a per diem of Fifteen Thousand Pesos
(P=15,000.00) per regular meeting attended.
The Chairman of the Board who is also the Chief Executive Officer of both Ionics and its subsidiary, EMS,
receives compensation on a monthly basis plus a percentage of net profit after tax before bonus. All other
executive officers receive monthly compensation without, however, any entitlement to a percentage of the
profits.
As of December 31, 2007, no executive and officers of the Registrant is under employment contract.
28
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of February 28, 2008.
(a) Security Ownership of Certain Record and Beneficial Owner
Name and address
Name of Beneficial
Title of
Of owner
Owner and
class
Relationship with
Record Owner
Common Aqua Holdings, Inc.
Lawrence C. Qua
c/o Ionics, Inc.
11/F DPC Place Building
2322 Chino Roces Avenue,
Makati City
Common
Common
Common
Shareholder
Social Security System
SSS Building, East Avenue,
Diliman, Quezon Avenue
Shareholder
Leonardo T. Siguion Reyna
7 Tanguile Road, North
Forbes Park
Makati City
Citizenship
Number of
Shares Held
Percent of
class
Filipino
167,576,550
(R)
39.13%
Government
(represented by Ms.
Corazon S. de la
Paz, President of
SSS)
N/A
Filipino
45,814,599
(R)
10.66%
Filipino
36,400,000
(R)
8.50%
N/A
Taiwanese
26,884,000
(R)
6.28%
Director
Yang Tah Lu &/or Yang
Huang Un-Chyong
#2108 Emerald Masion,
Emerald Ave., Pasig City
Director
(b) Security Ownership of Management
Name of Beneficial Owner
Title of class
Common
Common
Common
Common
Common
Common
Common
Common
Lawrence C. Qua
Chairman/President/CEO
Director
Yang Tah Lu
Director
Meliton C. Qua
Director
Director
Alfredo R. de Borja
Director
Corazon S. dela Paz
Director
Virginia Judy Q. Dy
Director
29
Amount and nature
of beneficial
ownership
10,051,380
(R)
36,400,000
(R)
26,884,000
(R)
3,248,681
(R)
10,212,500
(R)
7,000
(R)
1
(R)
568,828
(R)
Citizenship
Filipino
Percent of
class
2.35%
Filipino
8.50%
Taiwanese
6.28%
Filipino
0.76%
Filipino
2.38%
Filipino
nil
Filipino
Nil
Filipino
0.13%
Common
Common
Common
Common
Common
Raymond C. Qua
Director/Treasurer
Judy Qua
VP-Corporate Affairs
Manuel R. Roxas
Corporate Secretary
Anna Melissa R. Lichaytoo
Assistant Corporate Secretary
Ronan R. Andrade
VP-Internal Audit
Total
4,281,175
(R)
0
Filipino
1.00%
Filipino
0
7,250
(R)
0
Filipino
Nil
Filipino
0
0
Filipino
0
91,661,065
(R)
21.40%
(c) Voting Trust Holders of 5% or More
(d) Changes in control
Item 12. Certain Relationships and Related Transactions
The Company has no significant related party transactions with its stockholders, directors, officers and affiliated
companies except lease arrangements with its subsidiary, Ionics EMS, Inc., for two of its factories, Ionics V and
Ionics VI. Said subsidiary, Ionics EMS, Inc. also leases from Valmora Realty, Inc. (formerly, “Crismida Realty
Corp.), a firm owned by Director Leonardo Siguion Reyna, two other plants, Ionics III and IV. And finally,
Ionics EMS, Inc. also leases from another wholly owned subsidiary of the Company, Ionics Properties, Inc.,
Plant II. The rent charges are based on prevailing industry standard in the area.
The Company retains the law firms of Roxas De Los Reyes Laurel and Rosario Law Offices and Siguion Reyna
Montecillo & Ongsiako Law Offices for legal services. During the calendar year, the Company paid the Roxas de
los Reyes Laurel and Rosario Law Office from which the Corporate Secretary Manuel R. Roxas and Assistant
Corporate Secretary, Anna Melissa R. Lichaytoo, are partners, as well as the Siguion Reyna Montecillo &
Ongsiako Law Offices from which Leonardo T. Siguion Reyna is a partner, legal fees which the Company
believes to be reasonable for the services rendered.
Investment and Capital Corporation of the Philippines, (“ICCP”) is retained by the Company as its Financial
Advisor. Guillermo D. Luchangco, who has been a director of the Company since 1991, is Chairman and Chief
Executive Officer of ICCP. Management believes that the retainer fees paid to ICCP are reasonable.
Apart from the foregoing, no other director has received or become entitled to receive a benefit by reason of a
contract made by the Group or a related corporation with the director or with a firm of which he is a member or
with the Group in which he has substantial interest.
30
PART IV - CORPORATE GOVERNANCE REPORT
Item 13. Corporate Governance
1.
Good Corporate Governance
A.
BOARD OF DIRECTORS
In accordance with the Articles of Incorporation of the Company, a total of 11 directors were
elected to the Board.
The Board of Directors consists of a good balance of executive and non executive directors, all
of whom are sufficiently qualified and well-informed of the business of the Company.
The Board met quarterly for the purpose of hearing and approving the Company’s quarterly
reports. It also met on other dates whenever urgent matters had to be addressed.
The Board met a total of 4 times in 2007.
Except for Mr. Siguion-Reyna, none of the directors have attended less than half the number of
regular meetings for the year.
Independent views were aired during the meetings. Ad Hoc Committee was organized on March
30, 2006 to review the Company’s performance and financial condition and competence of the
Management Team.
B. COMMITTEES
3 Committees were created: the Audit Committee, the Nomination Committee and the
Remuneration Committee all of which reports their findings to the Board of Directors.
The Audit Committee was duly constituted with 2 independent directors as members, one of
whom is the Chairman of the Committee (The Manual requires at least 1 independent director as
member).
The Audit Committee met a total of four (4) times to review the quarterly reports.
The Nomination Committee was duly constituted and is chaired by an independent director.
The NomCom met twice, on 30 March 2007 and 12 April 2007, to approve the nominees to the
Board of Directors for 2007-08 as well as the nominees for independent directors.
The Renumeration Committee is duly constituted. There has been no reason to convene a
meeting of the Renumeration Committee in 2007.
During the Board Meeting on March 31, 2008, Risk Management Committee to oversee risk
assessment and evaluation was created.
C.
THE EXTERNAL AUDITOR
Board of Directors has engaged the firm of SGV & Co. to provide auditing services to the
Company.
31
Ms. Vicky Lee-Salas, partner-in charge of the Company’s account, was appointed in 2003. The
new partner in charge for 2007 is Mr. Medel T. Nera.
The External Auditor does not provide the services of an internal auditor, which is provided by Mr.
Ronan Andrade, Vice President-Internal Audit.
D. INTERNAL AUDITOR
The Internal Auditor reviews the Company’s control mechanisms. He is invited to the regular
meetings of the Audit Committee to report his findings.
The Internal Auditor recommends and monitors the corrective actions taken relative to his
findings.
E. COMMUNICATION PROCESS
The Company makes available the Manual of Corporate Governance for inspection by any stockholder.
F. DISCLOSURE SYSTEM AND REPORTS
The Company has timely and adequately disclosed all material events relative to it.
The Company has timely filed all reports required.
required information.
Said reports adequately disclose all
G. SHAREHOLDERS’ BENEFIT
All requests for information received in
responded to.
2007 from shareholders were entertained and
H. MONITORING AND ASSESSMENT
In order to comply with its reportorial obligations, the Board authorized the amendment of the
Manual in 2005 to extend the period within which the Internal Auditor shall submit a report to
the Board regarding compliance with the Manual.
The Company filed its certification regarding compliance with the Manual within the period
prescribed therein.
PART V - EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
(a) Exhibits - See accompanying Index to Exhibits (Page 111) (b)
Reports to SEC via Form 17-C
1. March 30, 2007 - Announced the postponement of the annual shareholders’ meeting, and the Nominating
Committee of the Company approved the list of candidates for election as members of the Board of Directors for
2007-08.
2. April 12, 2007 - Approval of Ms. Cecilia Q. Chua as additional nominee to the Board of Directors for 20072008.
32
3. May 11, 2007 - Announced the postponement of the annual shareholders’ meeting from 31 May 2007 to 19
June 2007.
4. June 19, 2007 - Announced the elected officers and directors of the Corporation held at the annual
stockholders’ meeting on June 19, 2007. In addition, SGV & Co. was re-appointed external auditor of the
Corporation for the ensuing year.
5. August 10, 2007 - Announced the resignation of Mr. Henry Malicdem the Vice President-Finance of Ionics, Inc.
and Ionics EMS, Inc.
6.
August 14, 2007 - Announced the elected officers and directors held at the organizational meeting of
the Board of Directors held on August 14, 2007.
7.
September 5, 2007 - Announced the resignation of Mr. Jason Gan as a result of the pre-termination of
his contract as Vice President-Integrated Supply Chain Management of the Corporation’s subsidiary of Ionics
EMS, Inc.
8.
September 24, 2007 - Announced that Ionics EMS, Inc., signed a Share Purchase Agreement with
NOTE A.B. (‘NOTE”) , whereby NOTE agreed to acquire fifty percent (50%) of shares of stock of Ionics
EMS, Ltd., a wholly owned subsidiary of Ionics EMS, Inc.
9.
September 26, 2007 - Announced that Ionics, Inc. acquired an additional forty percent (40%) equity
interest of Iomni Precision, Inc., and now Ionics, Inc. owns (70%) of outstanding capital stock of Iomni.
10.
September 26, 2007 - Disclosure regarding the sale of 50% of Ionics EMS, Inc.‘s wholly owned
subsidiary, Ionics EMS Ltd., to NOTE AB, that the purchase price agreed upon was the book value of the shares with
a premium of US$1.2 million.
11.
October 11, 2007 - According to Share Purchase Agreement (SPA) the total purchase price was based on
book value of the shares sold as of September 30, 2007 subject to certain adjustment plus a premium of
US$1.2 million.
12.
November 12, 2007 - Informed that upon conclusion of the due diligence conducted by the buyer Ionics
EMS, Inc. agreed to give way of consideration for fifty percent (50%) of the outstanding capital stock of Ionics
EMS, Ltd. thereby completing the transaction disclosed earlier.
33
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
FORM 17-1, Item 7
Page
Consolidated Financial Statements
Statement of Management’s Responsibility for Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 2007 and 2006
Consolidated Statements of Income and Retained Earnings
for the years ended December 31, 2007 and 2006
Consolidated Statements of Recognized Income (Loss) and Expense
for the years ended December 31, 2007 and 2006
Consolidated Statements of Cash Flows for the years ended
December 31, 2007 and 2006
Notes to Consolidated Financial Statements
36
37
39
41
42
43
45
Supplementary Schedules
A.
Marketable Securities - (Current Marketable Equity Securities
and Other Short-Term Cash Investments)
B.
Amount Receivable from Directors, Officers, Employees, Related
Parties and Principal Stockholders (Other than Affiliates)
C-1. Non-Current Marketable Equity Securities, Other Long-Term
Investments, and Other Investments
C-2. Investments Available for Sale
D. Indebtedness of Unconsolidated Subsidiaries and Related Parties
E. Intangible Assets - Other Assets
F. Long-Term Debt
G. Indebtedness to Related Parties
H. Guarantees of Securities of Other Issuers
I. Capital Stock
106
107
108
109
*
*
*
*
*
110
_____
* These schedules, which are required by Part IV (e) of SRC Rule 48, have been omitted because they are either not
required, not applicable or the information required to be presented is included in the Companies
consolidated financial statements or the notes to consolidated financial statements.
35
SGV & CO
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone: (632) 891-0307
Fax:
(632) 819-0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001
SEC Accreditation No. 0012-FR-1
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
Ionics, Inc.
Circuit Street, Light Industry and Science Park
of the Philippines
Barrio Diezmo, Cabuyao, Laguna
We have audited the accompanying consolidated financial statements of Ionics, Inc. and Subsidiaries
(the Group), which comprise the consolidated balance sheets as at December 31, 2007 and 2006, and the
consolidated statements of income, consolidated statements of recognized income (loss) and
expense and consolidated statements of cash flows for the three years in the period ended
December 31, 2007, and a summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Philippine Financial Reporting Standards. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable in
the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that
we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
SGV & Co is a member practice of Ernst & Young Global
*SGVMC110
257*
-2-
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Group as of December 31, 2007 and 2006, and its financial performance and its
cash flows for each of the three years in the period ended December 31, 2007 in accordance with
Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Vicky B. Lee-Salas
Partner
CPA Certificate No. 86838
SEC Accreditation No. 0115-AR-1
Tax Identification No. 129-434-735
PTR No. 0017600, January 3, 2008, Makati City
March 31, 2008
*SGVMC110
257*
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
December 31
2007
ASSETS
Current Assets
Cash and cash equivalents (Note 7)
Receivables (Note 8)
Inventories (Note 9)
Prepayments and other current assets
Total Current Assets
Noncurrent Assets
Available-for-sale investments (Note 10)
Equity investments (Note 11)
Property, plant and equipment (Note 12)
Investment properties (Note 13)
Deposits and others (Note 14)
Goodwill (Note 11)
Total Noncurrent Assets
Assets classified as held for discontinued operations (Note 29)
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses (Notes 15 and 22)
Bank loans payable (Note 16)
Liabilities under trust receipts (Notes 9 and 17)
Advances from stockholders (Note 22)
Income tax payable (Note 25)
Total Current Liabilities
Noncurrent Liabilities
Net pension liability (Note 27)
Refundable deposits (Note 23)
Bank loans payable (Note 16)
Deferred rent income (Note 23)
Deferred tax liabilities (Note 25)
Total Noncurrent Liabilities
Liabilities classified as held for discontinued operations (Note 29)
Total Liabilities
2006
US$6,810
16,907
19,915
75
43,707
US$3,271
23,176
23,612
61
50,120
3,479
1,263
14,830
6,691
345
6
26,614
2,588
US$72,909
5,533
702
16,007
7,164
219
29,625
1,849
US$81,594
US$19,912
4,980
1,300
188
17
26,397
US$24,774
1,982
21
26,777
1,869
619
424
199
299
3,410
82
29,889
3,657
572
220
210
4,659
74
31,510
(Forward)
*SGVMC110
257*
-2-
Equity (Note 18)
Capital stock
Additional paid-in capital
Retained earnings (Note 34):
Appropriated
Unappropriated
Unrealized loss on available-for-sale investments (Note 10)
Share in unrealized gain on available-for-sale investments of an
associate (Note 11)
Other reserve
Exchange differences
Treasury shares
Minority interest
December 31
2007
2006
7,730
9,125
7,730
9,125
8,311
13,848
(32)
4,711
25,197
(661)
871
768
383
(240)
40,764
2,256
43,020
US$72,909
(2,035)
561
(240)
44,388
5,696
50,084
US$81,594
See accompanying Notes to Consolidated Financial Statements.
*SGVMC110
257*
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Earnings (Loss) per Share)
Years Ended December 31
2007
SALES
COST OF SALES (Note 19)
2005
(As Restated 2006
Note 2)
US$118,252
US$127,338
US$62,576
125,620
126,944
68,196
GROSS INCOME (LOSS)
(7,368)
General and administrative (Note 20)
Commissions (Note 21)
Interest expense
Foreign exchange gain (loss) - net
Equity in net earnings (losses) of associates (Note 11)
Rent (Notes 13, 22 and 23)
Gain on sale of available-for-sale investment (Note 10)
Interest income
Miscellaneous - net
(4,430)
(1,596)
(752)
(462)
(247)
2,094
1,769
109
(76)
(3,719)
(1,134)
(278)
62
(275)
2,046
5,209
115
(96)
(5,081)
(807)
(52)
342
1,355
437
289
(10,959)
2,324
(9,137)
489
641
(45)
INCOME (LOSS) BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM) INCOME TAX
(Note 25)
INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from discontinued operations before income tax
Provision for income tax
LOSS FROM DISCONTINUED OPERATIONS (Note 29)
NET INCOME (LOSS)
ATTRIBUTABLE TO:
Equity holders of the Parent Company (Note 26)
Minority interest
BASIC/DILUTED EARNINGS (LOSS) PER SHARE
(Note 26)
For income (loss) for the year attributable to ordinary
equity holders of the Parent Company
For income (loss) from continuing operations attributable to
ordinary equity holders of the Parent Company
394
(5,620)
(11,448)
(217)
(4)
1,683
(172)
(2)
(9,092)
(96)
-
(221)
(174)
(96)
(US$11,669)
US$1,509
(US$9,188)
(US$7,749)
(3,920)
(US$11,669)
US$2,873
(1,364)
US$1,509
(US$6,522)
(2,666)
(US$9,188)
(US$0.018)
US$0.007
(US$0.015)
(US$0.018)
US$0.007
(US$0.015)
*SGVMC110
257*
CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME
(LOSS) AND EXPENSE
2007
2006
2005
Actuarial gains (losses) on defined benefit pension
plans recognized directly in equity (Note 27)
US$2,830
(US$2,572)
US$29
Net unrealized gains (losses) on available-for-sale
investments (Note 10)
629
(5,773)
5,112
Share in unrealized gains (losses) on availablefor-sale investments of an associate
(Note 11)
871
-
383
561
NET INCOME (LOSS) RECOGNIZED
DIRECTLY IN EQUITY
NET INCOME (LOSS) FOR THE YEAR
TOTAL RECOGNIZED LOSS AND EXPENSE
FOR THE YEAR
ATTRIBUTABLE TO:
Equity holders of the Parent Company
(Note 26)
Minority interest
(97)
453
4,713
(7,784)
5,497
(11,669)
1,509
(9,188)
(US$6,956)
(US$6,275)
(US$3,691)
(US$7,749)
(3,920)
(US$11,669)
US$2,873
(1,364)
US$1,509
(US$6,522)
(2,666)
(US$9,188)
*SGVMC110
257*
CONSOLIDATED STATEMENTS OF CASH FLOWS
2006
2005
(As Restated Note 2)
(US$11,176)
US$2,152
(US$9,233)
4,102
2,871
7,642
(1,769)
726
247
217
(146)
(109)
(5,209)
278
275
172
(115)
(342)
96
(437)
107
(7,801)
(21)
403
(328)
(2,602)
6,657
3,294
(36)
(10,232)
(13,417)
58
(3,032)
(310)
(60)
(4,280)
1,020
47
(21)
(1,120)
(845)
(389)
478
(1,876)
15,770
157
46
(11)
(7,226)
(194)
(149)
125
(7,444)
885
198
228
322
(4,371)
(66)
434
(4,003)
3,449
1,239
164
6,234
24
(1,770)
(500)
-
(8,629)
(700)
(381)
2007
CASH FLOWS FROM OPERATING
ACTIVITIES
Income (loss) before income tax after loss from
discontinued operations
Adjustments for:
Depreciation and amortization (Notes 12 and 13)
Gain on sale of available-for-sale investment
(Notes 10 and 32)
Interest expense
Equity in net losses (earnings) of associates (Note 11)
Loss from discontinued operations (Note 29)
Dividend income
Interest income
Gain (loss) on sale of property, plant and equipment
(Note 12)
Operating income (loss) before working capital changes
Changes in operating assets and liabilities:
Decrease (increase) in the amounts of:
Receivables
Inventories
Increase (decrease) in the amounts of:
Net pension liability
Refundable deposits
Deferred rent income
Net cash used in operations
Interest paid
Income taxes paid
Interest received
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of:
Available-for-sale investment (Note 10)
Investment in subsidiary (Note 32)
Acquisitions of:
Available-for-sale investments (Note 10)
Investment properties (Note 13)
496
(5,594)
(7,065)
-
(Forward)
*SGVMC110
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-2Years Ended December 31
2007
Decrease (increase) in the amounts of:
Short-term investments
Equity investments (Note 11)
Net assets pertaining to discontinued operations (Note 29)
Deposits and others
Dividend received
Return of capital (Notes 10 and 11)
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans payable (Note 16)
Proceeds from (payments of) liabilities under trust receipts
(Note 17)
Increase in advances from stockholders
Net cash provided by financing activities
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
(Note 7)
US$(1,612)
(951)
(144)
146
71
92
2006
2005
(As Restated Note 2)
US$1,072
1,610
(11)
(US$1,072)
7,782
(18)
(42)
355
(426)
874
(4,639)
5,404
-
-
(682)
601
5,323
1,982
1,982
-
3,539
(5,888)
(8,642)
3,271
9,159
17,801
US$6,810
US$3,271
US$9,159
*SGVMC110
257*
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Par Value per Share and Earnings (Loss) per Share)
1. Corporate Information and Status of Operations
Ionics, Inc. (the Parent Company) was incorporated in the Philippines in September 1982 and
started commercial operations in July 1987 to engage in electronic manufacturing services
business. In September 1999, the Parent Company transferred its business to a majority owned
subsidiary. Consequently, the Parent Company’s primary purpose was amended from a
manufacturing company to a holding company.
The Parent Company and its subsidiaries (the Group) are engaged in the manufacture of printed
circuit board (PCB) assembly, box build (finished product) assembly, disk drive magnetic head
assembly, systems and subsystems assembly, as well as design and testing services.
Ionics EMS, Inc. (EMS), a major subsidiary, has incurred losses, has registered increasing deficit
and has suffered declining working capital for the past five years. Because of the aforementioned
conditions relating to EMS, and the uncertainties surrounding its plans to address the situation, the
Parent Company’s actions could have a substantial effect on the Group’s net assets.
The following are EMS’ management’s ongoing measures to improve the situation:
·
·
·
·
Subject to regulatory approval, application of additional paid-in capital to reduce the deficit;
Implementation of measures to improve its receivable position, inventory management,
product profitability;
Implementation of cost-saving measures; and
Major management restructuring.
The Parent Company is also financially committed to support EMS operations.
EMS’ management believes that these steps, with the financial support from the Parent Company,
will improve the situation.
The Group’s customers are original equipment manufacturers in the computer peripherals,
telecommunications, automotive, consumer electronics, industrial equipment and medical
equipment industries (Note 28). The top five customers collectively accounted for 72%, 63% and
64% of the Group’s sales in 2007, 2006 and 2005, respectively. The Group anticipates that
concentration of business in major customers will continue in the foreseeable future although the
Group’s management is starting new relationships with other customers.
The registered office address of the Group is Circuit Street, Light Industry and Science Park of the
Philippines, Barrio Diezmo, Cabuyao, Laguna.
The Parent Company is a public company listed in the Philippine Stock Exchange.
The accompanying consolidated financial statements were authorized for issue by the board of
directors (BOD) on March 31, 2008.
*SGVMC110257*
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2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements have been prepared on the historical basis
except for available-for-sale (AFS) investments that have been measured at fair value.
The consolidated financial statements are presented in United States (US) Dollar and all values are
rounded to the nearest thousand (US$000) except when otherwise indicated. The Parent
Company’s presentation currency is US Dollar.
The following table shows the functional currency of the Parent Company and its subsidiaries:
Entity
Ionics, Inc.
Ionics EMS, Inc. (EMS)
Ionote, Limited (formerly Ionics EMS, Limited)
Ionics Circuits, Limited (ICL)
Iomni Precision, Inc. (Iomni)
Functional Currency
US Dollar
US Dollar
US Dollar
US Dollar
US Dollar
Philippine Peso
Philippine Peso
Statement of Compliance
The accompanying consolidated financial statements of the Group have been prepared in
compliance with Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Parent Company and
the following wholly and majority owned subsidiaries as at December 31 each year:
Effective Percentage of
Ownership
Country of
Subsidiaries
Incorporation
Ionics EMS, Inc. (EMS)
Philippines
Ionote, Limited (formerly Ionics EMS, Limited) Cayman Islands
Ionics Circuits, Limited (ICL)
Cayman Islands
Philippines
Philippines
Iomni Precision, Inc. (Iomni)
Philippines
2007
75%
38
100
100
100
70
2006
75%
75
100
100
100
39
The financial statements of the subsidiaries are prepared for the same reporting year as the Parent
Company, using consistent accounting policies.
On August 15, 2002, the Parent Company discontinued the operations of SI. Accordingly, the
accounts of SI are reflected in the consolidated financial statements under discontinued operations
(Note 29).
*SGVMC110
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-3-
In late 2004, EMS established a manufacturing facility in the People’s Republic of China which is
managed by IEL, a subsidiary registered in the Cayman Islands. IEL started its operations in
2006. On September 23, 2007, EMS entered into a share purchase agreement with a third party,
wherein the latter will purchase 50% of the total shares of EMS in IEL.
In relation to this agreement, both parties executed a shareholders’ agreement, transforming IEL into
a joint venture between EMS and the third party, with corresponding changes in the board of
directors and key management personnel.
In December 2007, IEL filed for a change of its corporate name to Ionote, Limited.
All significant intra-group balances, transactions, income and expenses and profits and losses
resulting from intra-group transactions are eliminated in full in the consolidation.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
Control is achieved where the Group 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.
Minority Interest
Minority interest represents the portion of profit or loss and net assets not held by the Group and is
presented separately in the statement of income and within equity in the consolidated balance
sheet, separately from the Parent Company’s equity.
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except as
follows:
The Group adopted the following new PFRS, amended Philippine Accounting Standard (PAS) and
new Philippine Interpretations during the year. Adoption of these standards and interpretations did not
have any effect on the financial performance or position of the Group. They did however give rise to
additional disclosures, including revisions to accounting policies.
• PFRS 7 Financial Instruments: Disclosures
• Amendment to PAS 1 - Presentation of Financial Statements
• Philippine Interpretation International Financial Reporting Interpretations Committee
(IFRIC) 8, Scope of PFRS 2
• Philippine Interpretation IFRIC 9 Reassessment of Embedded Derivatives
• Philippine Interpretation IFRIC 10 Interim Financial Reporting and Impairment
*SGVMC110
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-4-
The principal effects of these changes, if any, are as follows:
PFRS 7, Financial Instruments: Disclosures, introduces new disclosures to improve the
information about financial instruments. It requires the disclosure of qualitative information about
exposure to risks arising from financial instruments, including specified minimum disclosures about
credit risk, liquidity risk and market risk, as well as sensitivity analysis to market risk. It replaces PAS
30, Disclosures in the Financial Statements of Banks and Similar Financial
Institutions, and the disclosure requirements in PAS 32, Financial Instruments: Disclosure and
Presentation. It is applicable to all entities that report under PFRS.
In December 2007, the Financial Reporting Standards Council has approved an amendment to the
transition provision of PFRS 7 that gives transitional relief with respect to the presentation of the
comparative information for the new disclosures about the nature and extent of risks arising from
financial instruments under paragraph 31 to 42 of PFRS 7, unless the disclosure was previously
required under PAS 30 and PAS 32. The Group opted not to adopt the transitional relief and
presented comparative information. The required new disclosures are reflected in the financial
statements of the Group, where applicable.
Amendment to PAS 1, Presentation of Financial Statements, introduces disclosures about the
level of an entity’s capital and how it manages capital. It requires the following additional
disclosures: (a) an entity’s objectives, policies and processes for managing capital; (b) quantitative
data about what the entity regards as capital; (c) whether the entity has complied with any capital
requirements; and (d) if it has not complied, the consequences of such non-compliance. The
information on capital management policies and procedures of the Group is disclosed in Note 6 to the
financial statements.
Philippine Interpretation IFRIC 8, Scope of PFRS 2, requires PFRS 2 to be applied to any
arrangements where equity instruments are issued for consideration which appears to be less than fair
value. The Interpretation has no impact on the financial statements of the Group.
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, requires an entity to
assess whether an embedded derivative is required to be separated from the host contract and
accounted for as a derivative on the basis of the conditions that existed at the later of the date it first
became a party to the contract and the date a reassessment is required. A reassessment is required
when there is a change in the terms of the contract that significantly modifies the cash flows that
would be required under the contract, otherwise subsequent reassessment is prohibited. The
Interpretation has no impact on the financial statements of the Group.
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment, prohibits the
reversal of impairment losses on goodwill and AFS equity investments recognized in the interim
financial reports even if impairment is no longer present at the balance sheet date. This
Interpretation has no significant impact on the financial statements of the Group.
*SGVMC110
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-5-
Significant Accounting Policies
Foreign Exchange Transactions and Translation
Transactions in foreign currencies are recorded using the exchange rate at the date of transactions.
Foreign exchange gains or losses arising from foreign currency transactions and revaluation
adjustments of foreign currency assets and liabilities are credited to or charged against current
operations. Monetary assets and liabilities denominated in foreign currencies are translated using the
closing foreign exchange rate prevailing at balance sheet dates. All differences are taken to
profit and loss. Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at
the date when the fair value was determined.
Financial Instruments
Date of recognition
The Group recognizes a financial asset or a financial liability on the balance sheet when it becomes a
party to the contractual provisions of the instrument. Purchases or sales of financial assets that require
delivery of assets within the time frame established by regulation or convention in the
marketplace are recognized on the settlement date.
Initial recognition of financial instruments
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, in the case of financial assets and financial
liabilities not at fair value through profit or loss, any directly attributable cost of acquisition or
issue. The Group classifies its financial assets in the following categories: financial assets at fair
value through profit or loss (FVPL), loans and receivables, held-to-maturity (HTM) investments
and AFS investments. Financial liabilities are classified into financial liabilities at FVPL and other
financial liabilities carried at cost. Management determines the classification of its investments at
initial recognition and, where allowed and appropriate, re-evaluates such designation at every
reporting date.
As of December 31, 2007 and 2006, the Group’s financial assets consist of loans and receivables and
AFS investments.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments and fixed
maturities that are not quoted in an active market. Loans and receivables are carried at cost less
allowance for impairment losses.
The Group’s loans and receivables include trade and other receivables.
Trade and other receivables, which generally have 30-60 days’ terms, are recognized and carried at
original invoice amount less an allowance for any uncollectible amounts. An allowance for
impairment losses is provided when there is objective evidence that all amounts due according to the
original terms of receivables will not be collected. The allowance for impairment losses is maintained
at a level considered adequate to cover any probable loss from uncollectible
receivables. The level of allowance is evaluated by management on the basis of factors that affect
*SGVMC110
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-6-
the collectibility of the accounts. A review of the age and status of receivables, designed to
identify the accounts to be provided with allowance, is made on a continuous basis. Bad debts are
written off when identified. Receivables are written off when the Group has assessed that the
collectibility of receivables are remote.
AFS investments
AFS investments are non-derivative financial assets that are designated as such or do not qualify to be
classified as financial assets at FVPL, HTM investments or loans and receivables. They are purchased
and held indefinitely, and may be sold in response to liquidity requirements or changes in market
conditions. AFS investments also include investments in unquoted equity instruments, where the
Group’s ownership interest is less than 20% or where control is likely to be temporary, which are
initially recorded at cost being the fair value of the investment at the time of acquisition, inclusive of
direct acquisition charges associated with the investment.
After initial measurement, AFS investments are subsequently measured at fair value. The
unrealized gains and losses arising from the fair valuation of AFS investments are excluded, net of tax,
from reported earnings and are reported as ‘Unrealized gain/loss on AFS investments’ in the equity
section of the balance sheet. Investments in unquoted equity instruments are subsequently carried at
cost due to the unpredictable nature of future cash flows and the lack of other suitable methods for
arriving at a reliable fair value.
When an AFS investment is disposed of, the cumulative gain or loss previously recognized in
equity is recognized as ‘Gain/loss on sale of AFS investment’ in the statement of income. The
losses arising from impairment of such investments are recognized as ‘Provision for impairment
losses’ in the statement of income.
Accounts payable and other financial liabilities
Issued financial instruments or their components, which are not designated at FVPL, are classified as
liabilities under ‘Accounts payable’ or other appropriate financial liability accounts, 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 own equity shares. 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, accounts payable and similar financial liabilities not qualified as and not
designated as FVPL, are subsequently measured at amortized cost using the effective interest rate
method. Amortized cost is calculated by taking into account any discount or premium on the issue
and fees that are an integral part of the effective interest rate.
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 price or dealer price quotations (bid price for long positions and ask price for
short positions), without any deduction for transaction costs. When current bid and asking prices are
not available, the price of the most recent transaction is used since it 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.
*SGVMC110
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-7-
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques, which includes discounted cash flow technique and
comparison to similar instruments for which observable market prices exists.
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 financial
assets) is derecognized when:
1. the rights to receive cash flows from the asset have expired;
2. the Group retains the right to receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a “pass-through” arrangement;
or
3. 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 the risk and rewards of the asset but has transferred control over the asset.
Where 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 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 or
cancelled or has expired.
When an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new
liability, and the difference in the respective carrying amounts is recognized in the statement of
income.
Impairment of Financial Assets
An assessment is made at each balance sheet date whether there is objective evidence that a
financial asset or a 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 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 customer or a group of customers 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 when observable data
indicate that there is a measurable decrease in the estimated future cash flows, such as
changes in arrears or economic conditions that correlate with defaults.
*SGVMC110
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-8-
Loans and receivables
For loans and receivables carried at amortized cost, which include trade and other receivables, 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 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.
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 amount that the Group
reasonably believes will be collected, for specific customer balances. The carrying amount of the
asset is reduced through the use of an allowance account and the amount of loss is charged to the
statement of income. If, in a subsequent year, the amount of the estimated impairment loss
decreases because of an event occurring after the impairment was recognized, the previously
recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is
later recovered, any amounts formerly charged are credited to the ‘Provision for credit losses’
account in the statement of income.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of
such credit risk characteristics as industry, collateral type, past-due status and term.
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 unemployment rates,
property prices, commodity prices, payment status, or other factors that are indicative of incurred
losses in the group and their magnitude). The methodology and assumptions used for estimating future
cash flows are reviewed regularly by the Group to reduce any differences between loss
estimates and actual loss experience.
AFS investments
For AFS investments, the Group assesses at each balance sheet date whether there is objective
evidence that a financial asset or group of financial assets is impaired.
In case of equity investments classified as AFS investments, this would include a significant or
prolonged decline in the fair value of the investments below its cost. Where there is evidence of
impairment, the cumulative loss - measured as the difference between the acquisition cost and the
current fair value, less any impairment loss on that financial asset previously recognized in the
statement of income - is removed from equity and recognized in the statement of income.
Impairment losses on equity investments are not reversed through the statement of income.
Increases and decreases in fair value subsequent to impairment are recognized directly in equity.
*SGVMC110257*
-9-
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.
Cash and Cash Equivalents
Cash and cash equivalents in the balance sheet comprise cash in banks and on hand and short-term
deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to
known amounts of cash with original maturities of 90 days or less from the dates of placements and
that are subject to insignificant risk of changes in value.
Inventories
Inventories are valued at the lower of cost or net realizable value (NRV). Cost of finished goods and
work-in-process inventories include actual labor, overhead costs and purchased materials, where
applicable, and is determined using the first-in, first-out (FIFO) method. Cost of purchased raw
materials, spare parts and supplies are stated at invoice value determined using the FIFO
method. NRV is the estimated selling price in the ordinary course of business, less estimated costs of
completion and marketing costs. In determining the NRV, the Group considers factors such as the
aging and future demand of the inventory, contractual arrangements with customers and the Group’s
ability to redistribute inventory to other programs or return inventory to suppliers.
Investments in Subsidiaries and Associates
Investments in subsidiaries
Subsidiaries are all entities over which the Group 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 Group controls another entity.
Investments in associates
Associates are all entities over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. In the consolidated
financial statements, investments in associates are accounted for under the equity method of
accounting.
Under the equity method, an investment in an associate is carried in the balance sheet at cost plus
post-acquisition changes in the Group’s share in the net assets of the associate. The Group’s share
in an associate’s post-acquisition profits or losses is recognized in the statement of income, and its
share of post-acquisition movements in the associate’s equity reserves is recognized directly in
equity. When the Group’s share of losses in an associate equals or exceeds its interest in the
associate, including any other unsecured receivables, the Group does not recognize further losses,
unless it has incurred obligations or made payments on behalf of the associate. Profits and losses
resulting from transactions between the Group and an associate are eliminated to the extent of the
interest in the associate.
*SGVMC110
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- 10 -
Property, Plant and Equipment
Property, plant and equipment, except for land, are carried at cost less accumulated depreciation and
amortization and any impairment in value. Land is carried at cost less any impairment in
value. The initial cost of property and equipment comprises its purchase price, including import
duties, taxes and any directly attributable costs of bringing the asset to its working condition and
location for its intended use. Subsequent replacement costs of parts of the property and equipment are
capitalized when the recognition criteria are met. Significant refurbishments and
improvements are capitalized when it can be clearly demonstrated that the expenditures have
resulted in an increase in future economic benefits expected to be obtained from the use of an item of
property and equipment beyond the originally assessed standard of performance. Costs of
repairs and maintenance are charged as expense when incurred.
Depreciation and amortization is computed using the straight-line method over the following
estimated useful life (EUL) of each type of asset:
Machineries and equipment
Building, building improvements and leasehold improvements
Tools and other equipment
Plant water and airconditioning systems
Furniture, fixtures and equipment
Transportation equipment
Years
5-7
5-30
5
5-15
5
5
The cost of the leasehold improvements is amortized over the shorter of the covering lease term or
EUL of the improvements of 7 years.
The EUL and the depreciation and amortization methods are reviewed periodically to ensure that the
period and the methods of depreciation and amortization are consistent with the expected pattern of
economic benefits from items of property, plant and equipment.
The carrying values of property, plant and equipment are reviewed for impairment when events or
changes in circumstances indicate the carrying values may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated recoverable amounts, the assets
or cash generating units are written down to their recoverable amounts (see Policy on
Impairment of Non-Financial Assets).
An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of
the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the statement of income in the year the asset is derecognized and
the cost and the related accumulated depreciation and amortization, and any impairment in value, are
removed from the accounts.
Investment Properties
Investment properties are measured initially at cost, including transaction costs. The carrying
amount includes the cost of replacing part of an existing investment property at the time that cost is
incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an
investment property.
*SGVMC110
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- 11 -
Subsequent to initial recognition, depreciable investment properties are carried at cost less
accumulated depreciation and any impairment in value.
Expenditures incurred after the investment properties have been put into operation, such as repairs
and maintenance costs, are normally charged to operations in the period in which the costs are
incurred.
Depreciation is calculated on a straight-line basis using the remaining useful lives from the time of
acquisition of the investment properties but not to exceed:
Building
Building improvements
Years
30
7
Investment properties are derecognized when either they have been disposed of, or when the
investment property is permanently withdrawn from use and no future economic benefit is
expected from its disposal. Any gains or losses on the retirement or disposal of an investment
property are recognized in the statement of income in the year of retirement or disposal.
Transfers are made to investment properties when, and only when, there is a change in use
evidenced by ending of owner-occupation, commencement of an operating lease to another party or
ending of construction or development. Transfers are made from investment properties when, and
only when, there is a change in use evidenced by commencement of owner-occupation or
commencement of development with a view to sale.
Business Combinations and Goodwill
Business combinations are accounted for using the purchase method.
Goodwill is initially measured at cost being the excess of the cost of the business combination over the
Group’s share in the net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition
date, allocated to each of the Group’s cash generating units that are expected to benefit from the
synergies of the combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is
disposed of, the goodwill associated with the operation disposed of is included in the carrying amount
of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of
in this circumstance is measured based on the relative values of the operation disposed of and the
portion of the cash-generating unit retained.
When the Group acquires a business, embedded derivatives separated from the host contract by the
acquiree are not reassessed on acquisition unless the business combination results in a change in the
terms of the contract that significantly modifies the cash flows that would otherwise be
required under the contract.
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Impairment of Non-Financial Assets
Investment in associates, property, plant and equipment and investment properties
At each reporting date, the Group assesses whether there is any indication that its non-financial
assets 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 (or cash-generating unit’s) fair value less costs to sell
and its value in use and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets, in
which case the recoverable amount is assessed as part of the cash-generating unit to which it
belongs. Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable
amount, the asset (or cash-generating unit) is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset (or cash-generating unit).
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.
For non-financial assets, an assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the
case, the carrying amount of the asset is increased to its recoverable amount. That increased amount
cannot exceed the carrying amount that would have been determined, net of depreciation and
amortization, had no impairment loss been recognized for the asset in prior years. Such
reversal is recognized in the 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.
The following criteria are also applied in assessing impairment of specific assets:
Goodwill
The Group assesses whether there are any indicators that goodwill is impaired at each reporting
date. Goodwill is tested for impairment, annually and when circumstances indicate that the
carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating
units, to which the goodwill relates. Where the recoverable amount of the cash-generating units is less
than their carrying amount an impairment loss is recognised. Impairment losses relating to
goodwill cannot be reversed in future periods. The Group performs its annual impairment test of
goodwill as at 31 December.
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Associates
After application of the equity method, the Group determines whether it is necessary to recognise an
additional impairment loss of the Group’s investments in its associates. The Group determines at
each balance sheet date whether there is any objective evidence that the investment in associate is
impaired. If this is the case the Group calculates the amount of impairment as being the
difference between the fair value of the associate and the acquisition cost and recognises the
amount in profit or loss.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event and it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. Where the Group expects some or all of a provision to be reimbursed, for example,
under an insurance contract, the reimbursement is recognized as a separate asset but only when the
reimbursement is virtually certain. The expense relating to any provision is presented in the
statement of income, net of any reimbursement. If the effect of the time value of money is
material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and, where appropriate, the
risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as an interest expense. Provisions are reviewed at each balance
sheet date and adjusted to reflect the current best estimate.
Contingent Liabilities and Contingent Assets
Contingent liabilities are not recognized in the financial statements but are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are
not recognized but are disclosed in the financial statements when an inflow of economic
benefits is probable.
Revenue Recognition
Revenue is recognized to the extent that it is probable that economic benefits will flow to the
Group and the revenue can be reliably measured. Revenue is measured at the fair value of the
consideration received, excluding discounts, rebates, and other sales taxes or duties. The
following specific recognition criteria must also be met before revenue is recognized:
Sale of goods
Revenue from sale of goods is recognized upon shipment of packaged electronic products or the
packaged electronic products are accepted by the customer, title and risk of ownership have been
transferred to customer, the price to be paid by the customer is fixed or determinable and the
recoverability is reasonably assured. Generally, there are no formal customer acceptance
requirements or future obligations related to manufacturing services. If such requirements exist, then
revenue is recognized at the time such provisions or requirements are completed and
obligations are already fulfilled.
Interest income
Interest income is recognized as interest accrues (using the effective interest method that is the rate that
exactly discounts estimated future cash receipts through the expected life of the financial
instrument to the net carrying amount of the financial asset).
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Service income
Service income is recognized when design services are rendered.
Dividend income
Dividend income is recognized when the Group’s right to receive the payment is established.
Rental income
Rental income arising on investment properties is accounted for on a straight-line basis over the
lease terms of ongoing leases.
The Group recognizes revenues at gross amount of sales and records the related costs, except when
circumstances indicate that revenues should be reported at net amounts. Generally, when the
Group is primarily obligated in a transaction, is subject to general and physical inventory risk, has
latitude in establishing prices, has discretion in selecting suppliers, changes the product or
performs the service, is involved in the determination of product or service specifications, and has
credit risk, or has many but not all of these indicators, revenue is recorded gross. If several of
these indicators are not present, or if a customer retains ownership of the materials utilized in their
products, the Group generally only recognizes the revenues on a net basis.
The Group has contractual arrangements with certain customers that require the customer to
purchase either excess inventory that the Group has purchased to fulfill that customer’s forecasted
manufacturing demand, or unused inventory due to customers who reschedule, amend or cancel
purchase orders due to change in the product specifications. The Group accounts for the raw
materials returns as reductions in inventory and does not recognize revenue on these transactions.
Pension Expense
EMS is covered by a noncontributory defined benefit retirement plan.
The pension expense of EMS 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 pension obligation recognized in the balance sheet in respect of defined benefit pension plans 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 the interest rate on 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
equity in the period in which they arise as shown in the statement of
recognized income (loss) and expense (SORIE).
Past-service costs, if any, are recognized immediately in income, unless the changes to the pension
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.
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Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the
arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent
on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A
reassessment is made only after inception of the lease if one of the following applies:
a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
b) A renewal option is exercised or extension granted, unless that term of the renewal or
extension was initially included in the lease term;
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.
Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the
date of renewal or extension period for scenario (b).
Group as 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
statement of income on a straight-line basis over the lease term.
Group as lessor
Leases where the Group does not transfer substantially all the risk and benefits of ownership of the
assets are classified as operating leases. Operating lease payments are recognized as an expense in the
statement of income on a straight-line basis over the lease term. Initial direct costs incurred in
negotiating operating leases are added to the carrying amount of the leased asset and recognized over
the lease term on the same basis as the rental income. Contingent rents are recognized as revenue in
the period in which they are earned.
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 taxation authorities. 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 determined, 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, with certain
exceptions. Deferred tax assets are recognized for all deductible temporary differences,
carryforward of unused tax credits from the excess of minimum corporate income tax (MCIT) over the
regular corporate income tax (RCIT), and unused net operating loss carryover (NOLCO), to the extent
that it is probable that sufficient taxable income will be available against which the
*SGVMC110
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deductible temporary differences and carryforward of unused tax credits from MCIT and unused
NOLCO can be utilized. Deferred tax, however, is not recognized on temporary differences that
arise from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting income nor taxable
income.
Deferred tax liabilities are not provided on non-taxable temporary differences associated with
investments in domestic subsidiaries and associates. With respect to investments in foreign
subsidiaries and associates, deferred tax liabilities are recognized except where the timing of the
reversal of the temporary difference can be controlled and it is probable that the temporary
difference will not 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 asset to be recovered.
Deferred tax assets and 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
offset current tax assets against current tax liabilities and deferred taxes relate to the same taxable
entity and the same taxation authority.
Treasury Shares
Own equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or
loss is recognized in the statement of income on the purchase, sale, issue or cancellation of the Parent
Company’s own equity instruments.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) for the year attributable to
ordinary equity holders of the parent by the weighted average number of common shares issued and
outstanding during the year, after giving retroactive adjustment to any stock dividend declared or stock
split made during the year.
Diluted earnings per share (EPS) is calculated by dividing the net income attributable to common
shareholders by the weighted average number of common shares outstanding during the year
adjusted for the effects of any dilutive convertible preferred shares.
Segment
A segment is a distinguishable component of the Group that is engaged in providing products or
services (business segment) which is subject to risks and rewards that are different from other
segments.
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Subsequent Events
Post-year-end events that provide additional information about the Group’s 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 when material to the financial statements.
Future Changes in Accounting Policies
The Group has not the applied the following PFRS and Philippine Interpretations which are not yet
effective for the year ended December 31, 2007:
PFRS 8, Operating Segments (effective for annual periods beginning on or after January 1, 2009)
PFRS 8 will replace PAS 14, Segment Reporting, and adopts a management approach to reporting
segment information. The information reported would be that which management uses internally for
evaluating the performance of operating segments and allocating resources to those segments. The
Group has determined that the operating segments disclosed in PFRS 8 will be the same as the
business segments discloses in PAS 14. The impact of the Standard on the other segment
disclosures is still to be determined. As this is a disclosure standard, it will have no impact on the
financial position or financial performance of the Group when implemented in 2009.
Amendment to PAS 1, Amendment on Statement of Comprehensive Income (effective for annual
periods beginning on or after January 1, 2009)
In accordance with the Amendment to PAS 1, the statement of changes in equity shall include only
transactions with owners, while all non-owner changes will be presented in equity as a single line with
details included in a separate statement. Owners are defined as holders of instruments
classified as equity.
In addition, the Amendment to PAS 1 provides for the introduction of a new statement of
comprehensive income that combines all items of income and expense recognized in the statement of
income together with ‘other comprehensive income’. The revisions specify what is included in other
comprehensive income, such as gains and losses on AFS assets, actuarial gains and losses on defined
benefit pension plans and changes in the asset revaluation reserve. Entities can choose to present all
items in one statement, or to present two (2) linked statements, a separate statement of income and a
statement of comprehensive income. The Group will assess and evaluate the options available under
the Amendment to PAS 1, and will comply with such changes once effective.
Revised PAS 23, Borrowing Costs (effective for annual periods beginning on or after
January 1, 2009)
The Standard requires the capitalization of borrowing costs when such costs relate to a qualifying
asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for
its intended use or sale. In accordance with the transitional requirements of the Standard, the Group
will adopt this as a prospective change. Accordingly, borrowing costs will be capitalized on
qualifying assets with a commencement date after January 1, 2009. No changes will be made for
borrowing costs incurred to this date that have been expensed. The Group will determine the impact
of the Standard on the Group’s operations once effective.
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Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions (effective for
annual periods beginning on or after March 1, 2007)
The Interpretation requires arrangements whereby an employee is granted rights to an entity’s
equity instruments to be accounted for as an equity-settled scheme by the entity even if (a) the
entity chooses or is required to buy those equity instruments (e.g., treasury shares) from another
party, or (b) the shareholder(s) of the entity provide the equity instruments needed. It also
provides guidance on how subsidiaries, in their separate financial statements, account for such
schemes when their employees receive rights to the equity instruments of the parent. The Group
currently does not have any stock option plan and therefore, does not expect this Interpretation to
have an impact on its financial statements.
Philippine Interpretation IFRIC 12, Service Concession Arrangements (effective for annual
periods beginning on or after January 1, 2008)
This Interpretation applies to service concession operators and explains how to account for the
obligations undertaken and rights received in service concession arrangements. The Group
assessed that this Interpretation will have no impact on the Group’s financial statements.
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (effective for annual periods
beginning on or after July 1, 2008)
This Interpretation requires customer loyalty award credits to be accounted for as a separate
component of the sales transaction in which they are granted and therefore part of the fair value of the
consideration received is allocated to the award credits and deferred over the period that the award
credits are fulfilled. The Group expects that this Interpretation will have no impact on its financial
statements as no such schemes currently exist.
Philippine Interpretation IFRIC 14, PAS 19, The Limit on Defined Benefit Asset, Minimum
Funding Requirements and their Interaction (effective for annual periods beginning on or after
January 1, 2008)
The Interpretation provides guidance on how to assess the limit on the amount of surplus in a
defined benefit scheme that can be recognized as an asset under PAS 19, Employee Benefits. The
Group does not expect any impact on the financial position or performance since its defined
benefit plan is currently in deficit.
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.
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Judgments
Operating lease commitments - Group as Lessor
The Group has entered into commercial property leases on its investment property portfolio. The
Group has determined that it retains all the significant risks and rewards of ownership of these
properties which are leased out on operating leases (Note 23).
Financial assets not quoted in an active market
The Group classifies financial assets by evaluating, among others, whether the asset is quoted in an
active market. Included in the evaluation on whether a financial asset is quoted in an active market
is the determination on whether quoted prices are readily and regularly available, and
whether those prices represent actual and regularly occurring market transactions on an arm’s
length basis (Note 10).
Estimates
Fair values of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the balance sheet date
cannot be derived from active markets, they are determined using a variety of valuation techniques
that include the use of mathematical models. The inputs to these models are taken from
observable markets where possible, but where this is not feasible, a degree of judgment is required in
establishing fair values (Note 5).
Impairment of receivables
The Group reviews its receivable portfolio to assess impairment annually based on the factors that
affect the collectibility of the account. The Group reviews the age and status of receivables and
identifies accounts that are to be provided with allowance on a continuous basis. Judgment by
management is required in the estimation of the amount and timing of future cash flows when
determining the level of allowance required. Such estimates are based on assumptions about a
number of factors and actual results may differ, resulting in future changes to the allowance.
In addition to specific allowance against individually significant receivables, the Group also makes a
collective impairment allowance against exposures which, although not specifically identified as
requiring a specific allowance, have a greater risk of default than when originally granted.
Provision for credit losses of the Group amounted to US$0.50 million in 2007 and
US$0.28 million in 2006 and US$0.27 million in 2005 (Note 20). As of December 31, 2007 and
2006, receivables of the Group, net of allowance for impairment losses, amounting to US$0.84
million and US$0.35 million, respectively, amounted to US$16.91 million and US$23.18 million as
of December 31, 2007 and 2006, respectively (Note 8).
Impairment of inventory
The Group reviews its perpetual inventory levels to assess impairment at least on a quarterly basis.
The amount and timing of recorded expenses for any period would differ if different judgments were
made or different estimates were utilized. An increase in reserves for inventory write-down would
increase recorded operating expenses and decrease current assets.
Provision for inventory write-down of the Group amounted to US$1.44 million in 2007,
US$1.39 million in 2006 and US$1.49 million in 2005 (Note 19). Inventories of the Group, net of
allowance for inventory write-down, amounted to US$19.92 million and US$23.61 million as of
December 31, 2007 and 2006, respectively (Note 9).
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EUL of property, plant and equipment and investment properties
The Group estimates the useful lives of its property, plant and equipment and investment
properties based on the period over which the assets are expected to be available for use. The
Group reviews annually the EUL of property and equipment and investment properties based on
factors that include asset utilization, internal technical evaluation, technological changes,
environmental and anticipated use of the assets tempered by related industry benchmark
information. It is possible that future results of operations could be materially affected by changes in
these estimates brought about by changes in the factors mentioned. A reduction in the EUL of
property, plant and equipment would increase the recorded depreciation and amortization expense and
decrease noncurrent assets.
The carrying value of depreciable property, plant and equipment of the Group amounted to
US$13.72 million and US$14.90 million as of December 31, 2007 and 2006, respectively
(Note 12).
The carrying value of depreciable investment properties of the Group amounted to
US$5.00 million and US$5.48 million as of December 31, 2007 and 2006, respectively (Note 13).
Pension and other benefits
The determination of the obligation and cost of pension and other benefits is dependent on the
selection of certain assumptions used by actuaries in calculating such amounts. Those
assumptions include, among others, discount rates, expected returns on plan assets and salary
increase rates. In compliance with PFRS, actual results that differ from the Group’s assumptions are
recognized immediately outside of the statement of income.
While the Group believes that the assumptions are reasonable and appropriate, significant
differences between actual experiences and assumptions may materially affect the cost of
employee benefits and related obligations.
The Group has recognized directly in equity net actuarial gain of US$2.83 million, net actuarial loss of
US$2.57 million and net actuarial gain of US$0.03 million in 2007, 2006 and 2005,
respectively. Net pension liability in the balance sheet of the Group amounted to US$1.87 million and
US$3.66 million as of December 31, 2007 and 2006, respectively (Note 27).
The Group also estimates other employee benefit obligations and expenses, including costs of paid
leaves based on historical leave availments of employees, subject to the Group’s policy. These
estimates may vary depending on the future changes in salaries and actual experiences during the
year.
The Group’s accrued balance of other employee benefits as of December 31, 2007 and 2006
amounted to US$0.43 million and US$0.31 million, respectively (Note 15).
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Impairment of investment in associates, property, plant and equipment and investment properties
The Group reviews investment in associates, property, plant and equipment and investment
property for impairment. This includes considering certain indicators of impairment such as the
following:
• Significant or prolonged decline in the fair value of the asset;
• Market interest rates or other market rates of return on investments have increased
during the period, and those increases are likely to affect the discount rate used in calculating
the asset’s value in use and decrease the asset’s recoverable amount materially;
• 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.
An impairment loss is recognized whenever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s net selling price and value in
use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length
transaction while value in use is the present value of estimated future cash flows expected to arise
from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable
amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to
which the asset belongs. For impairment loss on specific assets, the recoverable amount
represents the net selling price.
In determining the present value of the estimated future cash flows expected to be generated from the
continued use of the assets, the Group is required to make estimates and assumptions that can
materially affect the accompanying financial statements.
The carrying value of property, plant and equipment of the Group amounted to US$14.83 million and
US$16.01 million as of December 31, 2007 and 2006, respectively (Note 12). The carrying value of
investment properties of the Group amounted to US$6.69 million and US$7.16 million as of
The equity investments of the Group, net of allowance for impairment losses of US$0.84 million,
amounted to US$1.26 million and US$0.70 million as of December 31, 2007 and 2006,
respectively (Note 11). The AFS investments of the Group, net of allowance for impairment losses
of US$0.02 million, amounted to US$3.48 million and US$5.53 million as of
No impairment losses were recognized for investment in associates, property, plant and equipment and
investment properties in 2007 and 2006, respectively. Management assessed that no
additional impairment is necessary as of December 31, 2007 and 2006.
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Deferred tax assets
The Group reviews the carrying amounts of deferred tax assets at each balance sheet date and
reduces the deferred tax assets 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
management judgment is required to determine the amount of deferred tax assets that can be
recognized, based upon the likely timing and level of future taxable income together with future tax
planning strategies.
The Group recognized deferred tax assets on the temporary difference amounting to
US$0.10 million in 2007 and US$0.11 million in 2006 (Note 25).
Contingencies
The Group is currently involved in a legal proceeding. The estimate of the probable cost for the
resolution of a claim has been developed in consultation with the aid of the outside legal counsel
handling the Group’s defense in this matter and is based upon an analysis of potential results.
Management does not believe that the outcome of this matter will affect the results of operations of
the Parent Company as its investment in ICI-USA has been fully provided for. It is probable,
however, that future results of operations could be materially affected by changes in the estimates or
in the effectiveness of the strategies relating to this proceeding (Note 30).
4. Financial Risk Management Objectives and Policies
Risk Management Structure
All policy directions, business strategies and management initiatives emanate from the BOD which
strives to provide the most effective leadership for the Group. The BOD endeavors to remain
steadfast in its commitment to provide leadership, direction and strategy by regularly reviewing the
Group’s performance. For this purpose, the BOD convenes in quarterly meetings and in addition, is
available to meet in the interim should the need arise.
The Group has adopted internal guidelines setting forth matters that require BOD approval. Under the
guidelines, all new investments, any increase in investment in business and subsidiary and any
divestments require BOD approval.
The normal courses of the Group’s business expose it to a variety of financial risks such as credit
risk, liquidity risk and market risks which include foreign currency exposures, interest rate risk and
fair value risk.
The Group’s principal financial liabilities consist of accounts payable and accrued expenses, bank
loans payable, liabilities under trust receipts, advances from stockholders and refundable deposits.
The main purpose of these financial liabilities is to raise funds for the Group’s operations. The Group
has various financial assets such as cash and cash equivalents, trade and non-trade
receivables, AFS investments and deposits and others.
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The Group’s policy on managing the risks arising from the Group’s financial instruments follows:
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 carrying amounts of cash
and cash equivalents and receivables represent the Group’s maximum exposure to credit risk in
relation to the financial assets. No other financial assets carry a significant exposure to credit risk.
Management has a credit policy in place and the exposures to these credit risks are monitored on
an ongoing basis.
Maximum exposure to credit risk before collateral held or other credit enhancements
An analysis of the Group’s maximum exposure to credit risk (net of allowance for impairment
losses) without taking into account any collateral held or other credit enhancements is shown
below:
Cash and Cash Equivalents (excluding cash on
hand amounting to US$18 and US$16 for
December 31, 2007 and 2006, respectively)
Cash in banks
Cash equivalents
Receivables
Trade receivable
Customer receivables
Rent receivables
SSS claims receivables
Advances to managers and employees
Others
Available-for-Sale Investments
Refundable Deposits (included in ‘Deposits and
Other assets’ in the balance sheets)
2007
2006
US$3,139
3,653
6,792
US$3,231
24
3,255
11,596
1,906
972
575
101
99
1,658
16,907
3,479
17,175
2,657
659
534
51
557
1,543
23,176
5,533
343
US$27,521
198
US$32,162
The Group does not hold any collateral from its customers thus the table above approximates the
Group’s minimum exposure to credit risk.
The Group performs ongoing credit evaluations of its customers’ financial condition and makes
provisions for impairment losses based on the outcome of its credit evaluations.
*SGVMC110
257*
- 24 -
Risk concentration of the maximum exposure to credit risk
An industry sector analysis of the Group’s maximum exposure to credit risk is as follows:
2007
US$8,892
8,865
2,456
2,115
1,188
1,200
900
456
1,449
US$27,521
Telecommunications (Telecom)
Banks and financial intermediaries
Computer peripherals
Consumer electronics
Automotive
Industrial
Real estate
Services
Others
Total
2006
US$4,851
4,864
9,729
4,252
1,743
883
900
2,104
2,836
US$32,162
The Group has concentration of credit risk due to sales to significant customers. In 2007, financial
assets of the Group were more concentrated to telecom and banks and financial intermediaries which
accounted for 63.63% of the total financial assets while in 2006, risk was concentrated in computer
peripherals, banks and financial intermediaries and telecom which accounted for 60.42% of the
Group’s financial assets. In 2007 and 2006, one customer accounted for approximately
25.30% and 19.34% of net sales, respectively. The Group’s top five customers accounted for
approximately 71.55% and 62.63% of its net sales in 2007 and 2006, respectively.
The tables below summarize the credit quality of the Group’s financial assets as at December 31,
2007 and 2006, respectively:
Receivables:
Trade
Rent
SSS claims
Advances to managers and
employees
Others
Available-for-sale investments
Refundable deposits (included in
Deposits and other assets in
the balance sheet)
2007
Neither Past Due nor Individually Impaired
Minimal Risk Average Risk
High Risk
US$6,792
US$US$-
Past Due
US$-
Individually
Impaired
US$-
Total
US$6,792
7,123
1,554
972
575
101
133
-
8
104
-
4,332
248
-
618
62
37
12,214
1,968
972
575
138
99
1,569
3,479
-
-
89
-
127
19
99
1,785
3,498
343
US$22,607
US$133
US$112
US$4,669
US$863
343
US$28,384
*SGVMC110
257*
- 25 -
Receivables:
Trade
Rent
SSS claims
Advances to managers and
employees
Others
Refundable deposits (included in
Deposits and other assets in
the balance sheet)
2006
Neither Past Due nor Individually Impaired
Minimal Risk Average Risk
High Risk
US$3,255
US$US$-
Past Due
US$-
Individually
Impaired
US$-
Total
US$3,255
12,492
1,938
659
534
51
51
4
-
12
5
-
4,620
710
-
268
39
38
17,443
2,696
659
534
89
557
1,543
5,533
-
-
-
19
557
1,543
5,552
198
US$26,760
US$55
US$17
US$5,330
US$364
198
US$32,526
The Group classifies credit quality risk as follows:
Minimal risk - accounts with a high degree of certainty in collection, where counterparties have
consistently displayed prompt settlement practices, and have little to no instances of defaults or
discrepancies in payment; also includes transactions with related parties (i.e., affiliates), where the
ultimate parent company can exercise significant control over the operations of the counterparty.
Average risk - active accounts with minimal to regular instances of payment default, due to
ordinary/common collection issues, but where the likelihood of collection is still moderate to high as
the counterparties are generally responsive to credit actions initiated by the Group.
High risk - accounts with a low probability of collection and can be considered impaired based on
historical experience, where counterparties exhibit a recurring tendency to default despite constant
reminder and communication, or even extended payment terms.
Further quantitative disclosures in respect of the Group’s exposure to the credit risk arising from
trade and other receivables are set out in Note 8.
The Group maintains cash and cash equivalents with various financial institutions that
management believes to be of high credit quality. The Group’s cash equivalents primarily
comprise deposits in checking and money market accounts, and certificates of deposits. The
Company’s investment policy is to extend credit exposures with financial institution from which it has
outstanding loans and loan facilities.
Liquidity Risk
Liquidity risk is the risk of not being able to meet funding obligations such as the repayment of
liabilities or payment of asset purchases. Short-term funding is obtained to finance cash
requirements for capital expenditures and operations. Amount of credit lines are obtained from
designated banks duly approved by the BOD. Surplus funds are placed with reputable banks to
which the Company has outstanding loans and loan facilities. The Group’s policy is to regularly
monitor its liquidity requirements and its compliance with lending covenants, to ensure that it
maintains sufficient reserves of cash and highly liquid marketable securities and adequate
committed lines of funding from major financial institutions to meet the liquidity requirements in
the short and longer term.
*SGVMC110
257*
- 26 -
The tables below show the maturity profile of the financial liabilities, based on its internal
methodology that manages liquidity based on contractual undiscounted cash flows:
On Demand
Accounts payable and accrued
expenses
Bank loans payable
Advances from stockholders
Refundable deposit
US$15,834
188
US$16,022
On Demand
Accounts payable and accrued
expenses
Refundable deposit
US$21,470
US$21,470
Year ended December 31, 2007
Less than
3 to 12
1 to 5
3 Months
Months
Years
US$4,078
4,700
1,308
US$10,086
US$327
US$327
US$- US$19,912
496
5,523
1,308
188
828
828
US$1,324
US$27,759
Year ended December 31, 2006
Less than
3 to 12
1 to 5
3 Months
Months
Years
US$3,304
US$3,304
US$2,007
US$2,007
Total
Total
US$- US$24,774
2,007
800
800
US$800 US$27,581
The Group’s available credit line which can be used in its future operating activities amounted to
US$0.70 million with a commercial bank. The Group will apply for additional credit lines as the
need arises.
Market Risk
Market risk is the risk of loss to future earnings, to fair value or future cash flows of a financial
instrument as a result of changes in its price, in turn caused by changes in interest rates, foreign
currency exchange rates, equity prices and other market factors.
Interest rate risk
Interest rate risk is the risk that the value of a financial instrument will fluctuate because of
changes in interest rates. The Group has no significant interest-bearing assets and the Group’s
income and operating cash flows are substantially independent of changes in market interest rates.
The Group follows a prudent policy in managing its assets and liabilities so as to ensure that
exposure to fluctuation in interest rates are kept within acceptable limits.
*SGVMC110
257*
- 27 -
The following tables set out the carrying amount, by maturity, of the Group’s financial instruments that
are exposed to interest rate risk:
2007
Below
1 year
Financial Asset
Amount
Interest rate
Financial liabilities
Amount
Interest rate
Bank loans payable
Amount
Interest rate
Bank loans payable
Amount
Interest rate
1 to 5 years
Amounts in US$
Total
US$6,792
3.5%-5.5%
US$6,792
US$US$-
US$6,792
3.5%-5.5%
US$6,792
US$1,300
8.0%
US$-
US$1,300
8.0%
424
4,964
5,388
8.0%
8.0%
8.0%
US$6,264
US$424
US$6,688
Amounts in Philippine Peso
P=670
11.6%-12.8%
P=670
P=P=-
P=670
11.6%-12.8%
P=670
2006
Below
1 year
Financial Asset
Amount
Interest rate
Financial liabilities
Amount
Interest rate
Total in US Dollars
1 to 5 years
Amounts in US$
Total
US$3,255
2.8%
US$3,255
US$US$-
US$3,255
2.8%
US$3,255
US$1,982
8%
US$1,982
US$US$-
US$1,982
8%
US$1,982
Sensitivity analysis
As of December 31, 2007, it is estimated that a general increase/decrease of 115 basis points
in interest rates would increase /decrease the Group’s loss before tax by approximately
US$0.02 million, with all other variables held constant. As of December 31, 2006, the Group
does not have any financial instruments which are subject to monthly repricing. There is no other
impact on the Group’s equity other than those already accounted for in the statement of income.
*SGVMC110
257*
- 28 -
The sensitivity analysis above has been determined assuming that the change in interest rates has
occurred at the balance sheet date and has been applied to the exposure to interest rate risk for Bank
loans payable in existence at that date. The 115 basis point increase or decrease represents
management’s assessment of a reasonably possible change in interest rates over the period until the
next annual balance sheet date. The analysis is performed on the same basis for 2006.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in foreign exchange rates. The Group is exposed to currency
risk primarily through purchases that are denominated in a currency other than the functional
currency of the Group. The currencies giving rise to this risk are primarily Euros (€), Japanese
Yen (¥), Renminbi (RMB) and Philippine Pesos (P=). It is the Group’s policy not to trade in
derivative contracts. In addition, the Group believes that its profile of foreign currency exposure
on its assets and liabilities is within conservative limits in the type of business in which the Group
is engaged.
The tables below detail the Group’s exposure at the balance sheet date to currency risk arising
from forecasted transactions or recognized assets or liabilities denominated in a currency other
than the functional currency of the Group.
Philippine Peso
2007
Receivables
AFS investments
Deposits and others
Assets classified as held for
Less: Accounts payable and accrued
expenses
Liabilities classified as held for
Gross exposure arising from
recognized assets and liabilities
Add: Non-cancellable purchase
commitments
Net exposure
In US Dollar
US$713
947
948
301
2006
In Philippine
Peso
P=29,470
39,114
39,175
12,425
In US Dollar
US$149
60
937
219
In Philippine
Peso
P=7,298
2,938
45,941
10,738
718
3,627
29,680
149,864
1
1,366
51
66,966
1,550
1,869
64,041
77,231
321
3,657
15,719
179,299
36
3,455
1,492
142,764
30
4,008
1,452
196,470
172
7,100
(2,642)
(129,504)
(105)
(US$2,747)
(5,156)
(P=134,660)
(78)
US$94
(3,234)
P=3,866
*SGVMC1102
57*
- 29 -
Yen
2007
In US Dollar In Japanese Yen
US$932
¥105,944
Liabilities classified as held for
18
2,050
recognized assets and
liabilities
(950)
(107,994)
commitments
(19)
(2,127)
Net exposure
(US$969)
(¥110,121)
2006
In US Dollar In Japanese Yen
US$985
¥117,101
18
2,050
(1,003)
(119,151)
(100)
(US$1,103)
(11,899)
(¥131,050)
Euro
2007
Receivables
expenses
commitments
Net exposure
2006
In US Dollar
US$42
23
65
In Euro
€28
16
44
In US Dollar
US$113
113
In Euro
€85
85
104
71
35
26
(39)
(27)
78
59
(107)
(73)
(US$146)
(€100)
(159)
(US$81)
(119)
(€60)
RMB
2007
Receivables
expenses
commitments
Net exposure
2006
In US Dollar
US$11
83
In RMB
RMB77
609
686
In US Dollar
US$6
9
15
In RMB
RMB43
67
110
94
87
635
79
617
7
51
(64)
(507)
(22)
(US$15)
(156)
(RMB105)
(39)
(US$103)
(311)
(RMB818)
The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities
are as follows:
Currency
Philippine Peso
Japanese Yen
EMU Euro
China Yuan (RMB)
Source
Philippine Dealing System & Exchange Corp.
Closing rate
Bangko Sentral ng Pilipinas (BSP) closing rate
BSP closing rate
BSP closing rate
2007
2006
US$0.0242
0.0088
1.4627
0.1367
US$0.0204
0.0084
1.3419
0.1280
*SGVMC110
257*
- 30 -
Sensitivity analysis
The following table indicates the approximate change in the Group’s loss before tax in response to
reasonably possible changes in the foreign exchange rates to which the group has significant
exposure at the balance sheet date:
Gross Exposure
December 31, 2007
Increase (decrease) in exchange rates
20%
(20%)
Philippine
Peso
(US$34)
34
Increase (decrease)
in exchange rates
10%
(10%)
Philippine
Peso
US$264
(US$264)
Yen
US$190
(190)
Euro
US$8
(8)
RMB
(US$1)
1
December 31, 2006
Yen
US$100
(100)
Euro
(US$8)
8
RMB
US$6
(6)
Net Exposure
December 31, 2007
Increase (decrease)
in exchange rates
20%
(20%)
Philippine
Peso
(US$19)
19
Increase (decrease)
in exchange rates
10%
(10%)
Philippine
Peso
US$275
(275)
Yen
US$194
(194)
Euro
US$29
(29)
RMB
US$3
(3)
December 31, 2006
Yen
US$110
(110)
Euro
US$8
(8)
RMB
US$10
(10)
The sensitivity analysis has been determined assuming that the change in foreign exchange rates has
occurred at the balance sheet date and has been applied to each of the group entities’ exposure to
currency risk for financial instruments in existence at that date, and that all other variables, in
particular interest rates, remain constant. The Group does not expect the impact of the volatility on
other currencies to be material.
The stated changes represent management’s assessment of reasonably possible changes in foreign
exchange rates over the period until the next annual balance sheet date. Results of the analysis as
presented in the above table represent an aggregation of the effects on each of the entities’ loss
before tax measured in the respective functional currencies, translated into United States dollars at the
exchange rate ruling at the balance sheet date for presentation purposes. The analysis is
performed on the same basis for 2006.
*SGVMC110
257*
- 31 -
5. Fair Value Measurement
Fair Values
The following table presents a comparison by category of carrying amounts and estimated fair
values of all of the Group’s financial instruments as of December 31:
2007
Carrying Value
Financial Assets
Receivables
At fair market value
At cost
Refundable deposits (included in Deposits and
Other assets in the balance sheet)
Financial Liabilities
Bank loans payable
Refundable deposits
Financial Assets
Receivables
Available-for-sale investments:
At fair market value
At cost
Refundable deposits (included in Deposits and
Other assets in the balance sheet)
Financial Liabilities
Refundable deposits
Fair Value
US$6,810
16,907
US$6,810
16,907
105
3,374
105
3,374
343
343
19,912
5,404
1,300
619
19,912
5,422
1,300
619
2006
Carrying Value
Fair Value
US$3,271
23,176
US$3,271
23,176
2,624
2,909
2,624
2,909
198
198
24,774
1,982
572
24,774
1,982
572
The carrying amounts of financial instruments such as cash and cash equivalents, receivables,
deposits and others, accounts payable and accrued expenses and liabilities under trust receipts
approximate their respective fair values due to their short-term nature.
The fair value of AFS investments is determined by using the market prices of the listed shares.
Where the fair value of unquoted equity securities could not be reliably determined, the asset is
carried at cost subject to impairment.
*SGVMC110
257*
- 32 -
The estimated fair value of bank loans payable and refundable deposits represents the discounted
amount of estimated future cash flows expected to be paid. Expected cash flows are discounted at
current market rates to determine fair value over the term of the loan or the life of the lease term.
6. Capital Management
The Group’s primary objective in managing capital is to ensure that it complies with Board of
Investments (BOI) and PEZA required ratios and to continue to provide returns for shareholders and
benefits for other stakeholders, by pricing products and services commensurately with the level of
risk and by securing access to finance at a reasonable cost.
The Group monitors capital using a leverage ratio, which is net debt divided by the sum of total
equity and net debt. Net debt includes loans and borrowings, trade and other payables less cash and
cash equivalents. The Group’s policy is for its leverage ratio not to exceed 75% as required by BOI
and PEZA.
The leverage ratio as at December 31, 2007 and 2006 follows:
2007
2006
US$19,912
4,980
1,300
188
26,380
US$24,774
1,982
26,756
Total debt
Less: Cash and cash equivalents
Net debt
Equity
Total Equity and Net debt
1,869
619
424
199
3,111
29,491
6,810
22,681
43,020
65,701
3,657
572
220
4,449
31,205
3,271
27,934
50,084
78,018
Leverage ratio
68.55%
62.30%
Current liabilities
Bank loans payable
Noncurrent liabilities
Refundable deposits
Bank loans payable
Deferred rent income
7. Cash and Cash Equivalents
Cash on hand
Cash in banks
Cash equivalents
2007
2006
US$18
3,139
3,653
US$6,810
US$16
3,231
24
US$3,271
*SGVMC110
257*
- 33 Cash in bank earns interest at the respective bank deposit rates. Cash equivalents, which represent
money market placements, are made for varying periods of up to three months depending on the
immediate cash requirements of the Group. Cash equivalents represent US dollar and Eurodenominated money market placements with annual interest rates ranging from 3.5% to 5.5% in
2007 and 2.8% in 2006. Management considers the carrying value of cash and cash equivalents to
be a reasonable approximation of market value given the short-term nature of these financial
instruments.
8. Receivables
2007
US$12,214
1,968
972
575
138
99
1,785
17,751
844
US$16,907
Trade receivables
Customers’ receivables
Rent receivables
Advances to managers and employees
Others
Less allowance for impairment losses
2006
US$17,443
2,696
659
534
89
557
1,543
23,521
345
US$23,176
In 2007, included in “Other” accounts is the deferred consideration amounting to US$1.20 million
from sale of 50% share in net assets of Ionote (Note 32).
The tables below show the analysis of aging of receivables as at December 31, 2007 and 2006,
respectively:
Trade receivables
Customers’ receivable
Rent receivables
Advances to managers
and employees
Others
Trade receivables
Customers’ receivables
Rent receivables
Advances to managers
and employees
Others
<30
Days
US$3,768
139
-
2007
Past Due but not Impaired
30-60
60-90
90-120
Days
Days
Days
US$202
US$52
US$135
3
45
43
-
>120
Days
US$175
18
-
Impaired
US$618
62
37
US$3,907
2
US$207
19
US$197
68
US$261
127
US$844
Neither past
Due nor
Impaired
US$12,555
1,947
659
534
51
<30
Days
US$3,654
332
-
2006
Past Due but not Impaired
30-60
60-90
90-120
Days
Days
Days
US$516
US$163
US$96
219
95
-
>120
Days
US$191
64
-
Impaired
US$268
39
38
557
557
1,543
1,543
US$23,521 US$17,846
US$3,986
US$735
US$255
US$345
Neither past
Due nor
Impaired
US$7,264
1,658
972
575
101
99
99
1,785
1,569
US$17,751 US$12,238
Total
US$12,214
1,968
972
575
138
Total
US$17,443
2,696
659
534
89
US$97
US$258
US$96
*SGVMC110257*
- 34 Trade and non-trade receivables related to customers are due within 30-60 days from the date of
billing. All other receivables are expected to be recovered within one year from balance sheet
date.
The changes in the allowance for credit losses follow:
Balance at beginning of year
Provisions during the year
Adjustments due to acquisition of
additional shares of Iomni
Write-offs during the year
Exchange reserve
Balance at end of year
Balance at beginning of year
Provision during the year
Write-offs during the year
Balance at end of year
Computer
Peripherals
US$186
201
(59)
US$328
Computer
Peripherals
US$119
126
(59)
US$186
Telecom
US$7
22
US$29
Telecom
US$7
US$7
December 31, 2007
Consumer
Automotive
Electronics
US$US$138
27
271
US$27
US$409
December 31, 2006
Consumer
Automotive
Electronics
US$US$145
(7)
US$US$138
Others
US$14
(19)
58
Total
US$345
502
(2)
US$51
58
(59)
(2)
US$844
Others
US$14
US$14
Total
US$133
278
(66)
US$345
The Group uses an allowance account when recognizing impairment losses on its receivable unless
otherwise determined that the likelihood of collection is remote, in which case the Group directly
charges the loss against the receivables. The Group writes off receivables if after exhausting
prudent collection procedure, the management assessed that the possibility of collection is remote.
EMS assigned to its Parent Company its trade receivables in the amount of US$3.84 million
wherein the latter also assigned the same to a commercial bank as a security for its loan (Note 16).
9. Inventories
At NRV:
Finished goods (Note 19)
Work-in-process (Note 19)
Raw materials
Inventory in-transit
At cost:
Raw materials
Spare parts and supplies
2007
2006
US$1,537
1,620
15,226
795
19,178
US$2,379
898
19,361
22,638
307
430
737
US$19,915
974
974
US$23,612
*SGVMC110
257*
- 35 -
Analysis of the amount of inventories recognized as an expense is as follows:
Carrying amount of inventories sold
Write-down of inventories
Reversal of write-down of inventories
2007
US$95,110
1,457
US$96,567
2006
US$108,329
1,387
(290)
US$109,426
EMS recognizes write-down whenever the net realizable value of existing inventories is lower than
the cost. Inventory write-down for finished goods amounted to US$0.07 million and
US$0.05 million, in 2007 and 2006, respectively, while the recognized write-down for workinprocess amounted to US$0.12 million and US$0.23 million, in 2007 and 2006, respectively. All
inventory write-downs which pertain to finished goods and work-in-process are included in the
Direct materials expense in Cost of goods sold (Note 19).
Inventory write-down for raw materials amounted to US$1.27 million and US$1.11 million, net of
reversal of US$0.29 million, in 2007 and 2006, respectively. Inventory write-downs for raw
materials are reported under other expense account in the cost of goods sold (Note 19).
Under the terms of agreements covering liabilities under trust receipts amounting to
US$1.30 million and US$1.98 million as at December 31, 2007 and 2006, EMS is accountable to the
bank for the trusteed merchandise amounting to US$1.30 million and US$1.98 million or its sales
proceeds, respectively (Note 17).
10. Available-for-Sale Investments
Quoted:
Gemstar International Group Ltd. (Gemstar)
CSI Wireless, Inc. (CSI)
Cirrus Logic, Inc. (Cirrus)
Others
Unquoted:
Tech Venture III Ltd. (TV III)
Beacon Property Venture, Inc. (Beacon)
C2 Microsystems, Inc.
Tech Venture II Ltd. (TV II)
ICCP Ventures Partners, Inc.
Allowance for impairment losses
2007
2006
US$56
49
105
US$48
1,656
883
37
2,624
US$1,976
900
400
98
19
3,393
3,498
(19)
US$3,479
US$1,500
900
400
109
19
2,928
5,552
(19)
US$5,533
Gemstar, CSI, Cirrus and SiRF are listed in the US NASDAQ stock market. In addition, CSI is
also listed in the Toronto Stock Exchange.
*SGVMC110
257*
- 36 -
The movements in unrealized losses (gains) on AFS investments follow:
Balance at the beginning of the year
Changes in fair value of AFS investments
Changes in fair value of AFS investments taken to
statements of income
Balance at the end of the year
2007
US$661
(930)
2006
(US$5,112)
564
301
US$32
5,209
US$661
In 2006, ICL sold all of its shares of SiRF for a total proceeds of US$6.23 million. Unrealized gain
on market revaluation amounting to US$5.21 million pertaining to the investment in SiRF, was
accordingly removed from equity and recognized in the statements of income under ‘Gain on sale of
AFS investment’ account.
In 2007, investments in CSI and Cirrus were sold to a third party for total proceeds of
US$3.45 million. Accordingly, ICL removed a total amount of US$0.30 million from the
unrealized gains on AFS investment account under equity and recognized the amount a ‘Gain on
sale of AFS investment account in the statements of income.
11. Equity Investments
Noncurrent marketable equity securities
Acquisition cost:
Iomni Precision, Inc. (Iomni) (30%)
ICCP Venture Partners, Inc. (IVPI) (30%)
ICCP Ventures, Inc. (IVI) (24%)
Tech Venture I (24%)
Balance at January 1
Additional investment
Adjustment due to acquisition of additional
shares of Iomni
Balance at December 31
Accumulated equity in net losses:
Equity in net losses
Return of capital
Adjustment due to acquisition of
additional shares of Iomni
Share in unrealized gain on AFS investments of
an associate
2007
2006
US$1,080
54
1,076
264
2,474
568
US$1,080
54
1,076
264
2,474
-
(1,648)
1,394
2,474
1,101
247
36
677
275
149
(879)
505
1,101
871
342
2,102
(839)
US$1,263
168
1,541
(839)
US$702
*SGVMC110
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- 37 -
On September 27, 2007, the Parent Company purchased additional shares of Iomni equivalent to 40%
of Iomni’s outstanding common stock. This resulted in an increase in the ownership interest of the
Parent Company in Iomni from 30% to 70%, which has given the Parent Company the
ability to exercise significant control over the operations of Iomni. Below is the breakdown of the net
assets acquired by the Parent Company at fair market value:
Current Assets
Cash
Receivables
Inventories
Total Current Assets
Noncurrent Assets
Property and equipment
Other assets
Total Noncurrent Assets
Total Assets
Current Liabilities
Bank loans payable
Total Liabilities
Net assets disposed of
Recognized goodwill
Total Purchase Price
US$105
201
142
2
450
644
16
660
US$1,110
US$536
12
548
US$562
6
US$568
Pursuant to the acquisition of control by the Parent Company over Iomni, the Group recognized an
equity take-up of Iomni operations for the first (9) months of 2007 while for the last three (3)
months of operations in 2007, the Parent Company consolidated the results of Iomni’s operations.
As a result of the acquisition, the Group recognized goodwill amounting to US$5,994, which
represents the excess of the purchase price over the fair value of the net assets acquired.
12. Property, Plant and Equipment
The composition of and movements in this account follow:
2007
Land
Cost
Adjustments due to acquisition
Additions
Disposal/retirement
US$1,110
1,110
Building,
Building
Machinery Improvements
and and Leasehold
Equipment Improvements
US$54,974
2,406
699
(7,805)
50,274
US$4,903
1,995
699
(183)
7,414
Tools
and Other
Equipment
Plant
Water and
Airconditioning
Systems
US$2,664
495
(465)
2,694
US$349
17
(128)
238
Furniture,
Fixtures and
Equipment
US$257
156
17
(112)
318
Transportation
Equipment
US$71
23
(70)
24
Total
US$64,328
4,580
1,927
(8,763)
US$62,072
(Forward)
*SGVMC110
257*
- 38 2007
Land
Accumulated Depreciation
and Amortization
Adjustments due to acquisition
Depreciation and amortization
Disposal/retirement
Exchange reserve
Net Book Value
US$US$1,110
Building,
Building
Machinery Improvements
and and Leasehold
Equipment Improvements
US$43,297
1,454
2,756
(6,769)
19
40,757
US$9,517
US$2,802
1,181
391
(64)
21
4,331
US$3,083
Tools
and Other
Equipment
Plant
Water and
Airconditioning
Systems
US$1,742
400
(419)
1,723
US$971
US$235
32
(99)
168
US$70
Furniture,
Fixtures and
Equipment
US$178
116
40
(96)
2
240
US$78
Transportation
Equipment
US$67
21
5
(70)
23
US$1
Total
US$48,321
2,772
3,624
(7,517)
42
47,242
US$14,830
2006
Land
Cost
Additions
Disposal/retirement
and Amortization
Disposal/retirement
Net Book Value
Machinery
and
Equipment
Building,
Building
Improvements
and Leasehold
Improvements
US$1,110
1,110
US$48,109
7,426
(561)
54,974
US$4,649
420
(166)
4,903
US$1,110
41,958
1,900
(561)
43,297
US$11,677
2,641
161
2,802
US$2,101
Plant
Water and
Airconditioning
Systems
Furniture,
Fixtures and
Equipment
US$1,997
700
(33)
2,664
US$335
14
349
US$188
69
257
US$87
(16)
71
US$56,475
8,629
(776)
64,328
1,494
279
(31)
1,742
US$922
203
32
235
US$114
159
19
178
US$79
74
9
(16)
67
US$4
46,529
2,400
(608)
48,321
US$16,007
Tools
and Other
Equipment
Transportation
Equipment
Total
EMS sold certain property, plant and equipment. The loss from sale of property, plant and
equipment recognized by EMS amounted to US$0.11 million in 2007 and gain on sale in the
amount of US$0.02 million in 2006 and US$0.33 million in 2005, were included under
Miscellaneous income in the statements of income.
The cost of fully depreciated machinery and equipment still in use by EMS amounted to
US$25.01 million and US$24.66 million as of December 31, 2007 and 2006, respectively.
The book value of property and equipment which are considered as temporarily idle as at
December 31, 2007 and 2006 amounted to US$0.28 million and US$0.17 million, respectively.
The Group’s property and equipment held-for-sale amounted to US$0.09 million and
US$0.14 million as at December 31, 2007 and 2006, respectively.
Consolidated depreciation and amortization of property, plant and equipment, included under
various accounts in the statements of income, amounted to US$3.67 in 2007, US$2.40 million in
2006 and US$7.31 million in 2005.
*SGVMC110
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- 39 -
13. Investment Properties
2007
Cost
Balance at January 1 and
December 31
and Amortization
Exchange reserve
Net Book Value
Land
Building
Building
Improvements
Total
US$1,687
US$4,636
US$2,328
US$8,651
US$1,687
882
79
961
US$3,675
605
399
(5)
999
US$1,329
1,487
478
(5)
1,960
US$6,691
2006
Cost
Additions
and Amortization
Exchange reserve
Net Book Value
Land
Building
Building
Improvements
Total
US$1,687
1,687
US$4,089
547
4,636
US$2,328
2,328
US$8,104
547
8,651
US$1,687
733
149
882
US$3,754
288
322
(5)
605
US$1,723
1,021
471
(5)
1,487
US$7,164
The aggregate fair value of the investment properties amounted to US$11.34 million and
US$11.87 million as of December 31, 2007 and 2006, respectively. The fair values of the
investment properties have been determined as the discounted cash flow projections based on
reliable estimates of future cash flows, supported by the terms of the existing lease, and by using
weighted average cost of capital as the discount rate which reflect current market assessments of the
uncertainty in the amount and timing of cash flows.
Rent income received from the investment properties, reported in “Rent” account in the statements of
income, amounted to US$2.09 million, US$2.05 million and US$1.36 million for 2007, 2006 and
2005, respectively.
Direct operating expenses on investment properties, included under General and administrative
expenses, amounted to US$0.05 million, US$0.01 million and US$0.07 million for 2007, 2006 and
2005.
On January 29, 2007, IPI mortgaged certain investment properties to a commercial bank as
collateral for its bank loan (Note 16). The carrying value of the mortgaged properties amounted to
US$1.37 million as of December 31, 2007.
*SGVMC110
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14. Deposits and Others
Deposits to utility companies
Others
2007
US$300
45
US$345
2006
US$156
63
US$219
2007
US$15,834
2,905
1,173
US$19,912
2006
US$21,470
2,378
926
US$24,774
15. Accounts Payable and Accrued Expenses
Trade payables
Accrued expenses
Others
The above financial liabilities have the following terms and conditions:
• Trade payables are noninterest-bearing and are normally settled on a 30-day term. •
Accrued expenses are normally settled on a monthly basis.
• Other payables are noninterest-bearing and have an average term of one month.
16. Bank Loans Payable
As of December 31, 2007, the Group has outstanding bank loans amounting to US$5.40 million with
commercial banks and a local financing company which incurs and pays monthly interest at 7% to
8% for dollar-denominated borrowings and 11.6% to 12.8% for peso-denominated
borrowings per annum.
Details of the bank loans payable follow:
• The Parent Company has bank loans with outstanding balance of US$3.00 million. The loans
carry interest of 8% fixed per annum. The borrowings are secured by EMS receivables in the
amount of US$3.84 million. The first promissory note amounting US$1.10 million will
mature on January 4, 2008 while the last two promissory notes with a total amount of
US$1.90 million will mature on March 4, 2008.
• IPI has an outstanding loan amounting of US$0.79 million with a commercial bank which
carries 8% fixed interest per annum. The loan will mature on February 5, 2010. As part of the
loan covenant, IPI executed a deed of assignment were it assigned all the rights, title and
interests for certain lease contracts with third parties and the related rental proceeds from the
lease agreements.
• EMS has a clean loan of US$1.60 million which bears interest at 7% per annum. Interest is
repriceable monthly. The loan will mature on January 28, 2008.
*SGVMC110
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- 41 • Iomni obtained a five-year loan from a local financing company on January 10, 2003
amounting to US$0.24 million. The loan, which is payable on a quarterly basis, has a balance of
US$0.01 million which bears interest ranging from 11.6% to 12.8% in 2007 and is secured by a
chattel mortgage over various machinery and equipment owned by Iomni with a carrying value of
US$0.26 million as of December 31, 2007. The loan will mature on
January 10, 2008.
17. Liabilities under Trust Receipts
This account consists of various short-term trust receipts agreements with a commercial bank
amounting to US$1.30 million and US$1.98 million as of December 31, 2007 and 2006,
respectively, with fixed interest rate of 8%. Inventories in the amount equivalent to the
borrowings or the proceeds from the sale of the said inventories are collateralized for these
borrowings. These borrowings will mature on January 28, 2008.
The BOD of the Group approved the conversion of these borrowings into a term loan which is still
subject for approval of the said commercial bank. The liabilities under trust receipts are renewed
every maturity date until the approval of the conversion into term loan.
18. Equity
Movements in selected equity accounts are as follows:
Capital
Stock
Additional
Paid-inCapital
Retained Earnings
ApproUnappropriated
priated
US$4,711 US$25,197
Other
Reserve
Exchange
Differences
(US$2,035)
US$561
(22)
-
Treasury
Shares
(US$240)
Minority
Interest
Total
US$5,696 US$50,745
Balance at January 1, 2007
Adjustment due to acquisition of
additional 40% shares of Iomni
Actuarial gains taken directly to
equity
Foreign currency translation
Net loss for the year
Appropriation of retained earnings
(Note 34)
US$7,730
US$9,125
-
-
-
-
-
-
(7,749)
2,825
-
-
-
3,600
(3,600)
-
-
Balance at December 31, 2007
US$7,730
US$9,125
US$8,311 US$13,848
US$768
US$383
(US$240)
US$2,256 US$42,181
Balance at January 1, 2006
Actuarial losses taken directly to
equity
Net income (loss) for the year
US$7,730
US$9,125
US$4,711 US$22,324
US$537
US$453
(US$240)
US$7,060 US$51,700
-
-
2,873
(2,572)
-
108
-
Balance at January 1, 2005,
As restated
Net loss for the year, as restated
Appropriation of retained earnings
(Note 34)
US$7,730
US$9,125
US$4,711 US$25,197
(US$2,035)
US$561
(US$240)
US$7,730
-
US$9,125
-
US$- US$33,557
(6,522)
US$537
(US$60)
513
-
(US$240)
-
-
-
US$7,730
US$9,125
-
4,711
-
(4,711)
US$4,711 US$22,324
-
(178)
-
-
-
US$537
US$453
-
497
475
-
5
(22)
(3,920)
2,830
(200)
(11,669)
-
-
(US$240)
-
(1,364)
-
(2,572)
108
1,509
US$5,696 US$50,745
US$9,726 US$60,375
513
(2,666)
(9,188)
-
-
US$7,060 US$51,700
The Parent Company’s capital stock consists of 1,000,000 authorized common stock at P=1.00
(US$0.01) par value with 429,688 outstanding shares and 1,400 treasury shares as at
December 31, 2007, 2006 and 2005.
*SGVMC110
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19. Cost of Sales
This account consists of:
Materials and supplies used
Direct labor, salaries and benefits (Note 27)
Occupancy cost and utilities (Notes 22 and 23)
Depreciation and amortization (Note 12)
Other expenses
Total Manufacturing Cost
Work-in-process - at NRV:
Beginning
Ending (Note 9)
Cost of Goods Manufactured
Finished goods - at NRV:
Beginning
Ending (Note 9)
2007
US$99,362
12,388
5,651
3,382
4,717
125,500
2006
US$108,607
11,269
4,044
2,173
3,578
129,671
2005
US$50,684
7,171
2,032
5,742
2,960
68,589
898
(1,620)
124,778
224
(898)
128,997
74
(224)
68,439
2,379
(1,537)
US$125,620
326
(2,379)
US$126,944
83
(326)
US$68,196
Pension expense included in the direct labor, salaries and benefits account amounted to
US$0.60 million in 2007, US$0.21 million in 2006 and US$0.20 million in 2005.
Materials and supplies used also include provision for write-down amounting to
US$0.17 million in 2007 and US$0.28 million in 2006.
Other expenses account includes provision for inventory write-down amounting to
US$1.27 million in 2007, US$1.11 million, net of US$0.29 million reversal in 2006 and
US$1.49 million in 2005 and handling and freight charges amounting to US$2.54 million in 2007,
US$2.02 million in 2006 and US$1.12 million in 2007, 2006 and 2005, respectively.
Entertainment, amusement and recreation (EAR) expenses of the Parent Company included in
Other expenses account amounted to US$0.03 million in 2007, 2006 and 2005.
20. General and Administrative Expenses
This account consists of:
Salaries and benefits (Note 27)
Depreciation and amortization (Notes 12 and 13)
Occupancy cost and utilities (Notes 22 and 23)
Provision for impairment losses (Note 8)
Other expenses
2007
US$1,490
720
698
502
1,020
US$4,430
2006
US$1,298
698
636
278
809
US$3,719
2005
US$1,107
1,900
852
274
948
US$5,081
Pension expense included in salaries and benefits account amounted to US$0.05 million in 2007 and
US$0.01 million in 2006 and 2005.
Entertainment, amusement and recreation (EAR) expenses of the Parent Company included in
Other expenses account amounted to US$0.02 million in 2007, 2006 and 2005.
*SGVMC110257*
- 43 -
21. Commissions
The account represents sales commissions payable to an agent, amounting to US$1.60 million in
2007, US$1.13 million in 2006 and US$0.81 million in 2005.
22. Related Party Transactions
In the normal course of business, EMS has transactions with related parties which include
advances, purchases, rent and fees charged for information technology services. Sales and
purchases of goods and services to and from related parties are made at normal market prices.
The summary of the related party balances and transactions of EMS follows:
Due to (from)
Related Parties
Intercompany
Advances
Interest
Expense
Purchase of
Goods/Property
and Equipment
Rent
Expense
Miscellaneous
Expense
US$178
516
US$-
US$-
US$1,629
2,249
US$-
US$18
18
(102)
71
13,899
9,083
974
457
-
634
567
-
50
(421)
1,689
1,113
135
31
-
434
434
-
-
-
-
-
217
194
-
(88)
-
750
-
2,209
-
-
Iomni
2007
2006
Ionics, Inc.
2007
2006
IPI
2007
2006
Valmora Realty Corp. (VRC)
2007
2006
IEL
2007
2006
Due from IPI carries fixed interest rate of 4.0% per annum which was a result of the sale of
leasehold improvements by EMS in 2005. In June 2007, EMS has fully collected the principal and
interest receivable from IPI.
In 2006, intercompany advances carry a fixed interest rate of 7.3% and 12.0% per annum for
dollar and peso advances, respectively. In 2007, there was a change in the rate used in the
computation of the interest in dollar advances. The Group currently uses the prevailing monthly
British Bank Association’s historic LIBOR (London Inter-Bank Offered Rates) plus 2% spread. For
peso advances, interest is still at 12.0% per annum. These intercompany advances are payable on
December 31, 2008.
These intercompany advances are unsecured. The management of the Group assessed that these
advances are not impaired.
*SGVMC110
257*
- 44 -
EMS entered into a lease agreement with the Parent Company for the lease of Plants 5 and 6
located within the PEZA economic zone. The terms of the lease agreement follow:
(a) Monthly rental shall be at the rate of US$2.97 per square meter based on the floor area of the
leased premises;
(b) The lease shall be for a period of five years commencing on May 1, 1999 for Plant 5 and on
January 1, 2000 for Plant 6; and
(c) Rental rates increase at 10.0% annually.
The lease of Plants 5 and 6 was extended for another 5 years beginning May 1, 2004 and
January 1, 2005, respectively, with a monthly rental at the rate of US$4.35 per square meter in the
first year and with an annual escalation rate of 5.0%.
On January 1, 2006, EMS entered into a lease agreement with VRC for the re-opening of Plant 3. The
new lease is for a period of five years commencing on January 1, 2006 with annual escalation rate of
10.0%.
On June 8, 2005, EMS entered into a lease agreement with IPI for the lease of a factory building with
a floor area of 6,305 square meters located at Lot B2-2 to B2-3 Carmelray Industrial Park II,
Calamba, Laguna for use as Plant 2. The contract is for a period of 10 years commencing on
June 8, 2005 with a monthly rental rate of US$5.00 per square meter based on the floor area with an
annual escalation rate of 3.0%.
On June 28, 2005, EMS entered into a purchase agreement with Iomni. Whereas Iomni agrees to sell
products to EMS on the terms and conditions set out in this agreement. The prices quoted to or paid
by EMS shall not exceed current prices charged by Iomni to its other customers for the same or
similar products, the excess prices shall be refunded to EMS. In case of end-of-life
(EOL), EMS shall inform Iomni about two months before the actual EOL date in order for Iomni to
immediately adjust ordering of raw materials.
The compensation of the key management personnel of EMS follows:
Short-term employee benefits
Executive officers’ compensation
Directors’ remuneration
Post-employment benefits
2007
US$828
709
266
100
US$1,903
2006
US$704
605
231
49
US$1,589
*SGVMC110
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- 45 -
23. Leases
EMS leases its office spaces, factory premises and warehouses for periods ranging from one to
five years, renewable under certain terms and conditions stipulated in the operating lease
agreements. At the end of the terms of certain leases, all lease improvements shall be surrendered and
become the property of the lessor. All leases include an escalation clause ranging from 3.0% to
10.0% on an annual basis. Total rent expense on these leases amounted to US$0.30 million, US$0.24
million and US$0.30 million in 2007, 2006 and 2005, respectively.
Ionote, Limited leases its plant facility in Dongguan, China. The lease is for a period of five years
commencing on January 1, 2005 with fixed monthly payments and no escalation.
EMS also leases its plant facilities from related parties as discussed in Note 22.
Iomni leases a parcel of land and a factory building. The lease is for a period of 10 years starting
January 15, 2001.
As of December 31, 2007 and 2006, the future minimum rental payments on non-cancellable
leases are as follow:
Within one year
After one year but not more than five years
After more than five years
2007
US$2,638
6,049
1,164
US$9,851
2006
US$1,575
5,226
1,623
US$8,424
In 2004, IPI entered into a 10-year non-cancellable lease with a third party for the rent of its land and
building. The lease agreement also provides for the payment of three-month advance rental and
three-month security deposit which corresponds to the current rate for the month.
In 2003, IPI leased its two-storey building with a total floor area of 4,639 square meters to a third
party. The lease began on December 18, 2003 and shall continue for three years until
December 17, 2006. Monthly rental shall be US$16,795. In 2004, IPI agreed to a reduction of
monthly rental from US$16,795 to US$16,285 from April 1 to September 30, 2004. The revised
rental rates will be valid only for a six-month period.
In 2006, IPI completed the construction of a warehouse building with a total floor area of 3,140
square meters and subsequently leased out to a third party. The term of the lease agreement is 5
years which commenced on April 18, 2006 and will terminate on April 18, 2011. Monthly rental
fee for the warehouse is US$4.0 per square meter, with an annual escalation rate of 5%. The lease
agreement also provides for three-month security deposit which is based on the current month’s
rental rate.
*SGVMC110
257*
- 46 -
Future minimum lease receivables under non-cancellable operating leases as of
December 31, 2007 and 2006 follow:
Within one year
After one year but not more than five years
After more than five years
2007
US$3,126
9,870
4,509
US$17,505
2006
US$2,689
10,062
6,794
US$19,545
24. Registrations with the Philippine Economic Zone Authority (PEZA)
EMS’s registrations with PEZA are as follows:
1.
2.
3.
Product Line
Wireless Broadband Access
Unit
OptiSwitch-F Sub-Assembly
5.
Global Positioning System
Module
Power Controller of Beard
Trimmer with Saft NiCD
and Sanyo NiMH Rechargeable Battery
Giga Vu Pro Multimedia Device
6.
RF Tuners and Amplifiers
7.
Sub Deck Assembly
8.
AV Engine
9.
Radio Remote Control
4.
Date of Registration
Type of Registration
May 11, 2004
New project
May 11, 2004
New project
October 27, 2004
New project
December 09, 2004
New project
February 04, 2005
New project
May 23, 2005
New project
June 06, 2005
New project
September 13, 2005
New project
September 29, 2005
New project
October 13, 2005
New project
October 26, 2005
New project
November 28, 2005
New project
November 28, 2005
New project
November 28, 2005
New project
November 28, 2005
New project
December 22, 2005
New project
March 28, 2006
New project
10. ROHS Flex Cable Assembly
11. Engine Starter
12. Spoke Sensor
13. System in Package Solution
14. M-System Disk on Key/ Thumb
Drive Project
15. Optics Telecommunication
16. Electronic Reader/ Electronic
Book
17. Lowcost /SkyEdge Satellite
VSAT Products
Income Tax Holiday (ITH)
Four-year ITH starting
May 2004
May 2004
October 2004
December 2004
February 2005
June 2005
June 2005
August 2005
October 2005
October 2005
September 2005
November 2005
November 2005
January 2006
January 2006
January 2006
January 2006
*SGVMC110
257*
- 47 -
Product Line
18. Digital Board (Expansion project
of AV Engine)
19. Assembly of Amplifier or Splitter
(VP-200N)/ Distributor
Switch (VP211DS)
20. Design and Development
21. Electronic Car Dashboard
Assembly
22. Power Over LAN Assembly
23. Hi-Focus Asymmetrical Digital
Subscriber Line Broadband
Access System
Date of Registration Type of Registration Income Tax Holiday (ITH)
May 11, 2006
New project
August 2005
ITH incentive shall be coterminus w/ the ITH
entitlement of AV
May 2007
New project
Engine
July 28, 2003
New project
July 2003
June 12, 2003
New project
June 2003
Three-year ITH starting
September 30, 2003
New project
October 2003
September 21, 2000
New project
October 2000
In 2007, EMS also registered a new project called IVLOG for an existing line which entitled the
Group for this project to 5% gross income tax (GIT).
The above registrations also entitle EMS to other incentives which include, among others, the
duty-free importation of raw materials and capital equipment. EMS is negotiating with PEZA for
additional bonus years for product lines with expired ITH.
Iomni is registered with PEZA for the manufacture of rewritable compact disk drive mechanical
loader assembly and plastic injection molding of high precision plastic parts and assembly,
fabrication of molds and dies, and printing of plastic parts. As a registered export enterprise,
Iomni is entitled to conduct and operate its business inside the PEZA zone subject to the terms and
conditions of the Registration Agreement with PEZA. Iomni is also entitled to import raw
materials, capital equipment and household and personal items free of taxes and duties.
Further, Iomni is entitled to a four-year income tax holiday from the start of commercial
operations. At the expiration of its four-year tax holiday, Iomni shall pay at the special tax rate of 5%
on its gross income earned from sources within the PEZA economic zone in lieu of paying all
national and local income taxes.
Gross income earned refers to gross sales derived from any business activity, net of returns,
discounts and allowances, less cost of sales, cost of production and allowable expenses as defined by
PEZA. Income generated from sources outside of the PEZA economic zone shall be subject to
regular internal revenue taxes.
On November 21, 2007, PEZA approved the registration of its new activity, particularly the
manufacture of plastic parts and assembly of super solar cell. The new activity is entitled to a new and
separate four-year tax holiday incentive from the start of commercial operation which is not later than
August 2005.
On September 14, 2005, PEZA approved the registration of the Iomni’s new activity related to the
manufacture of main base M, main frame and tray disc. The new activity is entitled to a new and
separate four-year tax holiday incentive from the start of commercial operation which is not later than
August 2005.
*SGVMC110
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25. Income Taxes
Provision for (benefit from) income tax consists of:
Current
Deferred
2007
US$400
89
US$489
2006
US$299
342
US$641
2005
US$83
(128)
(US$45)
Republic Act (RA) No. 9337 was enacted into law amending various provisions in the existing
1997 National Internal Revenue Code. Among the reforms introduced by the said RA, which
became effective on November 1, 2005, are as follows:
•
Increase in the corporate income tax rate from 32% to 35% with a reduction thereof to 30%
beginning January 1, 2009;
• Increase in unallowable interest expense from 38% to 42% of interest income subjected to
final tax, with a reduction thereof to 33% beginning January 9, 2009; and
• Grant authority to the Philippine President to increase VAT rate from 10% to 12% effective
February 1, 2006.
Components of the Group’s and the Parent Company’s net deferred tax assets and liabilities
follow:
Deferred tax assets on:
Provision for impairment losses
Advance rental
Deferred tax liabilities on:
Exchange differences on nonmonetary assets
Unrealized foreign exchange gain - net
Straight-line recognition of rental income
2007
2006
US$77
21
98
US$89
20
109
(257)
(79)
(61)
(US$299)
(257)
(38)
(24)
(US$210)
The components of the temporary differences where deferred tax assets were not recognized
follows:
NOLCO
Allowance for inventory write-down
Unrealized foreign exchange loss (gain)
Straight-line recognition of rent expense
Unamortized funded past service costs
2007
US$2,457
2,148
1,805
1,646
510
261
198
US$9,025
2006
US$5,645
924
3,657
1,113
(51)
197
167
US$11,652
*SGVMC110
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The Group did not recognize certain deferred tax assets since management believes that it is
reasonably probable that sufficient taxable profit will not be available against which the deductible
temporary differences and NOLCO can be utilized.
The NOLCO can be carried forward as a deduction against taxable income as follows:
Year of Inception
EMS
2006
2005
2004
SI
2007
2006
2005
2004
Amount Used/Expired
Balance
Expiry Year
US$401
1,682
2,397
US$2,397
US$401
1,682
-
2009
2008
2007
74
131
169
865
US$5,719
865
US$3,262
74
131
169
US$2,457
2010
2009
2008
2007
Reconciliation of the statutory income tax rate to the effective income tax rate follows:
Statutory income tax rate
Tax effect of:
ITH
Timing differences of subsidiaries and
registered activities under ITH
Others
Effective income tax rate
2007
35.00%
2006
35.00%
2005
35.00%
(19.05)
(25.14)
14.00
5.54
(25.86)
(4.37%)
(19.41)
37.50
27.95%
(8.72)
(38.29)
(0.51%)
Under RA No. 7916 on Special Zones and PEZA, a PEZA-registered enterprise is exempt from
national and local taxes. In lieu of the said national and local taxes, 5% of the gross income
earned by all businesses and enterprises within the ECOZONE shall be remitted to the local and
national government.
26. Earnings (Loss) Per Share
Earnings (loss) per share amounts attributed to ordinary equity holders of the parent company
from continuing operations were computed as follows:
a. Net income (loss)
b. Weighted average number of outstanding
common shares
c. Basic earnings (loss) per share (a/b)
2007
(US$7,749)
2006
US$2,873
2005
(US$6,522)
428,288
(US$0.018)
428,288
US$0.007
428,288
(US$0.015)
As of December 31, 2007, 2006 and 2005, there are no stocks that have dilutive effect on the basic
earnings per share of the Group.
*SGVMC110
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The following reflects the income (loss) and share data used in the basic earnings (loss) per share
computations:
Income (loss) attributable to ordinary equity holders
of the parent company from continuing operations
Loss attributable to ordinary equity holders of the
parent from a discontinued operation (Note 29)
Net income (loss) attributable to ordinary equity
holders of the parent company
2007
2006
(US$7,528)
US$3,047
(221)
2005
(US$6,426)
(174)
(96)
(US$7,749)
US$2,873
(US$6,522)
2007
2006
2005
429,688
1,400
429,688
1,400
429,688
1,400
428,288
(US$0.018)
428,288
US$0.007
428,288
(US$0.015)
Weighted average number of issued
common shares
Less treasury shares
Weighted average number of outstanding common
shares
Basic/diluted earnings loss per share
There have been no other transactions involving ordinary shares between the reporting date and the
date of completion of these financial statements.
27. Pension Obligations
EMS provides defined benefit pension plans for all employees. Provisions for pension obligations are
established for benefits payable in the form of pensions. Benefits are dependent on years of service
and the respective employee’s final compensation.
The net pension obligations recognized in the balance sheets follow:
2007
US$1,917
(48)
US$1,869
Present value of funded defined benefit obligations
Fair value of plan assets
Net liability in the balance sheets
2006
US$3,669
(12)
US$3,657
There are no reimbursement rights recognized as a separate asset as of December 31, 2007 and
2006.
Pension expense (included in various accounts in the statement of income) comprised the
following:
Current service cost
Interest expense on obligations
Expected return on plan assets
Curtailment gain
Total pension expense
Actual return on plan assets
2007
US$468
280
(1)
(101)
US$646
US$3
2006
US$112
110
(4)
US$218
US$7
2005
US$96
114
(1)
US$209
US$3
*SGVMC110
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- 51 -
Of the pension expense, US$0.60 million and US$0.21 million is included in the cost of goods sold,
in 2007 and 2006, respectively, while US$0.05 million and US$0.01 million is included in the
general and administrative expenses in 2007 and 2006, respectively.
The movements in the pension obligations recognized in the balance sheets follow:
Net liability at beginning of year
Adjustment due to acquisition of additional shares of
Iomni
Net pension expense
Amount recognized in SORIE
Contributions
Effect of changes in foreign exchange rates
Net liability at end of year
2007
US$3,657
2006
US$928
52
646
(2,830)
(116)
460
US$1,869
218
2,572
(61)
US$3,657
The cumulative amount of actuarial gains and losses recognized in SORIE amounted to
US$0.78 million, net actuarial gains, in 2007 while US$2.04 million, net actuarial losses, in 2006.
Changes in the present value of the defined benefit obligation are as follows:
Adjustment due to acquisition of additional shares
of Iomni
Current service cost
Interest expense on obligations
Actuarial losses (gains) due to:
Experience adjustment
Changes in assumptions
Benefits paid
Effect of curtailment
2007
US$3,669
2006
US$969
52
468
280
112
110
(1,804)
(1,024)
(78)
(101)
455
US$1,917
755
1,752
(101)
72
US$3,669
The actuarial gains and losses in the present value of the defined benefit obligations include the
result of foreign currency changes amounting to US$0.07 million in 2006 and US$0.05 million in
2005.
Changes in the fair value of plan assets are as follows:
Actual return on plan assets
Actual contributions
Benefits paid
2007
US$12
3
116
(78)
(5)
US$48
2006
US$41
7
61
(101)
4
US$12
*SGVMC110
257*
- 52 The major categories of plan assets as a percentage of the fair value of the total plan assets are as
follows:
2007
68.14%
16.66
14.82
0.38
Cash in bank
Investment in government securities
Investment in equity securities
Others
2006
-%
50.90
39.39
9.71
The plan assets do not include any of the EMS’s own equity instruments or equity instrument of its
Parent Company, nor any property occupied by, or other assets used by the Group.
The overall expected rate of return on assets is determined based on the market prices prevailing on
that date, applicable to the period over which the obligation is to be settled, except for cash in bank
which was based on the carrying value which is a reasonable approximation of market value given the
short-term in nature.
Principal actuarial assumptions used in determining pension obligations as of January 1, 2007 and
2006 follow:
Retirement age
Average remaining working life
Discount rate
Expected return on plan assets
Salary increases
Management staff
Rank and file
2007
65
12
7%
9%
2006
65
12
11%
9%
5%
4%
8%
8%
As of December 31, 2007 and 2006, the discount rate used in determining the benefit obligation is
10% and 7%, respectively.
Amounts for the current and the previous periods are as follows:
Defined benefit obligation
Plan assets
Deficit
2007
US$1,917
48
US$1,869
2006
US$3,669
12
US$3,657
2005
US$969
41
US$928
Experience adjustments on plan obligations
US$1,804
US$755
(US$368)
US$2
US$3
US$2
Experience adjustments on plan assets
The Group expects to contribute US$0.12 million to its defined benefit pension plan in 2008.
*SGVMC110
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28. Segment Information
The primary segment reporting format of the Group is by business segments as the Group’s risks
and rates of return are affected predominantly by differences in the goods produced. Secondary
segment reporting information is reported geographically. The operating businesses are organized
and managed separately according to the nature of the products and services provided, with each
segment representing a strategic business unit that offers different products and serves different
markets.
The computer peripherals segment provides world-class design, build, ship, and logistics services to
top computer equipment companies. The Group has been providing a broad range of service
offerings to customers in the desktop personal computer (PC), peripheral, server, notebook PC, and
storage devices industries.
The telecommunications (telecom) segment specializes in the manufacture and delivery of carrierand
enterprise-class communications equipment, as well as wireless, optical networking, wire line
transmission, and enterprise networking equipment. The Group works with the world’s leading
telecommunications equipment companies, along with its TL9000 certification, to face the demand and
manufacturing challenges of a fluctuating and time-critical market segment.
The automotive segment understands and delivers to satisfy customers’ unique manufacturing
requirements. The automotive industry demands advanced technologies, high-end materials, and
advanced manufacturing processes and quality systems. The Group has experience in Product Part
Approval Processes (PPAPs), Process Failure Mode & Effects Analysis (PFMEA) and Design Failure
Mode & Effects Analysis (DFMEA), and is ISO/TS 16949 certified.
The consumer electronics segment also provides design, build, ship and logistics services for its
customers in the digital media devices, digital television capture and audio products industries. The
consumer electronics segment builds the capability to serve these customers with every element that
is required to deliver real products to the marketplace.
*SGVMC110
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- 54 -
The Group’s segment information as of and for the year ended December 31, 2007, 2006 and
2005, which present revenue and certain assets and liabilities attributed to each business segment, are
summarized in the following tables:
2007
Sales
Income (loss) from
operations
Gain on sale of availablefor-sale investment
Rent
Interest - net
Foreign exchange gain
(loss) - net
Loss on sale of property,
plant and equipment
Miscellaneous - net
Income tax
Minority interest
Discontinued operations
Net income (loss)
Identifiable assets
Unallocated assets
Total assets
Identifiable liabilities
Unallocated liabilities
Total liabilities
Capital expenditures
Depreciation and
amortization
Provision for inventory
obsolescence
Provision for impairment
losses
Computer
Peripherals
Telecom
Consumer
Automotive Electronics
(Amounts in US$)
15,456
6,414
27,713
68,187
(4,731)
(2,585)
(2,461)
(212)
(896)
(507)
942
Others
Total
482
118,252
(3,717)
100
(13,394)
(288)
(85)
1,769
2,094
838
1,769
2,094
(643)
(847)
(399)
349
(462)
(56)
(29)
(5,535)
22,371
(9)
(59)
(2,607)
8,464
(39)
(15)
(3,650)
9,875
(3)
(5)
(4,209)
2,543
139
(247)
(489)
3,920
(221)
8,252
216
(107)
31
(247)
(489)
3,920
(221)
(7,749)
43,469
29,440
72,909
2,665
27,224
29,889
1,927
22,371
934
8,464
726
9,875
423
2,543
571
216
11
934
623
726
301
423
306
571
143
11
554
820
334
939
96
1,913
4,102
622
115
310
218
-
1,265
201
22
27
271
(19)
502
*SGVMC110
257*
- 55 -
2006
Computer
Peripherals
Sales
Income (loss) from
operations
Gain on sale of availablefor-sale investment
Rent
Interest - net
(loss) - net
Gain on sale of property,
plant and equipment
Miscellaneous - net
Income tax
Minority interest
Net income (loss)
Identifiable assets
Unallocated assets
Total assets
Total liabilities
Depreciation and
amortization
obsolescence
losses
44,468
Telecom
47,311
Consumer
Automotive
Electronics
(Amounts in US$)
20,708
14,851
Others
Total
-
127,338
(1,522)
(106)
(1,592)
(1,390)
151
(4,459)
(280)
(162)
(81)
(85)
5,209
2,046
445
5,209
2,046
(163)
(146)
112
(101)
44
7
(33)
(1,974)
25,941
25,941
3,972
3,972
3,702
10
(46)
(50)
(242)
11,117
11,117
814
814
2,322
2
(12)
(1,784)
10,097
10,097
125
125
598
2
(26)
(1,455)
10,447
10,447
198
198
2,007
153
(275)
(591)
1,364
(174)
8,328
14,270
14,270
381
62
21
(117)
(275)
(641)
1,364
(174)
2,873
71,872
9,722
81,594
5,109
26,401
31,510
9,010
1,298
418
244
386
525
2,871
668
54
98
287
-
1,107
219
7
-
52
-
278
2005
Sales
Income (loss) from
operations
Rent
Interest - net
(loss) - net
Gain on sale of property,
plant and equipment
Miscellaneous - net
Computer
Peripherals
Telecom
Consumer
Automotive
Electronics
(Amounts in US$)
12,555
2,903
14,484
32,634
(4,783)
107
(1,017)
96
(2,834)
83
(3,081)
63
207
1,355
88
(11,508)
1,355
437
(69)
(17)
(77)
(8)
119
(52)
82
49
128
(22)
46
(7)
72
(5)
(54)
328
(39)
Others
Total
-
62,576
(Forward)
*SGVMC110
257*
- 56 -
2005
Computer
Peripherals
Consumer
Telecom Automotive
Electronics
(Amounts in US$)
(832)
(2,789)
(2,959)
5,764
6,471
6,963
5,764
6,471
6,963
294
393
153
294
393
153
Equity in net earnings
Income tax
Minority interest
Net income (loss)
Identifiable assets
Unallocated assets
Total assets
Total liabilities
(4,614)
12,455
12,455
1,582
1,582
Depreciation and
amortization
obsolescence
1,001
245
923
3,199
818
978
3
losses
Others
Total
342
45
2,666
(96)
(6,522)
31,653
35,771
67,424
2,422
8,287
10,709
2,196
342
45
2,666
(96)
4,672
3,332
1,242
2,007
376
7,642
-
465
46
-
1,489
2
4
3
262
274
Sales represent revenue from external customers.
intersegment sales.
7,697
During 2007 and 2006, there are no
The Group’s geographical markets refer only to the initial destination of the products. The
Group’s products are intermediate products which are shipped to the customers’ plants for
incorporation or further assembly into the final finished products. All assets of the Group, except for
equity investments on ICL and IEL, are located in the Philippines.
The Group’s geographical segments are based on the location of the Group’s assets. Sales to
external customers disclosed in the geographical segments are based on the geographical location of
its customers.
The following tables represent the Group’s total revenue and certain assets based on the Group’s
geographical segment:
Asia
Europe
North America
2007
US$87,094
27,830
3,328
US$118,252
2006
US$74,489
40,984
11,865
US$127,338
2005
US$45,941
15,331
1,304
US$62,576
*SGVMC110
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- 57 -
The Group’s assets per geographical market are as follows:
Asia
Europe
North America
2007
US$59,598
11,889
1,422
US$72,909
2006
US$72,374
6,557
2,663
US$81,594
2005
US$64,657
326
2,441
US$67,424
29. Discontinued Operations
The results of discontinued operations of SI for the period until disposal are included as Loss from
discontinued operations in the statements of income.
Details of net loss from discontinued operations are as follows:
Sales
Costs and expenses:
Operating expenses
Other expenses
Gain on sale of PPE
Loss before income tax
Provision for income tax
2007
US$-
2006
US$-
2005
US$-
132
175
307
(90)
217
4
US$221
152
20
172
172
2
US$174
143
41
184
(88)
96
US$96
Operating expenses include a recovery from impairment losses amounting to US$0.31 in 2007 and a
provision for impairment losses amounting to US$0.03 million and US$0.02 million in 2006 and
2005, respectively.
The Group did not recognize deferred tax assets pertaining to discontinued operations since
management believes that it is probable that sufficient taxable profit will not be available against
which the deductible temporary differences, MCIT and NOLCO can be realized. The components of
the temporary differences of SI where deferred tax assets were not recognized follows:
Accumulated impairment losses
NOLCO
Unrealized foreign exchange loss
MCIT
2007
US$1,993
374
222
7
US$2,596
2006
US$1,684
1,165
95
8
US$2,952
2005
US$1,528
1,032
55
6
US$2,621
*SGVMC110
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- 58 -
Details of the Company’s NOLCO are as follows:
Year of Inception
Balance
Expiry Year
US$865
US$865
US$169
131
74
US$374
2007
2008
2009
2010
Year of Inception
Amount Used/Expired
Balance
Expiry Year
2004
2006
2007
US$6
2
5
US$13
2004
2005
2006
2007
Amount Used/Expired
US$865
169
131
74
US$1,239
Details of the Company’s MCIT are as follows:
US$6
US$6
P=2
5
US$7
2007
2009
2010
As of December 31, 2007 and 2006, the assets and liabilities pertaining to discontinued operations
of SI follow:
Current Assets
Cash
Receivables - net
Noncurrent Assets
Investment properties - net
Other assets
Current Liabilities
2007
2006
US$717
189
906
US$2
94
96
1,635
47
1,682
US$2,588
1,706
47
1,753
US$1,849
US$82
US$74
Investment properties are presented net of accumulated depreciation, amortization and impairment.
Operating expenses include a recovery from impairment losses amounting to US$0.31 in 2007 and a
provision for impairment loss amounting to US$0.03 million and US$0.02 million in 2006 and
2005, respectively. The recoverable amount was based on the net selling price determined by an
independent appraiser.
30. Contingencies
Several creditors filed a petition for involuntary bankruptcy against ICI-USA before the U.S.
Bankruptcy Court. Management does not believe that the outcome of this matter will affect the
results of operations of the Parent Company as its investment in ICI-USA has been fully provided
for.
*SGVMC110
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- 59 -
31. Notes to Cash Flow Statements
The principal noncash activities of the Group in 2007 and 2006 are as follows:
a. EMS has advances to IPI for the sale of leasehold improvements amounting to
US$1.69 million in 2005 with a remaining balance of US$0.42 million and US$1.69 million in
2007 and 2006, respectively. The leasehold improvement has a carrying value of
US$2.10 million.
b. In 2006, IPI reclassified its construction-in-progress from property, plant and equipment to
investment property in the amount of US$0.17 million.
32. Disposal of 50% Share in Net Assets of Ionote
In 2006, EMS has a a 100% interest in Ionote, Limited (Ionote; formerly IEL), a company which is
registered in the Cayman Islands. Ionote is a private entity that is not listed on any public
exchange, and is engaged in the manufacture of semiconductor products.
In September 2007, EMS disposed its 50% share in the net assets of Ionote (formerly IEL) to a
third party. Under the terms of the share purchase agreement, EMS sold 50% of Ionote's net assets
amounting to US$1.47 million to a third party for a consideration of US$2.94 million.
In September, 2007, the parties also executed an Option Agreement whereas EMS wrote a stock
call option to the buyer exercisable at ay time after September, 2008. The exercise price is 50% of
equity at the time of exercise plus a fixed amount of US$3.8 million. Simultaenously, the buyer wrote
a stock put option to EMS which is exerciseable at any time from September, 2009. The exercise price
is 50% of equity at the time EMS is exercising the option. The options have a 5year term and are
renewable upon agreement by both parties.
The breakdown of assets and liabilities disposed follow:
Current assets
Cash
Receivables
Inventories
Total current assets
Noncurrent assets
Property and equipment
Other assets
Total noncurrent assets
Total Assets
Current liabilities
Total Liabilities
US$503
445
403
6
1,357
975
18
993
US$2,350
US$463
413
876
(Forward)
*SGVMC110
257*
- 60 Net assets disposed
Gain on sale of investment
Total selling price
Consideration:
Cash
Deferred consideration
Net cash inflow arising from disposal:
Cash consideration
Cash and cash equivalent disposed of
US$1,474
1,468
US$2,942
US$1,742
1,200
US$2,942
US$1,742
(503)
US$1,239
The deferred consideration will be settled in cash by the purchaser on or before March 28, 2008
upon meeting the consideration agreed by the two parties. Management believes that the condition set
in the share purchase agreement can be met by EMS.
33. Commitments
In the ordinary course of business, EMS enters into non-cancellable purchase commitments with its
suppliers. As of December 31, 2007 and 2006, purchase price commitments amounted to US$12.72
million and US$32.00 million, respectively.
In addition, Iomni is a party to a construction contract with an uncompleted portion amounting to
US$232.6 million as of December 31, 2007.
34. Appropriation of Retained Earnings
On March 30, 2006, IPI’s BOD approved the appropriation of retained earnings amounting to
US$4.7 million as of December 31, 2005 to cover capital expenditures.
On August 14, 2007, the Parent Company's BOD approved the appropriation of retained earnings in
the amount of US$3.6 million for the acquisition of 70% of the outstanding shares of Iomni and
capital expenditures for its new project.
On March 31, 2008, IPI’s BOD approved the declaration of cash dividends of US$2.45 million
payable on May 31, 2008 to stockholders of record as of December 31, 2007.
*SGVMC110
257*
- 61 -
35. Non-Adjusting Post Balance Sheet Events
On January 30, 2008, the Parent Company acquired an additional 30% of the outstanding common
shares of Iomni, making it a wholly owned subsidiary starting in 2008.
On January 30, 2008, EMS retrenched a number of employees. This is part of EMS’s cost
reduction program to be able to improve its performance in 2008. EMS paid a total amount of
US$0.33 million as a separation pay to the employees.
On February 1, 2008, EMS submitted an application to the Securities and Exchange Commission
regarding the intention of EMS to reduce its deficit balance by applying it against its additional paidin capital.
On February 15, 2008, the Parent Company merged the operations of Plant 3 and Plant 5 and
closed Plant 3 operations to improve its financial performance by reducing labor and overhead
costs.
In accordance with the Singapore Exchange Securities Trading Limited (Singapore Exchange)
Listing Rule 1311, where the shares of EMS are publicly trade, EMS gave notice to the Singapore
Exchange on March 4, 2008 that it has recorded: (a) pre-tax losses for the three most recently
completed consecutive financial years and (b) an average daily market capitalization of less than
US$40.00 million over the last 120 days on which trading was not suspended for a full market day.
Pursuant to the said listing rule, EMS was notified of inclusion on the Watch-list effective
March 5, 2008. The listing rule provides that EMS should endeavor to restore its financial health
within two years from March 5, 2008, otherwise, it will face delisting procedures or suspension of
trading of its securities.
*SGVMC110
257*
SCHEDULE A - MARKETABLE SECURITIES
(CURRENT MARKETABLE EQUITY SECURITIES
AND OTHER SHORT-TERM CASH INVESTMENTS)
AS OF DECEMBER 31, 2007
Name of Issuing Entity and Description of Each
Issue
Number of
Shares of
Principal
Amount of
Bonds and
Notes
Amount
Shown in the
Balance Sheet
Value Based
on Market
Quotation at
Balance
Sheet Date
Income
Received and
Accrued
Time Deposits
N/A
-
N/A
-
Money Market Placements
Union Bank Corporation
Security Bank and Trust Company
Banco de Oro
Chinatrust Bank Corporation
Hongkong Shanghai Bank Corporation
Rizal Commercial Bank Corporation
N/A
N/A
N/A
N/A
N/A
N/A
$246,027
2,186,459
207,828
1,012,170
N/A
N/A
N/A
N/A
N/A
N/A
$14,329
29,614
2,163
34
$3,652,484
106
46,140
SCHEDULE B - AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES,
RELATED PARTIES AND PRINCIPAL STOCKHOLDERS
Name of Debtor
Designation
Tuana, John Rey
Andrade, Ronan
Chavez, Jay
Vicente, Rosalina
Lopez, Ernie
Bibal, Jonathan
Jardiniano, Cherry
Arambulo, Arnulfo
Other Employees
Manager
Manager
Manager
Manager
Manager
Manager
Manager
Manager
Rank and
File
Balance at
beginning
of period
Dec. 31,
2006
$1,592
82
244
2,574
3,205
3,144
3,682
278,531
$293,054
Additions/
Adjustments
$88
50
309
4
23
88,546
$89,019
107
Amounts
collected
$1,592
118
244
2,574
3,192
3,148
3,682
275,039
$289,590
Amounts
written
off
$_____=====
Current
$1,592
118
244
2,574
3,192
3,148
3,682
275,039
$289,590
Not
Current
$_____=====
Balance at
end of
period Dec.
31, 2007
$88
50
272
4
13
18
92,038
$92,483
SCHEDULE C-1 - NON-CURRENT MARKETABLE EQUITY SECURITIES
OTHER LONG-TERM INVESTMENTS IN STOCK AND OTHER INVESTMENTS
Name of Issuing Entity and
Description of Investments
ICCP Ventures, Inc.
Tech Ventures Partners Ltd.
Tech Venture I Ltd.
I-OMNI Precision, Inc.
Sub-total
Allowance for Probable Losses
Grand Total
BEGINNING BALANCE
December 31, 2006
Number of Shares
or Principal
Amount of Bonds
and Notes
Amount in
US$
605,758 shares
$746,099
30,000 shares
70,151
30 shares
217,237
812,115 shares
82,607
59,999,995 shares
424,701
$1,540,794
(838,496)
$702,298
ADDITIONS
Equity in
Earnings/
(Losses) of
Investees for
the Period
($82,518)
12,952
30,716
(48,636)
($87,486)
($87,486)
Others
1,105,595
3,701
1,109,297
1,109,297
Ending Balance
$1,769,175
86,805
247,952
33,971
424,701
$2,562,604
(838,496)
$1,724,108
Continuation:
DEDUCTIONS
ICCP Ventures, Inc.
Tech Ventures Partners Ltd.
Tech Venture I Ltd.
I-OMNI Precision, Inc.
Sub-total
Grand Total
BALANCE
FORWARDE
D
$1,769,175
86,805
247,952
33,971
424,701
$2,562,604
(838,496)
$1,724,108
Distribution
of Earnings
by Investee
(6,488)
(30,000)
($36,488)
($36,488)
108
ENDING BALANCE
December 31, 2007
Number of Shares
or Principal
Amount of Bonds
and Notes
Reclass/
Others
(424,701)
(424,701)
(424,701)
Amount in
US$
605,758 shares
30,000 shares
30 shares
812,115 shares
59,999,995 shares
$1,769,175
80,317
217,952
33,971
$2,101,415
(838,,496)
$1,262,919
Dividends
Received/
Accrued
from
Investments
Not
Accounted
for by the
Equity
Method
-
INVESTMENTS AVAILABLE FOR SALE
CSI Wireless, Inc.
Stream Machine
SiRF Technology, Inc.
Gemstar International Group Ltd.
Tech Venture II
Tech Venture III
C2 Microsystems
Beacon Realty Corporation
ICCP Venture II, Inc.
Fil Estate Realty Corporation
Export and Industry Bank
Sta. Elena Golf Course
Others
Sub-total
Grand Total
BEGINNING BALANCE
December 31, 2006
Number of Shares
or Principal
Amount of Bonds
and Notes
Amount in
US$
1,015,871 shares
$1,655,870
147,020 shares
883,571
231,250 shares
11,880 shares
47,639
190,000 shares
108,656
1,500,000
400,001
50,000,000 shares
899,507
=4,000,000P
18,835
1
6,321
16,000
153
1
30,584
=81,000P
921
$5,552,057
(18,835)
$5,533,222
109
ADDITIONS
Equity in
Earnings/
(Losses) of
Investees for
the Period
839,109
69,937
8,910
(10,427)
475,612
947
(6)
9,376
1,198
1,394,655
1,394,655
Reclass/
Additional
$-
Ending Balance
2,494,979
953,508
56,549
98,228
1,975,612
400,001
899,507
18,835
7,267
147
39,960
2,119
$6,946,712
(18,835)
$6,927,877
INVESTMENTS AVAILABLE FOR SALE
Continuation:
ENDING BALANCE
December 31, 2007
Number of Shares
or Principal
Amount of Bonds
and Notes
Amount in
US$
DEDUCTIONS
Distribution
of Earnings
by Investee
Adjustment
Others
BALANCE
FORWARDE
D
CSI Wireless, Inc.
Stream Machine/Cirrus Logic
SiRF Technology, Inc.
Gemstar International Group Ltd.
Tech Venture II
Tech Venture III
C2 Microsystems
Beacon Realty Corporation
ICCP Venture II, Inc.
Fil Estate Realty Corporation
Export and Industry Bank
Sta. Elena Golf Course
Others
Sub-total
Grand Total
$2,494,979
953,508
56,549
98,228
1,975,612
400,001
899,507
18,835
7,267
147
39,960
2,119
$6,946,712
(18,835)
$6,927,877
$-
(2,494,979)
(953,508)
($3,448,487)
($3,448,487)
1,015,871 shares
147,020 shares
231,250 shares
11,880 shares
190,000 shares
50,000,000 shares
40,000 shares
1
16,000
1
=81,000P
Dividends
Received/
Accrued
from
Investmen
ts Not
Accounte
d for by
the Equity
Method
56,549
98,228
1,975,612
400,001
899,507
18,835
7,267
147
39,960
2,119
$3,498,225
(18,835)
$3,479,390
=
SCHEDULE L - CAPITAL STOCK
Title of Issue
Number of
Shares
Authorized
Number of
Shares Issued
and
Outstanding
Number of Shares
Reserved for
Options, Warrants,
Conversions, and
Other Rights
Common Stock
1,000,000,000
428,287,500
-
NOTE: Net of 1.4 million Treasury shares with cost of $240,008
110
Number of Shares Held By
Affiliates
Directors,
Others
Officers and
Employees
167,576,550
91,661,065
169,049,885
INDEX TO EXHIBITS
FORM 17-A
No.
(3)
Page
Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
*
Instruments Defining the Rights of Security Holders,
Including Indentures
*
(8)
Voting Trust Agreement
*
(10)
Annual Report to Security Holders, Form 11-Q or Quarterly Report to
Security Holders
*
(13)
Letter re: Change in Certifying Accountant
*
(15)
Letter re: Change in Accounting Principles
*
(16)
Report Furnished to Security Holders
*
(18)
Subsidiaries of the Registrant
(19)
Published Report Regarding Matters Submitted to Vote of Security Holders
*
(20)
Consent of Experts and Independent Counsel
*
(21)
Power of Attorney
*
(5)
112
(29) Additional Exhibits
Summary of General and Administrative Expenses
112
Aging of Accounts Receivable
113
Earnings per Share
113
Form 17-L
_____
* These Exhibits are either not applicable to the Company or require no answer.
111
SUBSIDIARIES OF THE REGISTRANT
NAME
JURISDICTION
OWNERSHIP
Philippines
100%
Cayman Islands
100%
Ionics EMS, Inc.
Philippines
75%
Philippines
70%
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
PARTICULAR
AMOUNT
Salaries and Benefits
Depreciation and Amortization
Occupancy cost and utilities
Provision for impairment losses
Other expenses
TOTAL
$1,490
720
698
502
1,020
$4,430
112
AGING OF ACCOUNTS RECEIVABLE
TYPE OF
ACCOUNTS
RECEIVABLE
A. TRADE
RECEIVABLES
Less: Allowance for
doubtful accounts
NET TRADE
RECEIVABLES
B. NON-TRADE
REC
EIVABLES
Less: Allowance for
doubtful accounts
NET NON-TRADE
RECEIVABLES
NET
RECEIVABLES
TOTAL
CURRENT
1 TO 30
DAYS
31 TO 60
DAYS
61 TO 90
DAYS
OVER 91
DAYS
$12,392
$7,442
$3,768
$202
$52
$928
618
-
-
-
-
618
11,774
7,442
3,768
202
52
310
5,742
5, 179
139
5
45
374
226
-
-
-
-
226
5,516
5,179
139
5
45
148
$17,290
$12,621
$3,907
$207
$97
$458
SCHEDULE OF EARNINGS PER SHARE
Y2007
Amount
Income (Loss) from continuing
operations
Per
Share
Y2006
Amount
Per
Share
Y2005
Amount
Per
Share
($11,448)
($0.027)
$1,683
$0.004
($9,092)
($0.021)
Loss from discontinuing
operations
Income (Loss) before net
earnings applicable to minority
interest
(221)
-
(174)
-
(96)
-
(11,669)
(0.027)
1,509
0.004
(9,188)
(0.021)
Net losses applicable to minority
interest
Net Income (Loss)
3,920
($7,749)
0.009
$0.018
1,364
$2,873
0.003
$0.007
2,666
($6,522)
0.006
($0.015)
Weighted average number of
outstanding common shares
428,288
428,288
113
428,288

SRC Form 17-A

Transcription

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