COVER SHEET 1 7 4 6 S T I E D U C A T I O N S Y S T EM S H O L D I NG S , I NC . (Company's Full Name) 7/ F 6 7 6 4 i A C A D E M Y A Y A L A B U I A V E N U E , L D I N G M A K A T I C I T Y (Business Address : No. Street City / Town / Province) ARSENIO C. CABRERA, JR. (6 3 2) 8 1 3 7 1 1 1 Contact Person 0 3 3 1 Month Day Company Telephone Number PRELIMINARY INFORMATION STATEMENT Last Friday of September Month FORM TYPE Fiscal Year Day Annual Meeting Secondary License Type, If Applicable Amended Articles Number/Section Dept. Requiring this Doc. Total Amount of Borrowings Domestic Total No. of Stocholders To be accomplished by SEC Personnel concerned File Number LCU Document I.D. Cashier STAMPS Foreign + EDUCATION SYSTEMS 7 FborlNiCAD EM Y BullThg STIHOLDINGS 6764 Aya Avenue, N akadC' 1226 NOTICE OF ANNUAL STOCKHOLDERS' MEETING TO ALL STOCKHOLDERS: Please be informed that the Annual Stockholders' Meeting of STI Education Systems Holdings, Inc. ("STI ESH"), shall be held on 26 September 2014, at 3:00 p.m. at 7/17 iACADEMY Building, 6764 Ayala Avenue, Makati City, for the following purposes: 1. Call to Order 2. Certificate of Notice and Quorum 3. Approval of the Minutes of the 4 October 2013 Annual Stockholders' Meeting 4. Management Report 5. Approval of Audited Financial Statements as of 31 March 2014 6. Ratification of all legal acts, resolutions and proceedings of the Board of Directors and of Management, done in the ordinary course of business from 4 October 2013 up to 26 September 2014 7. Election of Directors 8. Appointment of External Auditor 9. Adjournment The Board of Directors of STI ESH has fixed the RECORD DATE for stockholders entitled to vote at this annual meeting on 22 August 2014. Stockholders who will not be able to attend this meting may designate their respective proxies and send the proxy forms to the Office of the Corporate Secretary not later than 18 September 2014. Registration starts at 2:00 p.m. on the date of the scheduled meeting. For your convenience in registering your attendance, please have some form of identification, such as your Professional I.D., Passport o..river's license. Very ARSENIO C. çABRERA, JR. Corporq',te Secretary A r4N.)AiX(A..-rt4) + EDUCATION SYSTEMS STIHOLDINGS 7 Fbor, ICAD E'4 Y Building 6764 Ay Avenue, F a]caCiy 1226 AGENDA OF 2014 ANNUAL STOCKHOLDERS' MEETING M 1. Call to Order 2. Certification of Notice and Quorum 3. Approval of the Minutes of the 4 October 2013 Annual Stockholders' Meeting 4. Management Report 5, Approval of Audited Financial Statements as of 31 March 2014 6. Ratification of all legal acts, resolutions and proceedings of the Board of Directors and of Management, done in the ordinary course of business from 4 October 2013 up to 26 September 2014 7, Election of Directors 8. Appointment of External Auditors 9. Adjournment SECURITIES AND EXCHANGE COMMISSION SEC FORM 20-IS INFORMATION STATEMENT PURSUANT TO SECTION 2OSEC U RITIES AND EXCHANGE COMMISSION OF THE SECURITIES REGULATION CODE 1. [ A UG 082014 Check the appropriate box: 1 [X] Preliminary Information Statement Definitive Information Statement . 2. Name of Registrant as specified in its charter STI Education Systems Holdings. Inc. 3. Metro Manila, Philippines Province, country or other jurisdiction of incorporation or organization 4. SEC Identification Number 1746 5. BIR Tax Identification Code 000-126-853 6. 7/Floor. lAcademy Bldg.. 6764 Ayala Avenue, Makati City Address of principal office 1226 Postal Code Registrant's telephone number, including area code (632) 844-9553 8. 26 September 2014 3:00 p.m. at 7/F lAcademy Bldg., 6764 Ayala Avenue, Makati City Date, time and place of the meeting of security holders 9. Approximate date on which the Information Statement is first to be sent or given to security holders 4 September 2014 10. Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the RSA (information on number of shares and amount of debt is applicable only to corporate registrants): Title of Each Class Common Stock 11. Number of Shares of Common Stock Outstanding or Amount of Debt Outstanding 9,904,806,924 Are any or all of registrant's securities listed on a Stock Exchange? Yes X No If yes, disclose the name of such Stock Exchange and the class of securities listed therein: Philippine Stock Exchange/Common Shares PART I INFORMATION REQUIRED IN INFORMATION STATEMENT A. Item 1. Item 2. GENERAL INFORMATION Date, time and place of meeting of security holders Date of Meeting Time of Meeting Place of Meeting : : : Registrant’s Mailing Address : Approximate Date on Which the Information Statement is First Sent Or Given to Security Holders : 26 September 2014 3:00 p.m. 7/F, iAcademy Bldg. 6764 Ayala Avenue, Makati City 7/F, iAcademy Bldg., 6764 Ayala Avenue, Makati City 4 September 2014 Dissenters' Right of Appraisal There are no corporate matters or action that will entitle a stockholder to exercise a Right of Appraisal as provided in Title X of the Corporation Code. However, any Stockholder of the Company shall have the right to dissent and demand payment of the fair value of his shares in the following instances, as provided by the Corporation Code: (1) In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those outstanding shares of any class, or of extending or shortening the term of corporate existence (Section 81); (2) In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets (Section. 81) (3) In case of merger or consolidation (Section 81); and (4) In case of investments in another corporation, business or purpose (Section 42). The appraisal right may be exercised by a dissenting stockholder who shall have voted against the proposed corporate action in the manner provided below: (1) The dissenting stockholder shall make a written demand on the corporation for payment of the fair value of his shares within 30 days after the date on which the vote was taken. The failure of the stockholder to make the demand within the 30-day period shall be deemed a waiver of his appraisal right; (2) If the proposed corporate action is implemented or effected, the corporation shall pay to such stockholder, upon surrender of the corresponding certificate(s) of stock within 10 days after demanding payment for his shares, the fair value thereof, provided the Company has unrestricted retained earnings; and 2 (3) Upon payment of the agreed or awarded price, the stockholder shall transfer his shares to the corporation. Item 3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon (1) No director or officer of the Company since the beginning of the last fiscal year, nominee for election as director, or associate of the foregoing persons, have any substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon, other than election to office. (2) No director of the Company has informed it in writing that he/she intends to oppose any action to be taken by the Company at the meeting. Market Price and Dividends of Registrant’s Common Equity and Related Stockholder Matters (1) Market Information The Company’s common stock is traded on the PSE under the stock symbol “STI”. As of the date of this Definitive Information Statement, the Company has 9,904,806,924 shares outstanding. As of 6 August 2014, the high share price of the Company was Php 0.80 and the low share price was Php 0.80. The Company’s public float as of 31 July 2014 is 3,555,405,214 shares equivalent to 35.90% of the total issued and outstanding shares of the Company. The following table sets forth the Company’s high and low intra-day sales prices per share for the past three years and the first three quarters of 2014: High 2014 Third Quarter (as of 6 August 2014) Second Quarter First Quarter 2013 Fourth Quarter Third Quarter Second Quarter First Quarter 2012 Fourth Quarter Third Quarter Second Quarter First Quarter (2) Low 0.80 0.87 0.72 0.80 0.69 0.65 0.74 0.90 1.07 0.59 0.73 0.76 1.07 0.97 2.22 0.92 3.00 3.08 3.12 1.50 2.28 2.30 Holders As of 31 July 2014, there were 1,244 shareholders of the Company’s outstanding capital stock. The Company only has common shares. 3 The following table sets forth the top 20 shareholders of the Company’s common stock, the number of shares held, and the percentage of total shares outstanding held by each as of 31 July 2014. NUMBER OF SHARES 3,366,135,849 PERCENTAGE OF OWNERSHIP 33.9849% PRUDENT RESOURCES, INC. 1,614,264,964 16.2978% PCD NOMINEE CORPORATION (NON-FILIPINO) 1,398,050,922 14.1149% TANCO, EUSEBIO H. NAME OF STOCKHOLDER PCD NOMINEE CORPORATION (FILIPINO)* 1,157,913,875 11.6904% RESCOM DEVELOPERS, INC. 794,343,934 8.0198% EUJO PHILIPPINES, INC. 728,626,048 7.3563% INSURANCE BUILDERS, INC. 428,723,003 4.3284% STI EDUCATION SERVICES GROUP, INC. 397,908,895 4.0173% 13,000,000 0.1312% TANCO, ROSIE L. HTG TECHNOLOGIES, INC. 1,000,000 0.0101% EDAN CORPORATION LERIO CABALLERO CASTIGADOR AND/OR VICTORINA 861,350 399,000 0.0087% 0.0040% HENRY SY SR. 350,000 0.0035% QUALITY INVESTMENTS & SECURITIES CORPORATION 200,000 0.0020% TACUB, PACIFICO B. 200,000 0.0020% CRUZ, YOLANDA M. DELA 150,000 0.0015% VICSAL SECURITIES & STOCK BROKERAGE, INC. 129,500 0.0013% E. SANTAMARIA & CO., INC. 128,919 0.0010% 99,400 0.0010% TOBIAS JOSEF BROWN THE PHILIPPINE AMERICAN INVESTMENTS CORP. 88,508 0.0009% * Eusebio H. Tanco is the beneficial owner of 284,100,000 shares. Eujo Philippines, Inc. is the beneficial owner of 35,247,082 shares. STI Education Services Group, Inc. is the beneficial owner of 104,399,000 shares. Insurance Builders, Inc. is the beneficial owner of 150,952,989 shares. (3) Cash Dividends On 8 December 2011, cash dividends amounting to P 0.02 per share were paid to stockholders of record as of 11 November 2011. On 5 December 2012, cash dividends amounting to P0.01 per share were paid to stockholders of record as of 19 December 2012. On 4 September 2013, cash dividends amounting to P 0.015144 per share were paid to stockholders of record as of 18 September 2013. Dividends will be evaluated by the Board of Directors on an annual basis. It shall be the policy of the Company to declare dividends whenever there are unrestricted retain earnings available. Such declaration will take into consideration factors such as restrictions that may be imposed by current and prospective financial covenants; projected levels of operating results, working capital needs and long-term capital expenditures; and regulatory requirements on dividend payments, among others. 4 (4) Recent Sales of Unregistered or Exempt Securities Private Placement On 21 November 2011, the Board of Directors approved the issuance of 795,817,789 shares (the “Private Placement Shares”) out of the Company’s authorized and unissued capital stock at P 0.60 per share through private placement investments in order to fund the Company’s obligations to PWU and UNLAD under the Joint Venture Agreement and Shareholders’ Agreement by and among PWU, UNLAD, Mr. Benitez and the Company. The Private Placement Shares were subscribed to by Capital Managers & Advisors, Inc. (“CMA”), an existing shareholder of the Company) and STI Education Services Group, Inc., (“STI ESG”), a related party in the following manner: Subscriber CMA STI ESG Total Number of Shares Amount of Subscription 397,908,894 P238,745,336.40 397,908,895 238,745,337.00 795,817,789 P477,490,673.40 The Subscription Agreements with CMA and STI ESG were executed on 24 November 2011. On 25 November 2011, the Company filed SEC Form 10-1 with the SEC since the issuance of the Private Placement Shares qualifies as an exempt transaction under Section 10.1(k) of the Securities Regulation Code i.e., the sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period. Since STI ESG and CMA are related parties, the Company complied with the Revised Listing Rules and obtained: (a) shareholders’ approval for the listing of the Private Placement Shares; and (b) a waiver of the requirement to conduct a rights or public offering in connection with the Private Placement Shares during the special stockholders’ meeting on 10 August 2012. The Philippine Stock Exchange (the “PSE”) issued a Notice of Approval in connection with the listing of the Private Placement Shares on 28 September 2012, subject to the submission of: (a) a duly executed lock-up agreement at least three days prior to the actual listing date of the Private Placement Shares; and (b) a confirmation from the SEC that the mandatory tender offer rule does not apply to the subject private placement transaction, or if a mandatory tender offer is required to be conducted, a confirmation from the Company that the mandatory tender offer requirement and other related requirements of the SEC have been complied with. On 10 May 2013, the SEC granted the Company’s request for exemptive relief from the requirements of mandatory tender offer relative to the private placement transaction. On 27 June 2013, the PSE advised the Company to submit a duly executed lock-up agreement in compliance with Article V, Part A, Section 7 of the Revised Listing Rules and to facilitate the listing of the Private Placement Shares. On 25 July 2013, the Company, STI ESG, and CMA executed an Escrow Agreement with Unionbank of the Philippines – Trust & Investment Services Group as the Escrow Agent to implement the 180-day lock-up requirement applicable to the Private Placement Shares reckoned from the listing date of the said shares. The listing of the additional 795,817,789 5 common shares of the Company was approved on 19 August 2013. The lock-up period of the Private Placement shares expired on 18 February 2014 and said shares became eligible for trading on the Exchange on 19 February 2014. Share-for-Share Swap Transaction On 28 August 2012, 31 August 2012 and 1 September 2012, the Company executed Share Swap Agreements with the following stockholders of STI ESG: (a) Prudent Resources, Inc.; (b) Mr. Eusebio H. Tanco; (c) Eujo Philippines, Inc.; (d) Rescom Developers, Inc.; and (e) Insurance Builders, Inc. (collectively referred to as the “STI Majority Shareholders”) as well as with 90 other stockholders of STI ESG. The aforementioned share swap transactions are based on an exchange ratio of 6.5 shares of the Company for every 1 STI ESG share. The share swap transactions sought to consolidate all of the education assets of the STI/Tanco Group of Companies into one holding company. The share swap also provided an opportunity for the education group of the STI/Tanco Group of Companies to raise funds through the capital markets for the expansion and upgrading of its current facilities, the acquisition of educational entities and the improvement of the quality of education being offered by these entities or institutions. Pursuant to the aforementioned Share Swap Agreements, the Company issued a total of 5,901,806,924 common shares (the “Share Swap Shares”) in exchange for 907,970,294 STI ESG shares as follows: Stockholders STI Majority Shareholders Other STI ESG Stockholders TOTAL No. of STI ESG Shares 726,749,511 181,220,783 907,970,294 No. of Company Shares 4,723,871,823 1,177,935,101 5,901,806,924 To accommodate the issuance of the Share Swap Shares, the Company increased its authorized capital stock from 1,103,000,000 shares with a par value of P 0.50 per share to a total of 10,000,000,000 shares with a par value of Php 0.50 per share or an aggregate par value of P 5,000,000,000.00. Said increase was approved by the Company’s Board on 14 June 2012 and by the stockholders during the Special Stockholders’ Meeting on 10 August 2012. On 14 September 2012, the Company filed an application for the increase in its authorized capital stock with the SEC. The SEC approved the Company’s application on 28 September 2012. During the 14 June 2012 Board meeting and the Special Stockholders’ meeting on 10 August 2012, the Board and the stockholders likewise approved the exchange ratio and the share swap transactions with the STI Majority Shareholders and the other STI ESG stockholders. The Company also complied with the Revised Listing Rules and obtained a waiver of the requirement to conduct a rights or public offering in connection with the Share Swap Shares during the 10 August 2012 Special Stockholders’ Meeting. On 7 September 2012, the Company filed an Amended SEC Form 10-1 with the SEC since the issuance of the Share Swap Shares qualified as an exempt transaction under Section 10.1(i) of the Securities Regulation Code i.e., subscriptions for shares of the capital stock of a corporation in pursuance of an increase in its authorized capital stock under the Corporation 6 Code when no expense is incurred or no remuneration is paid in connection with the sale or disposition of such securities, and only when the purpose for the giving or taking of such subscriptions is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before its authorized capital is increased. On 26 September 2012, the PSE Board of Directors approved the application of STI Holdings to list an additional 5,901,806,924 common shares (the “Share Swap Shares”) with a par value of P0.50 per share, to cover the share-for-share swap transaction with various shareholders of STI ESG (the “STI ESG Shareholders”). The 5,901,806,924 common shares were issued in exchange for 907,970,295 STI ESG common shares held by the STI ESG Shareholders. The total swap value is P9,743,378,087.43, broken down as follows: (1) 5,887,969,327 STI Holdings shares at a swap price of P1.65 per share for a consideration of P9,715,149,389.55; and( 2) 13,837,597 STI Holdings shares at a swap price of P2.04 per share for a consideration of P28,228,697.88. In compliance with Article V, Part A, Section 7 of the Revised Listing Rules of the Exchange, STI Holdings, Ms. Rosie L. Tanco, the STI Majority Shareholders and Union Bank of the Philippines executed an Escrow Agreement on 22 October 2012 to implement the required lock-up requirement of their respective Swap Shares reckoned from the listing date. A total of 4,736,871,823 common shares were covered by the Escrow Agreement. On 29 October 2012 (the “Listing Date”), 5,901,806,924 common shares of STI Holdings were listed in the Exchange. Out of the 5,901,806,924 common shares, only 1,164,935,101 common shares were eligible for trading on the Listing Date. The remaining 4,736,871,823 common shares held by Ms. Rosie L. Tanco and the STI Majority Shareholders were placed in escrow for 180 days counted from the Listing Date. The said lock-up period lapsed on 27 April 2013. On 9 May 2013, the 4,736,871,823 common shares held by Ms. Rosie L. Tanco and the STI Majority Shareholders became eligible for trading on the Exchange. B. Item 4. (1) CONTROL AND COMPENSATION INFORMATION Voting Securities and Principal Holders Thereof Voting securities entitled to be voted at the meeting as of 31 July 2014 Title of Each Class Common Stock (2) Number of Shares Outstanding 9,904,806,924 Number of Votes One (1) vote per share Record date Only stockholders of record on the books of the Company at the close of business on 22 August 2014 will be entitled to vote at the Annual Meeting. (3) Election of directors and voting rights (Cumulative Voting) In the election of the directors, each stockholder may vote the shares registered in his name in person or by proxy for as many persons as there are directors, or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected 7 multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit; provided that the total number of votes cast by him shall not exceed the number of shares owned by him multiplied by the whole number of directors to be elected. (4) Security Ownership of Certain Record/Beneficial Owners and Management (a) Security Ownership of Certain Record/Beneficial Owners as of 31 July 2014 As of 31 July 2014, the following stockholders are the only owners of more than 5% of the Company’s voting capital stock, whether directly or indirectly, as record owner or beneficial owner. Title of Class Name, Address of Record Owner and Relationship with Issuer Common PCD Nominee 1 Corporation 37/F Tower I, Enterprise Center, 6766 Ayala Avenue cor. Paseo de Roxas, Makati City Prudent Resources, Inc. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Common Common PCD Nominee Corporation 37/F Tower I, Enterprise Center, 6766 Ayala Avenue cor. Paseo de Roxas, Makati City Common Mr. Eusebio H. Tanco (Chairman of the Board) (Direct and Indirect shares through PCD Nominee Corporation) 543 Fordham Street, Wack-Wack Village, Mandaluyong City Name of Beneficial Owner and Relationship with Record owner Citizenship Filipino Mr. Eusebio H. Tanco, the Chairman of Prudent Resources, Inc. is authorized to vote its shares in the Company. Filipino (Direct) 2 33.99% 16.30% 1,614,264,964 14.12% Filipino (Direct) 1,157,913,875 11.69% (Indirect) 284,100,000 ------------------1,442,013,875 =========== 4 2.87% ----------14.56% ====== Total 1 3,366,135,849 3 Non-Filipino Mr. Eusebio H. Tanco Percent No. of Shares Held 1,398,050,922 PCD Nominee Corporation is a wholly-owned subsidiary of the Philippine Central Depository, Inc. (PCD), and is the registered owner of the shares in the book of the Company’s transfer agent. The participants of the PCD (with respect to securities in the principal accounts) or the clients of such participants (with respect to securities in the participants’ client accounts) are, as far as the PCD and PCD Nominee Corporation are concerned, the presumed beneficial owners of such lodged shares. PCD Nominee Corporation merely holds legal title (and not beneficial title) to the Company’s lodged shares to facilitate the book-entry trading and settlement of the Company’s shares. Except as disclosed above, no natural person or juridical entity whose shares are lodged in the name of PCD Nominee Corporation is known to the Company to be directly or indirectly the record or beneficial owner of more than five percent (5%) of the Company’s voting securities. 2 Eusebio H. Tanco is the beneficial owner of 284,100,000 shares. Eujo Philippines, Inc. is the beneficial owner of 35,247,082 shares. STI Education Services Group, Inc. is the beneficial owner of 104,399,000 shares. Insurance Builders, Inc. is the beneficial owner of 150,952,989 shares. 3 Morgan Stanley Investment Management Company is the beneficial owner of 816,264,000 shares or 8.24%. Contact Person is Linyu Qi; Address: Morgan Stanley, 16/F, Kerry Parkside, 1155 Fang Dian Road, Pudong New District, Shanghai, China 4 Indirect shares lodged to PCD 8 Title of Class Name, Address of Record Owner and Relationship with Issuer Common Rescom Developers, Inc. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Common Eujo Philippines, Inc. (Direct and Indirect shares through PCD Nominee Corporation) 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Common Common (b) Name of Beneficial Owner and Relationship with Record owner Mr. Eusebio H. Tanco, the Chairman of Rescom Developers, Inc. is authorized to vote its shares in the Company. Mr. Eusebio H. Tanco, the Chairman of Eujo Philippines, Inc. is authorized to vote its shares in the Company. Citizenship No. of Shares Held Percent Filipino (Direct) 794,343,934 8.02% Filipino (Direct) 728,626,048 7.35% (Indirect) 35,247,082 -----------------763,873,130 ========== Insurance Builders, Inc. (Direct and Indirect shares through PCD Nominee Corporation) 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Mr. Eusebio H. Tanco, the Chairman of Insurance Builders, Inc. is authorized to vote its shares in the Company. Filipino (Direct) 428, 723,003 (Indirect) 150,952,989 -----------------579,675,992 =========== STI Education Services Group, Inc. STI Academic Center, University Parkway Drive, Fort Bonifacio Global City, Taguig City Mr. Monico V. Jacob, the President of STI, is authorized to vote the shares of STI ESG in the Company Filipino (Direct) Total (Indirect) 397,908,895 104,399,000 ----------------502,307,895 =========== 0.36% ---------7.71% ====== 4.33% 1.52% ----------5.85% ====== 4.02% 1.05% ---------5.07% ====== Security Ownership of Management as of 31 July 2014 The following table sets forth as of 31 July 2014, the beneficial ownership of each director and executive officer of the Company: Title of Class Name of Beneficial Owner Common Eusebio H. Tanco (Director and Chairman of the Board) Common Monico V. Jacob (Director, President and CEO) Common Amount & Nature of Beneficial Ownership 1,157,913,875 Direct 284,100,000 Indirect -----------------1,442,013,875 Total ========== 1 Direct 33,784,056 Indirect --------------33,784,057 Total ======== 1 Direct 5,000,000 Indirect --------------5,000,001 Total Yolanda M. Bautista (Treasurer) 9 Citizenship Filipino Percent of Class 11.69% 2.87% ----------14.56% ======= Filipino 0.34% Filipino 0.05% Title of Class Common Name of Beneficial Owner Amount & Nature of Beneficial Ownership 6,500,000 Indirect Arsenio C. Cabrera, Jr. (Corporate Secretary) Joseph Augustin L. Tanco (Director and VP for Investor Relations) Common Common Paolo Martin Bautista (Director and Chief Investment Officer and Head of Corporate Strategy) Vanessa Rose L. Tanco (Director) Martin K. Tanco (Director) Rainerio M. Borja (Director) Maulik R. Parekh (Independent Director) Jesli A. Lapus (Independent Director) Ernest Lawrence Cu (Independent Director) Johnip G. Cua (Independent Director) Directors and Officers as a Group Common Common Common Common Common Common Common Common (c) 1 2,000,000 ---------------2,000,001 ========== 3,250,000 Direct Indirect Citizenship Filipino Filipino Percent of Class 0.06% Filipino 0.00% 0.02% -------------0.02% ====== 0.03% Filipino 0.00% 36,560,000 Indirect Filipino 0.37% 3,200,000 Indirect Filipino 0.03% Filipino 0.00% 6,500,000 Indirect Filipino 0.06% 26,000,000 Indirect Filipino 0.26% 1,000 Indirect Filipino 0.00% Filipino 15.80% Total Indirect 1 Direct 1,000 Direct 1,564,808,935 Direct and Indirect Voting Trust Holders of 5% Or More As of 31 July 2014, no person holds at least 5% or more of a class under a voting trust or similar agreement. (d) Changes in Control On 14 June 2012, the Company entered into a Memorandum of Agreement (the “MOA”) with the following stockholders of STI ESG: (a) Prudent Resources, Inc.; (b) Mr. Eusebio H. Tanco; (c) Insurance Builders, Inc.; (d) Eujo Philippines, Inc.; and (e) Rescom Developers, Inc. (collectively referred to as the “STI Majority Shareholders”). The MOA relates to the share-for-share swap of the STI ESG shares held by the STI Majority Shareholders with shares of the Company whereby each STI ESG share owned by the STI Majority Shareholders will be exchanged for 6.5 Company shares. The same swap ratio was also offered to other STI ESG shareholders. To accommodate the issuance of shares to the STI Majority Shareholders and the other STI ESG shareholders, the Company increased its authorized capital stock from P551,000,000.00 consisting of 1,103,000,000 shares with a par value of P0.50 per share to Php5,000,000,000.00 consisting of 10,000,000,000 shares with a par value of P0.50 per share. The aforementioned increase in authorized capital stock was approved by the Company’s Board on 14 June 2012 and by the Company’s shareholders on 10 August 2012. 10 On 1 August 2012, CMA sold its STI ESG shares to Insurance Builders, Inc. Insurance Builders, Inc. was substituted as a party to the MOA in lieu of CMA and assumed all of CMA’s rights and obligations thereunder. On 14 June 2012, the Company filed an application for the increase in its authorized capital stock with the Securities and Exchange Commission (“SEC”). The SEC approved the application of the Company on 28 September 2012. On 28 August 2012, 31 August 2012 and 1 September 2012, the Company and the STI Majority Shareholders engaged in a series of share swaps that resulted in the STI Majority Shareholders gaining control over the Company, equivalent to 67.44% of the Company’s issued and outstanding capital stock. On 26 September 2012, the PSE Board of Directors approved the application of STI Holdings to list an additional 5,901,806,924 common shares (the “Share Swap Shares”) with a par value of P0.50 per share, to cover the share-for-share swap transaction with various shareholders of STI ESG (the “STI ESG Shareholders”). The Share Swap Shares were issued in exchange for 907,970,295 STI ESG common shares held by the STI ESG shareholders. The total swap value is P9,743,378,087.43, broken down as follows: (1)5,887,969,327 STI Holdings shares at a swap price of P1.65 per share for a consideration of P9,715,149,389.55; and (2) 13,837,597 STI Holdings shares at a swap price of P2.04 per share for a consideration of P28,228,697.88. In compliance with Article V, Part A, Section 7 of the Revised Listing Rules of the Exchange, STI Holdings, Ms. Rosie L. Tanco, the STI Majority Shareholders (Rescom Developers, Inc., Eujo Philippines, Inc,, Insurance Builders, Inc., Prudent Resources, Inc. and Mr. Eusebio H. Tanco) executed an Escrow Agreement dated 22 October 2012 with Union Bank of the Philippines to implement the required lock-up requirement of their respective Swap Shares reckoned from the listing date. A total of 4,736,871,823 common shares were covered by the Escrow Agreement. On 29 October 2012 (the “Listing Date”), 5,901,806,924 common shares of STI Holdings were listed in the Exchange. Out of the 5,901,806,924 common shares, only 1,164,935,101 common shares were eligible for trading on the Listing Date. The remaining 4,736,871,823 common shares held by Ms. Rosie L. Tanco and the STI Majority Shareholders were placed in escrow for 180days counted from the Listing Date. The said lock-up period lapsed on 27 April 2013. On 9 May 2013, the 4,736,871,823 common shares held by Ms. Rosie L. Tanco and the STI Majority Shareholders became eligible for trading on the Exchange. Item 5. (1) Directors and Executive Officers Certain Relationships and Related Transactions (a) Directors and Executive Officers The Company’s Articles of Incorporation provides for eleven (11) members of the Board. 11 The term of office of the directors of the Company is one (1) year and they are to serve as such until the election and qualification of their successors. The following are the incumbent members of the Board of Directors: (1) Eusebio H. Tanco (2) Monico V. Jacob (3) Joseph Augustin L. Tanco (4) Ma. Vanessa Rose L. Tanco (5) Martin K. Tanco (6) Rainerio M. Borja (7) Paolo Martin O. Bautista (8) Maulik R. Parekh (9) Johnip Cua (10) Ernest Lawrence Cu (11) Jesli A. Lapus All of the foregoing incumbent directors have been nominated to the Board for the ensuing year. Messrs. Johnip Cua, Ernest Lawrence Cu and Jesli A. Lapus have been nominated as independent directors by Capital Managers & Advisors, Inc. (“CMA”), a stockholder of the Company. CMA has no business or professional relationship with Messrs. Cua, Cu and Lapus. Pursuant to Rule 38 of the Securities Regulation Code and Article IV of the Company’s By-Laws, the nomination of all of the members of the Company’s Board of Directors, including independent directors, shall be conducted by the Nomination Committee prior to the annual stockholders’ meeting in accordance with the following procedure: (1) All recommendations shall be signed by the nominating stockholders together with the acceptance and conformity of the would-be nominees and shall be submitted to the Nominations Committee and the Corporate Secretary. (2) The Nominations Committee shall pre-screen the qualifications and prepare a Final List of all Candidates. (3) After the nomination, the Nominations Committee shall prepare a Final List of Candidates to be submitted to the Board of Directors, which shall contain all the information regarding the background and experience of the nominees required to be ascertained and made known under the Securities Regulation Code and relevant rules and regulations. (4) Said Final List of Candidates shall be disclosed in the reports required by law, rules and regulations to be submitted to the Securities Exchange Commission, Philippine Stock Exchange and all stockholders. (5) Only nominees whose names appear on the Final List of Candidates shall be eligible for election as directors. No other nominations shall be entertained after the Final List of Candidates shall have been prepared. 12 The Chairman of the Nominations Committee is Mr. Eusebio H. Tanco. Ms. Ma. Vanessa Rose L. Tanco and Messrs. Rainerio M. Borja and Ernest Lawrence Cu are members of the Nomination Committee. The following are the Final List of Candidates for directors as determined by the Company’s Nomination Committee: Candidate for Nomination as Nominating Director Stockholder Eusebio H. Tanco Capital Managers and Advisors, Inc. (“CMA”) Monico V. Jacob CMA Joseph Augustin L. Tanco CMA Ma. Vanessa Rose L. Tanco CMA Martin K. Tanco CMA Rainerio M. Borja CMA Paolo Martin O. Bautista CMA Maulik R. Parekh CMA Johnip Cua CMA Ernest Lawrence Cu CMA Jesli A. Lapus CMA Relationship Citizenship Chairman Filipino President Director N/A N/A N/A N/A N/A N/A N/A N/A Filipino Filipino Filipino Filipino Filipino Filipino Indian Filipino Filipino Filipino Summary of Term of Office of Directors: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Eusebio H. Tanco – director since 17 March 2010 up to the present; Monico V. Jacob – director since 17 March 2010 up to the present Joseph Augustin L. Tanco – director since 27 October 2010 up to the present Ma. Vanessa Rose L. Tanco – director since 27 October 2010 up to the present Martin K. Tanco – director since 19 December 2012 up to the present Rainerio M. Borja – director since 19 December 2012 up to the present Paolo Martin O. Bautista – director since 19 December 2012 up to the present Maulik R. Parekh – director since 10 December 2013 up to the present Johnip Cua – independent director since 19 December 2012 up to the present Ernest Lawrence Cu – independent director since 19 December 2012 up to the present Jesli A. Lapus – director from 21 March 2013 up to October 2013; independent director from 4 October 2013 up to the present The corresponding ages, citizenships, business experiences and directorships held for the past five (5) years of the incumbent directors who have been nominated to the Board for the ensuing year are set forth below: Eusebio H. Tanco, 64, Filipino, Chairman of the Board Mr. Tanco has been Chairman of STI Holdings since 17 March 2010. He is also the Chairman of the Executive, Nominations and Compensation Committees of STI Holdings. 13 Mr. Tanco is the Chairman of the Executive Committee and Director of STI ESG and the Chairman of Mactan Electric Company, Rescom Developers Inc., International Hardwood & Veneer Corp, Cement Center Inc., Agatha Builders Corp, First Optima Realty Corp, Marbay Homes Inc., Insurance Builders, Inc., Delos Santos-STI College, West Negros University, STI Investments, Inc. and Capital Managers and Advisors, Inc. He is Vice-Chairman and President of Asian Terminals, Inc. and Vice-Chairman and Director of Philippine Women’s University. Mr. Tanco is President of Philippines First Insurance Co. Inc., Optima Financing Corporation, Classic Finance Inc., Venture Securities Inc., STMI Logistics, Inc., Total Consolidated Asset Management, Inc., Eujo Philippines, Inc., Global Resource for Outsourced Workers, Inc. and Prime Power Holdings Corporation. Mr. Tanco is also a director in Advent Capital & Finance Corp., PhilPlans First, Inc., Philippine Life Financial Assurance Corp., J&P Coats Manila Bay, Manila Bay Spinning Mills, Inc., United Coconut Chemicals, Inc., MB Paseo, Philippine Health Educators, Inc., i-ACADEMY, PhilhealthCare, Inc., Delos Santos – STI Medical Center, Delos Santos – STI Megaclinic, Philippine Racing Club, Inc. and Leisure and Resorts World Corporation. Mr. Tanco is a director of the Philippine Stock Exchange. He is also Chairman of the PhilippineThailand Business Council and the Philippines-UAE Business Council. He likewise sits as a member of the Board of Trustees of Philippines, Inc. and member of the Philippine Chamber of Commerce and Industry. Mr. Tanco earned his Master of Science in Economics degree from the London School of Economics and Political Science and his Bachelor of Science degree in Economics from the Ateneo de Manila University. He was also awarded a Doctorate of Humanities degree, honoris causa, from the Palawan State University. Monico V. Jacob, 69, Filipino, Director Mr. Jacob has been the President and CEO of STI Holdings since 17 March 2010. He is likewise a member of the Executive, Compensation and Compliance Committees of STI Holdings. Mr. Jacob is the President and CEO of STI Education Services Group, Inc. He also serves as the President of West Negros University, Capital Managers and Advisors, Inc., STI Investments, Inc. and Insurance Builders Inc. Mr. Jacob is the Chairman of Philplans First, Inc., Philippine Life Financial Assurance Corporation, Total Consolidated Asset Management, Inc., Global Resource for Outsourced Workers, Inc. Republic Surety & Insurance Co., Inc., and Classic Finance, Inc. Mr. Jacob serves as the Chairman of the Executive Committee of Philippine Women’s University. Mr. Jacob is also a Director in Advent Capital & Finance Corporation, Anvaya Cove Beach and Nature Club, Asian Terminals, Inc., Ateneo De Naga University, Century Properties, Inc., Delos Santos – STI College, Delos Santos-STI Medical Center, Information and Communications Technology (iACADEMY), Inc., Jollibee Foods, Inc., PhilhealthCare, Inc., Philippine Health Educators, Inc., Phoenix Petroleum Philippines, Inc. and UNLAD Resources Development Corporation. He is also an Independent Director of 2Go Group, Inc. and Negros Navigation Co., Inc. Prior to his present positions, Mr. Jacob was the Chairman and CEO of Petron Corporation. As Chairman, he presided over its privatization and implemented and led the partnership of the 14 government with Saudi Aramco in Petron. He also presided over the Initial Public Offering (IPO) of Petron shares which has since been hailed as one of the most successful IPO offerings in the country. He retired from Petron at the close of the Ramos Presidency in July of 1998. He was also Chairman and CEO of Philippine National Oil Company (PNOC) and all of its subsidiaries. As Chairman of the PNOC, he presided over the privatization of the PNOC Dockyard and Engineering Corporation. Before Petron, Mr. Jacob was the General Manager of the National Housing Authority (NHA) where he successfully introduced the joint venture approach to low cost and socialized housing. He was also Chief Executive Officer of the Home Development Mutual Fund, popularly known as the PAGIBIG Fund, where he decentralized operations and established regional offices nationwide. He also introduced various programs that brought back membership to the Fund. He first joined government in 1986 as Associate Commissioner for the Securities and Exchange Commission. He carried out needed reforms in the capital market and introduced the express lane program. Prior to government, he was a Partner of the law firm Jacob Acaban Corvera Valdez and Del Castillo and was an active trial lawyer. Today, he is a partner in the law firm of Jacob & Jacob. His areas of specialization are energy, corporate law, corporate recovery and rehabilitation work, including receivership and restructuring advisory for companies. As Rehabilitation Receiver, Mr. Jacob successfully implemented the financial rehabilitation of the Ramcar Group of Companies, Atlantic Gulf & Pacific Co. of Manila (AG&P), and Negros Navigation Co., Inc. He is currently wrapping up the termination of rehabilitation proceedings for Philippine Investment Two (SPV-AMC), Inc. Currently, Mr. Jacob is the Receiver for Trust International Paper Corporation and is the Court-appointed Assignee for Nasipit Lumber Company and Affiliates. Mr. Jacob is a member of the Management Association of the Philippines (MAP) of which he was President for 1998. He is also a member of the Integrated Bar of the Philippines. Mr. Jacob finished his Bachelor of Arts degree with a Major in Liberal Arts from the Ateneo de Naga University in 1966 and his Bachelor of Laws degree from the Ateneo de Manila University in 1971. Joseph Augustin L. Tanco, 33, Filipino, Director Mr. Tanco has been a Director of STI Holdings since 27 October 2010. He is likewise the Vice President for Investor Relations as well as a member of the Compensation Committee of STI Holdings. Mr. Tanco is the Chairman of the Board of PhilhealthCare, Inc. He is President and Chief Executive Officer of Philippine Life Financial Assurance Corporation and Comm & Sense, Inc. He founded Comm & Sense, Inc., an integrated marketing and communications agency offering comprehensive services in the areas of creative design, event conceptualization and management, public relations and promotions, in 2005. . Prior to founding Comm & Sense, Inc., Mr. Tanco had years of experience as the Channel Manager for STI Headquarters and Chief Operating Officer of STI College Makati. Mr. Tanco serves as a Director of STI Education Services Group, Inc., West Negros University, Philplans First, Inc., Insurance Builders Inc., EujoPhils. Inc., Capital Managers and Advisors, Inc., STI Investments, Inc., Prudent Resources, Inc. and Rescom Developers, Inc. He is also the Director and Chief Operating Officer of UNLAD Resources Development Corporation. 15 Mr. Tanco is the 2013 National Chairman– Nothing but Nets and Area Director for Individual for Metro Area 2 of the Junior Chamber International Philippines and 2012 LO President of the Junior Chamber International Philippines – Ortigas Chapter. He is also an Entrepreneurship Mentor at the University of Asia and the Pacific. Mr. Tanco is a graduate of the University of Asia and the Pacific with a Bachelor of Science degree in Entrepreneurial Management. He obtained his Master in Business Administration from the Ateneo Graduate School of Business. Ma. Vanessa Rose L. Tanco, 36, Filipino, Director Ms. Tanco has been a Director of STI Holdings since 27 October 2010. She is likewise a member of the Nomination Committee of STI Holdings. Ms. Tanco is currently the President and CEO of iAcademy, Chief Operating Officer of the Philippine Women’s University, and President of Makati Medical Center College. Ms. Tanco is also a Director of West Negros University, All Asia Capital Managers, Inc., Classic Finance, Inc., STI ESG, Philplans First, Inc., Banclife Insurance Co., Inc., PhilhealthCare, Inc., Insurance Builders Inc., Prudent Resources, Inc. and Rescom Developers, Inc. Ms. Tanco earned her Master in Business Administration Degree – Major in Finance and Marketing from the University of Southern California, Marshall School of Business and her Bachelor of Science degree in Legal Management from the Ateneo de Manila University. Martin K. Tanco, 48, Filipino, Director Mr. Tanco has been a Director of STI Holdings since 19 December 2012. He is likewise a member of the Executive and Audit Committees of STI Holdings. Mr. Tanco is the Director for Investment of Philplans First, Inc. He is the President of the Philfirst Condominium Association. Mr. Tanco is also a director of Diliman Realty Corp. and Coats Manila Bay. Mr. Tanco earned his Bachelor of Science Degree in Electrical Engineering from the University of Southern California. He obtained his Master of Science degree in Electrical Engineering and Master in Business Administration from the University of Southern California. Paolo Martin O. Bautista, 44, Filipino, Director Mr. Bautista has been a Director of STI Holdings since 19 December 2012. He is likewise the Chief Investment Officer, Head of Corporate Strategy and a member of the Audit and Compliance Committees of STI Holdings. Mr. Bautista is an advisor to the Investment Committees of Philplans, Philcare and PhilLife. He has over 15 years’ experience in the areas of corporate finance, mergers and acquisition, debt and equity capital markets, credit risk management and securities law. Prior to joining STI Holdings, he was a director at Citigroup Global Markets and a Vice President at Investment Banking Division of Credit Suisse. 16 Mr. Bautista obtained his Bachelor of Arts degree, Bachelor of Laws degree and Juris Doctor from the Ateneo de Manila University and obtained a Master of Science degree in Management from the Arthur D. Little School of Management, Cambridge, MA. Rainerio M. Borja, 51, Filipino, Director Mr. Borja has been a Director of STI Holdings since 19 December 2012. He is likewise a member of the Executive and Nomination Committees of STI Holdings. Mr. Borja serves as a Director of STI ESG, PhilPlans, Inc. and Total Consolidated Asset Management Inc. He is also Chairman of the Board of Techzone Inc. and 88Gren Inc. Mr. Borja is also the Country Head and President of Expert Global Solutions, a holding company for two global leaders in business process outsourcing, namely NCO Financial Systems and APAC Customer Services. He oversees the overall operations of these companies and the integration of their processes in the Philippines. From 2000 to July 2012, Mr. Borja was President of Aegis PeopleSupport in the Philippines and concurrently head of its Global Operations and Strategy. He also pioneered the setup of call center/BPO in Cebu and Baguio and expansion to other places. He was also instrumental in the successful listing of PeopleSupport in NASDAQ (symbol: PSPT) in 2004 and responsible for its global operations, global strategy and corporate development. Mr. Borja is credited by many in the Philippines as the man behind the success of the call center and BPO industry in the country. His opinions and contributions are highly valued and sought by government officials in the formulation of legislation and policies that will govern ICT and BPO in the future. Mr. Borja founded and served as the Chairman of the Business Processing Association of the Philippines, the umbrella organization of BPO, Contact Center and IT-enabled Service Companies in the country, for five years. . He is also a director of the Contact Center Association of the Philippines. He is a member of the US-Asean Business Council and the Makati Business Development Council. Mr. Borja obtained his Bachelor of Science degree at De La Salle University and Masters of Science in Economics units at the De La Salle Graduate School of Business and Economics. Maulik Ramniklal Parekh, 44, Indian, Director Mr. Parekh was elected as Director of STI Holdings on 10 December 2013. Mr. Maulik R. Parekh serves as the President and Chief Executive Officer (November 2009 to present) of SPi Global, Philippines, a leading Knowledge Process Outsourcing (“KPO”) and Customer Relationship Management (“CRM”) service provider with more than 19,000 employees in 30 facilities in North America, Latin America, Europe, Australia, and Asia. As such, Mr. Parekh is responsible for the planning, execution, and management of the overall strategy and operations of the SPi Global Group of Companies. Mr. Parekh successfully consolidated all the BPO business of telecoms giant PLDT and integrated it with other distinct outsourcing operations to create one of the most diversified BPO enterprises. He formed a strong global leadership team responsible for Business Unit Operations and Corporate Support from its Headquarters in the Philippines. He led the company to be recognized globally with 17 major awards and recognitions citing leadership and management capability, operational excellence, employee and customer management practices and corporate social responsibility programs. He jumpstarted the growth of the combined entities and sustained double-digit growth every year since 2010. He also led a successful management buy-out amounting to more than $300 Million of the controlling interest in SPi Global by partnering with CVC Capital Partners, a leading private equity firm. From January 2006 to May 2009, Mr. Parekh was Executive Vice President and General Manager, Asia, of TeleTech Holdings Inc., a $1 Billion, publicly traded company (NASDAQ: TTEC) delivering specialized contact center solutions, including customer management, sales, technology solutions, collections and BPO services. Key focuses included Financial Services, Insurance, Medical and Consumer Markets Services, and Communications. Mr. Parekh was responsible for the largest region within TeleTech, representing over 30% of TeleTech’s employees and over 70% of TeleTech’s profit and had direct operational responsibility for 14 centers in the Philippines, Hong Kong, Malaysia and Singapore with 13,000 seats and 23,000 professionals. He was a member of the Operating Committee which included the CEO, CFO, CIO and EVP, Human Capital. During his stint at Teletech, Mr. Parekh successfully orchestrated the largest and the fastest BPO expansion in the Philippines – growing from 6,000 employees in June 2006 to 23,000 employees in May 2009. He won seven industry awards as a result of a well-choreographed and well-synchronized communications strategy to brand TeleTech as the Employer of Choice. He led the due diligence process for new call center locations in the Philippines and opened and staffed 8 new centers in three years. He pioneered an award-winning “Leadership Institute” which inspired and trained high potential employees for promotional opportunities to support the exponential growth. He consistently met and exceeded operational goals through Six Sigma based and multi-layered process improvement initiatives. . He helped design and launch Teletech’s internal outsourcing arm “Global Business Services” to move accounts payable, payroll, financial analysis, global quality, resource planning and forecasting to the Philippines and other countries. He was recognized and promoted three times in three years – Vice President of Operations in January 2006 to General Manager, Asia in September 2006 to Senior Vice President & General Manager, Asia in February 2008 to EVP & General Manager, Asia in January 2009. From January 2003 to December 2005, Mr. Parekh was Director, Call Center Services & Special Projects of Echostar Communications Corporation, a $7 Billion publicly traded company (NASDAQ: DISH) which delivers Direct Broadcast Satellite television products and services to US customers and employs over 22,000 employees around the world. DISH currently serves over 14 Million customers. His previous positions in the company were: from January 2001 to January 2003 - Special Projects Manager, Call Center Operations; from January 1997 to July 1999 – Regional Sales Director; and from January 1994 to December 1996 – Project Manager. Mr. Parekh earned his International MBA from Thunderbird, the American Graduate School of International Management and his Bachelor of Engineering from Gujarat University, India. He pursued his MS in Computer Science from Texas Tech University, Lubbock, Texas. Ernest Lawrence Cu, 52, Filipino, Independent Director Mr. Cu has been an Independent Director of STI Holdings since 19 December 2012. He is likewise a member of the Audit and Nomination Committees of STI Holdings. Mr. Cu is, at present, the President and Chief Executive Officer of Globe Telecom. 18 Mr. Cu is a Director of Asiacom Philippines, Prople BPO, Inc., Games Services Group, ConcettiGlobali Inc. He also a Trustee of Ayala Foundation, Inc. Mr. Cu earned his Master of Management degree, specializing in finance, accounting, and operations management from the J.L. Kellogg Graduate School of Management at Northwestern University. He also has a Bachelor of Science degree in Industrial Management Engineering and a Minor in Mechanical Engineering from the De La Salle University. Johnip Cua, 57, Filipino, Independent Director Mr. Cua has been an Independent Director of STI Holdings since 19 December 2012. He is likewise the Chairman of the Audit Committee of STI Holdings. Mr. Cua is an Independent Director of Philplans First, Inc. and MacroAsia Corporation. He is also the Chairman and President of Taibrews Corporation. Mr. Cua is also a director of BDO Private Bank, MacroAsia Catering Services, MacroAsia Airport Services Corporation, Alpha Alleanza Manufacturing, Inc., Allied Botanical Corporation, Century Pacific Food, Inc., Eton Properties Philippines, Inc., Interbake Marketing Corporation, Lartizan Corporation, and Teambake Marketing Corporation. Mr. Cua has served as the Chairman of the Board of Trustees of Xavier School, Inc. and P&Gers Fund, Inc. He is also a member of the Board of Trustees of Xavier School Educational & Trust Fund. Mr. Cua served as the first Filipino President and General Manager of Procter & Gamble Philippines, Inc. from 1995 to 2006. He also held the position of Vice President, Marketing Function from 2003 to 2006 and Vice President, Market and Customer Operations from 2000 to 2003 for ASEAN, Australasia and India. Mr. Cua has received the following citations: GK Bayani Nation Builder, Gawad Kalinga (2006); 100 Most Outstanding U.P. Alumni Engineers (2009); 2007 Most Distinguished Alumnus, U.P. Alumni Engineers, College of Engineering, U.P. Diliman; Outstanding Achievement in Marketing Management (1998 Agora Awards); Lifetime Capability Development Award, Procter& Gamble Philippines (2006); Passionate Leadership Award, Procter & Gamble Global Marketing Organization (2006). Mr. Cua earned his Bachelor of Science degree in Chemical Engineering from the University of the Philippines. Jesli A. Lapus, 64, Filipino, Independent Director Mr. Lapus was elected as Director of STI Holdings on 21 March 2013. He was also elected as an Independent Director of STI Holdings at the Annual Stockholders Meeting held on 4 October 2013. Mr. Lapus is currently Independent Director of: Metropolitan Bank & Trust Company and Philippine Life Financial Assurance Corporation. He is a Director of iACADEMY; Chairman of the Trust Banking of Metropolitan Bank and Trust Company, STI Education Services Group, Inc., LBP Service Corporation, Asian Institute of Management –Center for Tourism and Honorary Chairman of Manila Tytana Colleges. He is also a Member of the Investment Committee of Philplans First, Inc. and Advisory Board Member of Radiowealth Finance Company, Inc. A multi-awarded executive in the private sector (i.e. manufacturing, financial services and international trade), Mr. Lapus has successfully managed and turned around firms and a universal bank in attaining industry leaderships. 19 With a solid track record as a prominent professional executive in the private sector behind him, Mr. Lapus has the distinction of having served in the cabinets of three (3) Philippine Presidents namely: President Gloria Macapagal-Arroyo, President Fidel Ramos and President Corazon Aquino in the following capacities: Secretary, Department of Trade and Industry (2010); Secretary, Department of Education (2006-2010); President and CEO, The Land Bank of the Philippines (1992-1998); Undersecretary, Department of Agrarian Reform. He was elected member of the Philippine Congress for three (3) consecutive terms in 1998-2006. During his stint in Congress, Mr. Lapus was Chairman of the House Committees on Ways and Means, Trade and Industry, Suffrage and Electoral Reforms and Vice-Chairman of Appropriations. Mr. Lapus was the former President of Southeast Asia Ministers of Education Organization; Executive Board Member of UNESCO-Paris; Chairman of Board of Investments, Philippine Export Zone Authority, Cabinet Committee on Tariff and Related Matters, Export Development Council, MSMED Council (Micro, Small and Medium Enterprises), and National Development Corporation; Governor of Management Association of the Philippines and Bankers Association of the Philippines; and Member of YPO, Finex, PICPA, PCCI, GBAP, and Rotary Club of Manila. Mr. Lapus earned his Doctor of Public Administration from Polythechnic University of the Philippines; Master in Business Management from Asian Institute of Management; Investment Appraisal and Management from Harvard University, USA; Management of Transfer of Technology from INSEAD, France; and Project Management from BITS, Sweden. Yolanda M. Bautista, 61, Filipino, Treasurer Ms. Bautista has served as the Treasurer of STI Holdings since 17 March 2010. She is likewise a member of the Executive, Compensation and Compliance Committees of STI Holdings. She resigned as director of STI Holdings on 10 December 2013. Her resignation as Director of the Company was not due to any disagreement with STI Holdings on any matter relating to its operations, policies or practices. Ms. Bautista is a Partner of Bautista Sagcal & Associates. She is Chairman and President of Unitrans International Forwarders, Inc. and President of Corporate Reference, Inc., Oro Bueno, Inc., Lakeview Realty, Inc. and Yellow Meadows Business Ventures, Inc. Ms. Bautista serves as Director and Treasurer of Capital Managers and Advisors, Inc., Banclife Insurance Co., Inc., Insurance Builders Inc., DLS-STI College, Inc., Philippine Women’s University and Information and Communications Technology Academy (iAcademy), Inc. She is also the Group Chief Financial Officer of Philippine Life Financial Assurance Corporation and Philhealthcare, Inc. as well as the Chief Financial Officer and Treasurer of STI ESG, West Negros University and UNLAD Resources Development Corporation. Ms. Bautista is a Director of Philippine Healthcare Educators, Inc. and Southern Textile Mills, Inc. She serves as Treasurer of STI Investments, Inc., Kusang Loob Foundation, Inc., Lasik Surgery, Inc., Megaclinic Derma Laser Center, Inc. and P & O Management Services Phils., Inc. She is also Assistant Treasurer of DLS-STI Megaclinic, Inc. and Total Consolidated Asset Management, Inc. Ms. Bautista is a Certified Public Accountant. She graduated Magna Cum Laude from the University of Santo Tomas with a Bachelor of Science degree in Commerce, major in Accounting. 20 Arsenio C. Cabrera, Jr., 54, Filipino, Corporate Secretary Atty. Arsenio C. Cabrera, Jr. was elected Corporate Secretary and Chairman of the Compliance Committee of STI Holdings on 17 March 2010. He is also the current Corporate Information Officer of the Company. Atty. Cabrera is a Managing Partner of Herrera Teehankee& Cabrera Law Offices. He is currently General Counsel of STI Education Services Group, Inc. He also serves as Corporate Secretary of BOIE Drug, Inc., BOIE, Incorporated, BOIE Prime, Inc., Calatagan Bay Realty, Inc., Canlubang Golf and Country Club, Inc., Capital Managers and Advisors, Inc., Classic Finance Corporation, Coinage, Inc., DLS-STI Colleges, Inc., GEOGEN Corporation, GEOGRACE Resources Philippines, Inc., Masbate13 Philippines, Inc., Mina Tierra Gracia, Inc., NiHAO Mineral Resources International, Inc., Oregalore, Inc., Philippine American Drug Company, Philippine First Condominium Corporation, Philippines First Insurance Co., Inc., Philippine Life Assurance Financial Corporation, Philippine Women’s University, Philhealthcare, Inc., Philplans First, Inc., Renaissance Condominium Corporation, Rosehills Memorial Management Philippines, Inc. Sonak Holdings, Inc., STI Education Systems Holdings, Inc., STI Investments, Inc., Total Consolidated Asset Management, Inc., Trend Developers, Inc., Unlad Resources Development Corporation, Villa Development Corporation, West Negros University Corp. and WVC Development Corporation. Atty. Cabrera holds a Bachelor of Laws (Second Honors) and a Bachelor of Science Management from the Ateneo De Manila University. in Legal Ana Carmina S. Herrera, 39, Filipino, Assistant Corporate Secretary Atty. Ana Carmina S. Herrera was elected Assistant Corporate Secretary of the Company on 17 March 2010. A Senior Associate of Herrera Teehankee and Cabrera Law Offices, Atty. Herrera also performs the role of Corporate Secretary of Dunes and Eagle Land Development Corporation, STI College Batangas, Inc., STI Dagupan, Inc. and STI Tuguegarao, Inc. She also serves as Assistant Corporate Secretary in a number of other corporations: Amica Corporation, Banclife Insurance Co., Inc., Coastal Bay Chemicals, Inc., STI Education Systems Holdings, Inc., Palisades Condominium Corporation, Philippine Life Assurance Financial Corporation, Philhealthcare, Inc., Philippines First Insurance Co., Inc., Philippine First Condominium Corporation, Philippine Life Financial Assurance Corporation, STI College of Kalookan, Inc., STI College of Novaliches, Inc. and Venture Securities, Inc. Atty. Herrera received her Bachelor of Laws degree from the University of the Philippines in 2000. (b) Significant Employees In general, the Company values its human resources. It expects the employees to do their share in achieving the Company’s set objectives. There is no person in the Company who is not an executive officer but is expected to make significant contribution in the business of the Company. (c) Family Relationships Mr. Joseph Augustin L. Tanco is the son of Mr. Eusebio H. Tanco. Ms. Ma. Vanessa Rose L. Tanco is the daughter of Mr. Eusebio H. Tanco. 21 Mr. Martin Tanco and Mr. Eusebio H. Tanco are cousins. There are no other family relationships up to the 4th civil degree, either by consanguinity or affinity among the current Directors other than those already disclosed in this report. (d) Involvement in Certain Legal Proceedings None of the above named directors and executive officers of the Company have been involved in any of the following events for the past five (5) years and up to the date of this SEC Form 20-IS: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction by final judgment; (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking activities; and being found by a domestic or foreign court of competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or foreign Exchange or other organized trading market or self regulatory organization, to have violated a securities or commodities law or regulation, and the judgment has not been reversed, suspended, or vacated. (4) (2) Certain Relationships and Related Transactions The Company has the following major transactions with related parties: Joint Venture Agreement with Philippine Women’s University (“PWU”), Unlad Resources Development Corporation (“UNLAD”) and Mr. Alfredo Abelardo Benitez (“Mr. Benitez”) On 21 November 2011, the Company’s Board of Directors approved the following: (1) the assignment by the Company’s Chairman, Mr. Eusebio H. Tanco (“Mr. Tanco”) in favor of the Company of all of Mr. Tanco’s rights, interests and obligations arising out of: (a) the 16 November 2011 Joint Venture Agreement (the “Joint Venture Agreement”) entered into by PWU, UNLAD, Mr. Benitez and Mr. Tanco for the formation of a strategic arrangement with regard to the efficient management and operation of PWU; and (b) the 16 November 2011 Shareholders’ Agreement (the “Shareholders’ Agreement”) governing the aforementioned parties’ relationship as shareholders of the joint venture company, UNLAD; and (2) the accession by the Company to the Joint Venture Agreement and the Shareholders’ Agreement. PWU is a private non-stock, non-profit educational institution which provides basic, secondary and tertiary education while UNLAD is a real estate company controlled by the Benitez Family and has some assets which are used to support PWU’s educational thrust. 22 Pursuant to the assignment of Mr. Tanco’s rights under the Joint Venture Agreement, the Company acquired from Banco De Oro Unibank, Inc. (“BDO”) on 28 November 2011 the debt of PWU together with all of BDO’s rights to the underlying collateral and security for the amount of Php 223.5 Million (the “Receivable from PWU”), on a without recourse basis. The acquired loan is presented separately as “Noncurrent receivable” account in the statement of financial position. Moreover, in accordance with the Joint Venture Agreement, the Company is obliged to extend: (1) a direct loan to PWU in the amount of Php 26.5 Million (the “Loan to PWU”); and (2) a loan to UNLAD in the amount of Php 198 Million (the “Loan to UNLAD”). The Receivable from PWU and the Loan to PWU in the aggregate amount of Php 250 Million shall be secured by the PWU Indiana Property and the PWU Taft Property. The Loan to UNLAD shall be secured by the PWU Quezon City Property, UNLAD Davao Property and UNLAD Quezon City Property. The Receivable from PWU and the Loan to PWU, inclusive of 5% interest per annum, shall be accrued and paid by way of the assignment by PWU of its shares in UNLAD (which PWU will acquire through a property-for-share swap transaction). Likewise, the Loan to UNLAD, inclusive of 5% interest per annum, shall be paid by way of conversion of said loan into equity in UNLAD to enable the Company to acquire, together with the shares assigned by PWU to the Company as payment for the Receivable from PWU and Loan to PWU, a total of 40% equity in UNLAD. On 17 May 2012, Mr. Benitez assigned his rights, title and interest in the Joint Venture Agreement and the Shareholders’ Agreement to Attenborough Holdings Corporation (“AHC”). AHC thereby assumed Mr. Benitez’s obligation to grant a loan to UNLAD in the principal amount of P 224 Million (the “AHC Loan to UNLAD”). Pursuant to the agreement, the Company and AHC (collectively referred to as the “Lenders”) agreed to lend UNLAD a principal amount of P 422 Million consisting of the Company’s Loan to UNLAD and the AHC Loan to UNLAD. Consequently, on 8 June 2012, the Company entered into an Omnibus Agreement with UNLAD and AHC (the “Omnibus Agreement”) consisting of: (a) a prefatory agreement; (b) a loan agreement; and (c) a real estate mortgage. Under the loan agreement, the Lenders will extend a loan to UNLAD which is payable by way of conversion into equity in UNLAD. Said conversion into equity in UNLAD must enable: (a) the Company to acquire, together with the shares acquired by it as payment of the Company’s Loan to PWU, 40% of the issued and outstanding capital stock of UNLAD; and (b) AHC to acquire 20% of UNLAD’s issued and outstanding capital stock. In June 2012, the Company released the Loan to PWU in the amount of P 26.5 Million. In August 2012 and October 2012, the Company released the Loan to UNLAD amounting to P 166 Million and P 32 Million, respectively. On 25 March 2013, the Joint Venture Agreement and Omnibus Agreement were amended to discontinue the imposition of interest on the Loan to PWU, Loan to UNLAD and AHC Loan to UNLAD effective 1 January 2013. As of March 31, 2014 and 2013, noncurrent receivables consist of loans of P 448.0 million and accrued interest of P 16.0. Interest income in 2013 amounted to P =12.7 million. As of March 31, 2014 and 2013, the equity interest in UNLAD has not been assigned to the Parent Company in exchange for the receivables from PWU and the Loan to UNLAD. The said receivables from PWU and the Loan to UNLAD are presented as “Noncurrent receivables” in the consolidated statements of financial position. 23 The Company is working on the submission of all required documents to effect the conversion of these receivables into equity. The Company has nominated its representatives as directors/trustees and officers of PWU and UNLAD. Land Held for Swap On 21 March 2013, the Board of STI ESG approved the transfer of land to Techzone Philippines, Inc. (“Techzone”), a company under common control with the Group, in exchange for condominium units. In April 2013, STI ESG and Techzone entered into a real estate mortgage amounting to P 800 Million with STI ESG’s land as collateral for Techzone’s loan, to obtain the funds needed for Techzone to develop the property. In August 2013, the Deed of Absolute Sale for the sale of the land was executed between STI ESG and TechZone in accordance with the BOD approval. Title to the land has now been transferred in favor of TechZone and consequently, the amount was reclassified, including other directly attributable costs, as “Condominium deposit.” Development of the condominium project is likewise ongoing. Advances to STI Investments, Inc. As at 31 March 2012, the Company made short-term non-interest bearing advances to STI Investments, Inc. (“STI Investments”) amounting to P 5.9 Million, which is presented under the “Receivables” account in the statements of financial position. The Company and STI Investments are under common control. This advance was fully settled by STI Investments on 14 June 2012. Short-term cash placement in a financing institution with a common shareholder As at 31 March 2011, the Company has outstanding short-term cash placement in a financing institution which is owned by a common shareholder amounting to P 101.5 Million. The short-term cash placement was terminated on 8 April 2011. Interest income earned on the short-term cash placement amounted to P 0.1 Million and the years ended 31 March 2012 and 2011, respectively. Receivable from Philippine Racing Club, Inc. (PRCI) The Company has outstanding receivables of P 10.2 Million from PRCI arising from the assignment of a local tax credit certificate originally issued in favor of the Company by the local government of Makati. PRCI was the Company’s parent company until 18 March 2010. PRCI made a partial payment of P 2 Million as of 30 June 2013 and full payment of P 8.2 Million as of 27 December 2013. Agreement with Comm & Sense On 15 January 2013, the Company entered into an agreement with Comm & Sense owned by Mr. Joseph Augustin L. Tanco, Director and Vice President for Investor Relations of STI Holdings, on the overall management for PR consultation and planning of activities and execution strategies, 24 management of all media interview, development of campaign messaging and media monitoring. Comm & Sense is in charge of the Press Releases for the Corporation, development of story angles, writing and editing of articles, media relations and the Corporate Social Responsibility projects of the Corporation. Consultancy Agreement with STI ESG The Company entered into an agreement with STI ESG on the rendering of advisory services starting 01 January 2013. To date, there are no complaints received by the Company regarding related-party transactions. (3) Disagreement with a Director No director has resigned or declined to stand for re-election to the Board of Directors since the date of the last annual stockholders’ meeting because of a disagreement with the Company on any matter relating to the Company's operations, policies or practices. Item 6. Compensation of Directors and Executive Officers (1) During the 28 June 2010 meeting of the Board of Directors, the Board approved a resolution increasing the per diems of the directors from P10,000.00 to P15,000.00 per board meeting. The directors are paid P5,000.00 per committee meeting attended by them. There is no arrangement for compensation of directors. For FY 2011-2012 and 2012-2013, the CEO and top four (4) executive officers as a group, did not receive compensation from the Company. There is no employment contract between the Company and any of its executive officers. (2) The following table summarizes the aggregate compensation for the fiscal years ended 31 March 2011-2012, 2012-2013 and 2013-2014. The amounts set forth in the table below have been prepared based on what the Company paid its directors and named executive officers as a group and other officers for the fiscal years ended 31 March 2011-2012 and 2012-2013 and what the Company expects to pay for the year ended 31 March 2013-2014. The compensation for board members comprises per diems. ANNUAL COMPENSATION Name and principal Position All other Officers as a Group All Named Executive 2 Officers and Board of Directors as a Group Fiscal Year Ended 31 March 2012-2013 Salary (PHP) 597,052.00 Bonus (PHP) Other annual compensation (PHP) - - 2013-2014 2014-2015 2011-2012 1,551,053.28 1 P3,800,000.00 - 564,706.00 2012-2013 2013-2014 2014-2015 - - 1,005,882.00 1,735,000.00 1 1,735,000.00 25 Notes: 1 Figures are estimated amounts. 2 Named executives include: Eusebio H. Tanco (Chairman of the Board), Monico V. Jacob (President and CEO), Joseph Augustin L. Tanco (Vice President, Investor Relations), Yolanda M. Bautista (Treasurer) and Atty. Arsenio Cabrera, Jr. (Corporate Secretary). (3) There are no actions to be taken with regard to any bonus, profit sharing, or other compensation plan, contract or arrangement in which any director, nominee for election as a director, or executive officer of the Company will participate. (4) There are no actions to be taken with regard to any pension or retirement plan in which any such person will participate. (5) There are no actions to be taken with regard to the granting or extension to any such person of any option, warrant or right to purchase any securities. Item 7. (1) Independent Public Accountants The accounting firm of Sycip Gorres Velayo & Co. (“SGV”) has been the Company’s External Auditors for the past years (2010 up to the present). They were reappointed in the Annual Stockholders’ Meeting held on 04 October 2013, as external auditors for the ensuing fiscal year. A representative of SGV is expected to be present at the Annual Meeting of the Stockholders and will have the opportunity to make a statement if he or she so desires. The representative will also be available to respond to appropriate questions from the stockholders. Pursuant to SRC Rule 68 (3) (b) (iv), as amended (Rotation of External Auditors), the Company has engaged Mr. Roel E. Lucas of SGV as the Partner-in-charge of the Company. This is his first year of engagement for STI Holdings. (2) There has not been any disagreement between the Company and said accounting firm with regard to any matter relating to accounting principles or practices, financial statement disclosures or auditing scope or procedure. As stated in the March 31, 2014 “Statement of Management Responsibility for Financial Statements”, SGV is the appointed independent auditors of STI Holdings. They have examined the financial statements of the Company in accordance with Philippine Standards on Auditing and have expressed their opinion on the fairness of presentation upon completion of such examination, in its report to the Board of Directors and stockholders. The Company’s Audit Committee reviews and approves the scope of audit work of the external auditor and the amount of audit fees for a given year. With respect to services rendered by the external auditor other than the audit of financial statements, the scope of and payment for the same are subject to review and approval by the management. Mr. Johnip G. Cua, Independent Director, is currently the Chairman of the Audit Committee while Messrs. Martin K. Tanco, Paolo Martin O. Bautista and Ernest Lawrence Cu are its Members. 26 The Company had engaged SGV for the annual audit covering the period from April 1, 2013 to March 31, 2014 for Php770,000.00. The engagement letter for the year-end audit was sent to the Company on 11 October 2013. The following information pertains to their fees and charges over the last two fiscal years (amounts in thousands): Audit Fees Tax Fees All Other Fees 2013-2014 P995 100 P2,300* 2012-2013 P500 0 P14,400** *Represents professional fees paid relative to the acquisition of WNU **Represents professional fees paid relative to the follow-on offering Item 8. Compensation Plans No action is to be taken with respect to any plan pursuant to which cash or non-cash compensation may be paid or distributed. C. ISSUANCE AND EXCHANGE OF SECURITIES Item 9. Authorization or Issuance of Securities Other Than For Exchange No action will be taken with respect to the authorization or issuance of any securities otherwise for exchange for outstanding securities of the Company. Item 10. Modification or Exchange of Securities There is no action to be taken with respect to the modification of any class of securities of the Company, or the issuance or authorization for issuance of one class of securities of the Company in exchange for outstanding securities of another class. Item 12. Mergers, Consolidation, Acquisition and Similar Matters No action will be taken with respect to any of the following: (a) the merger or consolidation of the Company into or with any other person or of any other person into or with the Company; (b) the acquisition by the Company or any of its security holders of securities of another person; (c) the acquisition by the Company of any other ongoing business or of the assets thereof; (d) the sale or other transfer of all or substantially all of the assets of the Company; or (e) the liquidation or dissolution of the Company. Item 13 . Acquisition or Disposition of Property No action will be taken with respect to the acquisition or disposition by the Company of any property. Item 14 . Restatement of Accounts No action will be taken with respect to the restatement of any asset, capital or surplus account of the Company. 27 D. OTHER MATTERS Item 15. Action with Respect to Reports The Board of Directors of the Company recommends a vote for confirmation, ratification and approval of the minutes of the 4 October 2013 Annual Stockholders’ Meeting. The Minutes of the 4 October 2013 Annual Stockholders’ Meeting contained the following items: 1. 2. 3. 4. 5. 6. Call to Order Certificate of Notice and Quorum Approval of the Minutes of the 19 December 2012 Annual Shareholders’ Meeting Presentation of Management Report Approval of Audited Financial Statements as of 31 December 2012 Ratification of Legal Acts, Proceedings and Resolutions of the Board of Directors and of Management from 19 December 2012 up to 4 October 2013 7. Election of Directors 8. Appointment of External Auditor 9. Adjournment Item 16. Matters Not Required to be Submitted The Board of Directors and Management have the power to act as agents of the Company based on statute, charter, by-laws or in delegation of authority to an officer from the acts of the Board, formally expressed or implied from a habit or custom of doing business. In this regard, where an officer has been entrusted with the general management and control of the Company’s business, that officer is considered to possess an implied authority to enter into any contract or do any other act which is necessary or appropriate for the conduct of the ordinary business of the Company. The Board of Directors recommends a vote for approval, confirmation and ratification of all acts and resolutions of the Board of Directors and of Management since the Annual Stockholders’ Meeting on 4 October 2013 up to 26 September 2014. Said acts and resolutions of the Board of Directors and of Management since the Annual Stockholders’ Meeting on 4 October 2013 up to 26 September 2014 include, among others: (a) the appointment of officers; (b) the opening of bank accounts and the appointment of signatories; (c) execution of contracts; (d) procurement of loans; (e) sale and/or acquisition of assets; (f) investments in West Negros University; (g) approval of Audited Financial Statements as of 31 March 2014; and (h) amendments to the Manual of Corporate Governance. Once the ratification has been given, all acts or transactions entered into by the Board of Directors and of Management since the Annual Stockholders’ Meeting on 4 October 2013 up to the present become finally and absolutely binding and neither the Company nor individual stockholders nor strangers can afterwards sue to set them aside or otherwise attack their validity. Item 17. Amendment of Charter, By-laws or Other Documents No action will be taken at the Annual Stockholders’ Meeting for any amendment of the Company’s Articles of Incorporation, By-laws or other charter documents. Item 18. Other Proposed Action There is no action to be taken at the Annual Stockholders’ Meeting with respect to any matter not specifically referred to above. 28 Item 19. (1) Voting Procedures Vote required Each common share entitles the holder to one vote. At each meeting of the stockholders, each stockholder entitled to vote on a particular question or matter shall be entitled to vote for each share of stock standing in his name in the books of the Company as of record date. Pursuant to the By-Laws of the Company, stockholders owning a majority of all of the issued and outstanding stock of the Company present or represented by proxy and entitled to vote, shall form a quorum for the transaction of business and the vote of stockholders representing a majority of a quorum shall be required to approve any action submitted to the stockholders for approval, except in those cases where the Corporation Code requires the affirmative vote of a greater proportion. (2) Method The By-Laws provide that the voting must be by ballot or viva voce in the event no contest is raised at the sole discretion of the Chairman of the meeting. Moreover, “every question [except the election of Director] submitted to a meeting shall be decided in the first instance by a show of hands, and in the case of an equality of votes, whether for the election of Directors, or otherwise, the same shall be decided by drawing of lots or in such other lawful manner as may be agreed upon in such meeting. Any person may demand a poll, and such poll shall be taken in such manner as the Chairman of the meeting directs.” The Secretary of the meeting, upon motion duly made and seconded, is instructed to count all votes represented at the meeting in favor of the nominees. Cumulative voting shall be followed. The Company will seek the approval of the following: (1) Approval of the Minutes of the Annual Stockholders’ Meeting held on 4 October 2013 (2) Ratification of all acts of the Board of Directors and of Management from 4 October 2013 up to 26 September 2014 (3) Election of eleven (11) members of the Board of Directors (4) Approval of the Audited Financial Statements for the period ending 31 December 2013 (5) Election of Directors (6) Election of external auditor Discussion on Compliance with Leading Practices on Corporate Governance The Company adheres to the principles and practices of good corporate governance, as embodied in its Corporate Governance Manual and related SEC Circulars. 29 On 11 January 2011, the Company filed a Certification with the SEC that it had substantially complied with the provisions and requirements of the Company’s Manual on Corporate Governance. On 4 March 2011, the Company submitted the Amended Manual on Corporate Governance incorporating the directory provisions of the Revised Code of Corporate Governance to the SEC and PSE to fully comply with the adopted leading practices on good corporate governance. On 18 July 2014, the Company submitted the Amended Manual on Corporate Governance in compliance with SEC Memorandum Circular No. 9. There have been no deviations from the Company’s Manual of Corporate Governance. To ensure that the Company observes good corporate governance and management practices and assure shareholders that the Company conducts its business in accordance with the highest level of accountability, transparency and integrity, the Company has undertaken the continuous improvement and monitoring of its governance and management policies. The Company submits a Certificate of Compliance with the Manual on Corporate Governance on an annual basis to the SEC and the PSE. The Company submitted the Annual Corporate Governance Report to the SEC on 28 June 2013. The Company ensures that it has at least two (2) independent directors, or such number of independent directors that constitutes twenty percent (20%) of the members of the Board, whichever is higher, but in no case less than two (2). The Company, through its Nominations Committee, ensures that all the nominees to the Board possess all the qualifications and none of the disqualifications provided for in the Company’s ByLaws and Manual, the Corporation Code, Securities Regulation Code and other relevant laws, rules and regulations. The Company also has an Audit Committee, which is tasked to review the Audited Financial Statements of the Company. The Chairman of the Audit Committee is an independent director, and each member thereof has at least an adequate understanding or competence of most of the Company’s financial management systems and environment. The Company consistently strives to raise its financial reporting standards by adopting and implementing prescribed Philippine Financial Reporting Standards. STI EDUCATION SYSTEMS HOLDINGS, INC., AS REGISTRANT, WILL PROVIDE WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE REGISTRANT’S ANNUAL REPORT ON SEC FORM 17-A. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO THE OFFICE OF THE CORPORATE SECRETARY, 5/F SGV II, BUILDING, 6758 AYALA AVENUE, MAKATI CITY, PHILIPPINES. 30 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this report is true, complete and correct. This report is signed in the City of Makati on 8 August 2014. Sit EDUCATION SE1S HOLDINGS, INC. Is r ARSENIO . CABRERA, JR. Corporte Secretary 3! MANAGEMENT REPORT Group History and Structure STI Education Systems Holdings, Inc. STI Education Systems Holdings, Inc. (“STI Holdings” or the “Company”) was originally established in 1928 as the Philippine branch office of Theo H. Davies & Co., a Hawaiian corporation. It was reincorporated as a Philippine corporation in 1946. After many years of operations as part of the Jardine-Matheson group, STI Holdings was sold to local Philippine investors in 2006. In March 2010, Capital Managers and Advisors, Inc. (“CMA”), a member of the Tanco Group of Companies (“Tanco Group”), purchased the majority interest in STI Holdings and simultaneously conducted a tender offer for all the remaining shares held by minority shareholders. As a result, CMA acquired a 68.57% interest in the Company and assumed control and management of the Company. STI Holdings is the holding company within the Tanco Group that drives investment in its education business. It is a publicly-listed company in the Philippine Stock Exchange (“PSE”) and its registered office address and principal place of business is 7th Floor iACADEMY Building, 6764 Ayala Avenue, Makati City. Unless indicated otherwise or the context otherwise requires, reference to the “Group” are to STI Holdings and its subsidiaries, including STI Education Services Group, Inc., after consolidation. The Company is a party to a joint venture agreement and a shareholders’ agreement by and among the Philippine Women’s University (“PWU”), UNLAD Resources Development Corporation (“UNLAD”) and Attenborough Holdings Corporation. UNLAD is a real estate company controlled by the Benitez Family, whose assets are used to support the educational mission of PWU. Under the agreements, the parties engaged in a series of transactions which resulted in the Company extending loans to PWU and UNLAD that shall be repaid by the conversion of the loans into a 40.0% interest in the total issued and outstanding capital stock of UNLAD. As a result, the Group nominates its representatives as members and trustees of PWU, the board of directors of UNLAD and certain key officers of PWU and UNLAD. STI Holdings has submitted all the required documents to effect the conversion of this loan to equity. On 14 June 2012 and 10 August 2012, the Board of Directors and stockholders of the Company, respectively, approved the following: (a) a change in the corporate name from JTH Davies Holdings, Inc. to STI Education Systems Holdings, Inc.; (b) the share-for-share swap transaction (the “Share Swap”) with the shareholders of STI Education Services Group, Inc. (“STI ESG Shareholders”); and (c) the corresponding increase in the Company’s authorized capital stock from 1,103,000,000 shares with an aggregate par value of P 551.5 Million to 10,000,000,000 shares with an aggregate par value of P 5 Billion. The change in the corporate name was approved by the Securities and Exchange Commission (“SEC”) on 10 September 2012 while the Share Swap and increase in authorized capital stock were approved by the SEC on 28 September 2012. On 28 August 2012, the Board of Directors of STI Holdings approved the offering and issuance by way of a follow-on offering of up to a maximum 3 Billion common shares (the “Offer Shares”) at an offer price to be determined based on a bookbuilding process and from discussions between STI Holdings and the International Lead Manager and Domestic Lead Manager. The Offer comprised the following: (a) up to 2,627,000,000 common shares offered to the public on a primary basis (“Primary Offering”); (b) up to 105,209,527 common shares offered to the public on a secondary basis by Korea Merchant Banking Corporation (“Secondary Offering”); and (c) over-allotment option to purchase up to 273,000,000 common shares (“Over-Allotment Option”) granted to UBS AG in its role as Stabilizing Agent and on the same terms and conditions as the Primary Offering and Secondary Offering. The offer price was set at P 1 0.90 per share on 22 October 2012. The Primary Offering and Secondary Offering were completed on 7 November 2012 while the Over-Allotment Option was exercised on 28 November 2012. Consolidation of STI Education Services Group, Inc. (“STI ESG”) into STI Holdings On 20 December 2011, STI Holdings acquired a 4.4% interest in STI ESG’s outstanding common shares (equivalent to approximately 3.3% interest in STI ESG’s outstanding common shares prior to Share Swap) for a combined purchase price of P80.8 million. On 10 August 2012, STI Holdings’ shareholders approved an increase in share capital from 1,103,000,000 shares with an aggregate par value of P 551.5 million to 10,000,000,000 shares with an aggregate par value of P 5 Billion and a share swap agreement with the stockholders of STI ESG (the “STI Stockholders”) and completed the consolidation of the two companies. Pursuant to the share swap transaction, STI Holdings issued new shares to STI Stockholders in exchange for shares of STI Stockholders in STI ESG at an exchange ratio of 6.5 Shares of STI Holdings for every 1 STI ESG share. Since STI Holdings and the majority of STI Stockholders are related parties, STI Holdings obtained a waiver from the majority of its minority shareholders of the requirement to conduct a rights or public offering during the STI Holdings Special Stockholders’ Meeting held on 10 August 2012. On 28 September 2012, the SEC approved the increase in share capital of STI Holdings. In view of the increase in its authorized capital stock and pursuant to the Share Swap, STI Holdings issued 5,901,806,924 shares to STI ESG Shareholders in exchange for 907,970,294 common shares of STI ESG (exclusive of the 32,324,618 STI ESG shares acquired in December 2011). As a result, immediately after the Share Swap, the STI ESG Shareholders who joined the Share Swap owned approximately 84% interest in STI Holdings while STI Holdings increased its shareholdings to 96.0% of the total issued and outstanding capital stock of STI ESG. As of 31 March 2014, STI ESG holds 502,307,895 shares of STI Holdings equivalent to 5.07% ownership in the Company. In November and December 2012, STI Holdings subscribed to 2.1 Billion STI ESG shares at a consideration price equal to its par value of P 2,100.00 Million. As a result, STI Holdings’ ownership interest in STI ESG increased to approximately 98.71% as of 31 March 2013. STI Holdings’ ownership in STI ESG is at 98.66% as of 31 March 2014. Acquisition of West Negros University On October 1, 2013, STI Holdings acquired 99.45% of the issued and outstanding common shares and 99.93% of the issued and outstanding preferred shares of West Negros University Corp. (“WNU”), a leading university in the City of Bacolod in Negros Occidental. WNU offers a wide variety of programs and complements the courses offered by the Company’s other subsidiary, STI ESG. The acquisition is part of the planned expansion of the Company. It not only widened its course offerings at the tertiary level but the acquisition also provided STI Holdings another entry into basic education which is the focus of the government’s K+12 program, and into the graduate school level which is vital in updating the development of human capital in the country. 2 Market for Company’s Common Equity and Related Stockholder Matters (1) Market Information The Company’s common stock is traded on the PSE under the stock symbol “STI”. As of the date of this Definitive Information Statement, the Company has 9,904,806,924 shares outstanding. As of 6 August 2014, the high share price of the Company was Php 0.80 and the low share price was Php 0.80. The Company’s public float as of 31 July 2014 is 3,555,405,214 shares equivalent to 35.90% of the total issued and outstanding shares of the Company. The following table sets forth the Company’s high and low intra-day sales prices per share for the past three years and the first three quarters of 2014: High 2014 Third Quarter (as of 6 August 2014) Second Quarter First Quarter 2013 Fourth Quarter Third Quarter Second Quarter First Quarter 2012 Fourth Quarter Third Quarter Second Quarter First Quarter (2) Low 0.80 0.87 0.72 0.80 0.69 0.65 0.74 0.90 1.07 0.59 0.73 0.76 1.07 0.97 2.22 0.92 3.00 3.08 3.12 1.50 2.28 2.30 Holders As of 31 July 2014, there were 1,244 shareholders of the Company’s outstanding capital stock. The Company only has common shares. The following table sets forth the top 20 shareholders of the Company’s common stock, the number of shares held, and the percentage of total shares outstanding held by each as of 31 July 2014. NUMBER OF SHARES 3,366,135,849 NAME OF STOCKHOLDER PCD NOMINEE CORPORATION (FILIPINO)* PERCENTAGE OF OWNERSHIP 33.9849% PRUDENT RESOURCES, INC. 1,614,264,964 16.2978% PCD NOMINEE CORPORATION (NON-FILIPINO) 1,398,050,922 14.1149% TANCO, EUSEBIO H. 1,157,913,875 11.6904% RESCOM DEVELOPERS, INC. 794,343,934 8.0198% EUJO PHILIPPINES, INC. 728,626,048 7.3563% INSURANCE BUILDERS, INC. 428,723,003 4.3284% STI EDUCATION SERVICES GROUP, INC. 397,908,895 4.0173% 3 TANCO, ROSIE L. 13,000,000 0.1312% 1,000,000 0.0101% EDAN CORPORATION LERIO CABALLERO CASTIGADOR AND/OR VICTORINA 861,350 399,000 0.0087% 0.0040% HENRY SY SR. 350,000 0.0035% QUALITY INVESTMENTS & SECURITIES CORPORATION 200,000 0.0020% TACUB, PACIFICO B. 200,000 0.0020% CRUZ, YOLANDA M. DELA 150,000 0.0015% VICSAL SECURITIES & STOCK BROKERAGE, INC. 129,500 0.0013% E. SANTAMARIA & CO., INC. 128,919 0.0010% 99,400 0.0010% HTG TECHNOLOGIES, INC. TOBIAS JOSEF BROWN THE PHILIPPINE AMERICAN INVESTMENTS CORP. 88,508 0.0009% * Eusebio H. Tanco is the beneficial owner of 284,100,000 shares. Eujo Philippines, Inc. is the beneficial owner of 35,247,082 shares. STI Education Services Group, Inc. is the beneficial owner of 104,399,000 shares. Insurance Builders, Inc. is the beneficial owner of 150,952,989 shares. (3) Cash Dividends On 8 December 2011, cash dividends amounting to P 0.02 per share were paid to stockholders of record as of 11 November 2011. On 5 December 2012, cash dividends amounting to P0.01 per share were paid to stockholders of record as of 19 December 2012. On 4 September 2013, cash dividends amounting to P 0.015144 per share were paid to stockholders of record as of 18 September 2013. Dividends will be evaluated by the Board of Directors on an annual basis. It shall be the policy of the Company to declare dividends whenever there are unrestricted retain earnings available. Such declaration will take into consideration factors such as restrictions that may be imposed by current and prospective financial covenants; projected levels of operating results, working capital needs and long-term capital expenditures; and regulatory requirements on dividend payments, among others. (4) Recent Sales of Unregistered or Exempt Securities Private Placement On 21 November 2011, the Board of Directors approved the issuance of 795,817,789 shares (the “Private Placement Shares”) out of the Company’s authorized and unissued capital stock at P 0.60 per share through private placement investments in order to fund the Company’s obligations to PWU and UNLAD under the Joint Venture Agreement and Shareholders’ Agreement by and among PWU, UNLAD, Mr. Benitez and the Company. The Private Placement Shares were subscribed to by Capital Managers & Advisors, Inc. (“CMA”), an existing shareholder of the Company) and STI Education Services Group, Inc., (“STI ESG”), a related party in the following manner: Subscriber CMA STI ESG Total Number of Shares 397,908,894 397,908,895 795,817,789 4 Amount of Subscription P238,745,336.40 238,745,337.00 P477,490,673.40 The Subscription Agreements with CMA and STI ESG were executed on 24 November 2011. On 25 November 2011, the Company filed SEC Form 10-1 with the SEC since the issuance of the Private Placement Shares qualifies as an exempt transaction under Section 10.1(k) of the Securities Regulation Code i.e., the sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period. Since STI ESG and CMA are related parties, the Company complied with the Revised Listing Rules and obtained: (a) shareholders’ approval for the listing of the Private Placement Shares; and (b) a waiver of the requirement to conduct a rights or public offering in connection with the Private Placement Shares during the special stockholders’ meeting on 10 August 2012. The Philippine Stock Exchange (the “PSE”) issued a Notice of Approval in connection with the listing of the Private Placement Shares on 28 September 2012, subject to the submission of: (a) a duly executed lock-up agreement at least three days prior to the actual listing date of the Private Placement Shares; and (b) a confirmation from the SEC that the mandatory tender offer rule does not apply to the subject private placement transaction, or if a mandatory tender offer is required to be conducted, a confirmation from the Company that the mandatory tender offer requirement and other related requirements of the SEC have been complied with. On 10 May 2013, the SEC granted the Company’s request for exemptive relief from the requirements of mandatory tender offer relative to the private placement transaction. On 27 June 2013, the PSE advised the Company to submit a duly executed lock-up agreement in compliance with Article V, Part A, Section 7 of the Revised Listing Rules and to facilitate the listing of the Private Placement Shares. On 25 July 2013, the Company, STI ESG, and CMA executed an Escrow Agreement with Unionbank of the Philippines – Trust & Investment Services Group as the Escrow Agent to implement the 180-day lock-up requirement applicable to the Private Placement Shares reckoned from the listing date of the said shares. The listing of the additional 795,817,789 common shares of the Company was approved on 19 August 2013. The lock-up period of the Private Placement shares expired on 18 February 2014 and said shares became eligible for trading on the Exchange on 19 February 2014. Share-for-Share Swap Transaction On 28 August 2012, 31 August 2012 and 1 September 2012, the Company executed Share Swap Agreements with the following stockholders of STI ESG: (a) Prudent Resources, Inc.; (b) Mr. Eusebio H. Tanco; (c) Eujo Philippines, Inc.; (d) Rescom Developers, Inc.; and (e) Insurance Builders, Inc. (collectively referred to as the “STI Majority Shareholders”) as well as with 90 other stockholders of STI ESG. The aforementioned share swap transactions are based on an exchange ratio of 6.5 shares of the Company for every 1 STI ESG share. The share swap transactions sought to consolidate all of the education assets of the STI/Tanco Group of Companies into one holding company. The share swap also provided an opportunity for the education group of the STI/Tanco Group of Companies to raise funds through the capital markets for the expansion and upgrading of its current facilities, the 5 acquisition of educational entities and the improvement of the quality of education being offered by these entities or institutions. Pursuant to the aforementioned Share Swap Agreements, the Company issued a total of 5,901,806,924 common shares (the “Share Swap Shares”) in exchange for 907,970,294 STI ESG shares as follows: Stockholders No. of STI ESG Shares No. of Company Shares STI Majority Shareholders 726,749,511 4,723,871,823 Other STI ESG Stockholders 181,220,783 1,177,935,101 TOTAL 907,970,294 5,901,806,924 To accommodate the issuance of the Share Swap Shares, the Company increased its authorized capital stock from 1,103,000,000 shares with a par value of P 0.50 per share to a total of 10,000,000,000 shares with a par value of Php 0.50 per share or an aggregate par value of P 5,000,000,000.00. Said increase was approved by the Company’s Board on 14 June 2012 and by the stockholders during the Special Stockholders’ Meeting on 10 August 2012. On 14 September 2012, the Company filed an application for the increase in its authorized capital stock with the SEC. The SEC approved the Company’s application on 28 September 2012. During the 14 June 2012 Board meeting and the Special Stockholders’ meeting on 10 August 2012, the Board and the stockholders likewise approved the exchange ratio and the share swap transactions with the STI Majority Shareholders and the other STI ESG stockholders. The Company also complied with the Revised Listing Rules and obtained a waiver of the requirement to conduct a rights or public offering in connection with the Share Swap Shares during the 10 August 2012 Special Stockholders’ Meeting. On 7 September 2012, the Company filed an Amended SEC Form 10-1 with the SEC since the issuance of the Share Swap Shares qualified as an exempt transaction under Section 10.1(i) of the Securities Regulation Code i.e., subscriptions for shares of the capital stock of a corporation in pursuance of an increase in its authorized capital stock under the Corporation Code when no expense is incurred or no remuneration is paid in connection with the sale or disposition of such securities, and only when the purpose for the giving or taking of such subscriptions is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before its authorized capital is increased. On 26 September 2012, the PSE Board of Directors approved the application of STI Holdings to list an additional 5,901,806,924 common shares (the “Share Swap Shares”) with a par value of P0.50 per share, to cover the share-for-share swap transaction with various shareholders of STI ESG (the “STI ESG Shareholders”). The 5,901,806,924 common shares were issued in exchange for 907,970,295 STI ESG common shares held by the STI ESG Shareholders. The total swap value is P9,743,378,087.43, broken down as follows: (1) 5,887,969,327 STI Holdings shares at a swap price of P1.65 per share for a consideration of P9,715,149,389.55; and( 2) 13,837,597 STI Holdings shares at a swap price of P2.04 per share for a consideration of P28,228,697.88. 6 In compliance with Article V, Part A, Section 7 of the Revised Listing Rules of the Exchange, STI Holdings, Ms. Rosie L. Tanco, the STI Majority Shareholders and Union Bank of the Philippines executed an Escrow Agreement on 22 October 2012 to implement the required lock-up requirement of their respective Swap Shares reckoned from the listing date. A total of 4,736,871,823 common shares were covered by the Escrow Agreement. On 29 October 2012 (the “Listing Date”), 5,901,806,924 common shares of STI Holdings were listed in the Exchange. Out of the 5,901,806,924 common shares, only 1,164,935,101 common shares were eligible for trading on the Listing Date. The remaining 4,736,871,823 common shares held by Ms. Rosie L. Tanco and the STI Majority Shareholders were placed in escrow for 180days counted from the Listing Date. The said lock-up period lapsed on 27 April 2013. On 9 May 2013, the 4,736,871,823 common shares held by Ms. Rosie L. Tanco and the STI Majority Shareholders became eligible for trading on the Exchange. Management’s Discussion and Analysis of Financial Conditions and Results of Operations This discussion summarizes the significant factors affecting the financial condition and operating results of STI Education Systems Holdings, Inc. (STI Holdings) and its subsidiaries (hereafter collectively referred to as the “Group”) for the fiscal years ended March 31, 2014 and 2013. The following discussion should be read in conjunction with the attached audited consolidated financial statements of the Company as of and for the year ended 31 March 2014 and for all the other periods presented. As a result of the adoption of Philippine Accounting Standards (PAS) 19, Employee Benefits, Revised, the Group applied the amendments retroactively to the earliest period presented (Refer to Note 2 of the Notes to Consolidated Financial Statements). Financial Condition March 31, 2014 vs. 2013 The Group’s assets as at March 31, 2014 consisted mainly of its Property and Equipment, which at P4,421.3 million accounts for 53% of its total assets. This is in accordance with the Group’s expansion plan. In the past one and a half years since the Group’s follow-on offering, total investment in Property and Equipment has reached P2,470.2 million for the acquisition of land, construction of school facilities and purchase of school furniture and equipment for STI Ortigas-Cainta, STI Caloocan, STI Cubao, STI Calamba, STI Batangas and STI Lucena. Total assets stood at P8,299.1 million as at March 31, 2014, slightly lower by 2% than last year’s figure, as some investments reflected negative variances due to market conditions. Cash and cash equivalents declined by 61% from P1,489.5 million last year due to the completion of building construction and purchase of furniture and equipment for STI Ortigas-Cainta. STI Caloocan was completed in February, 2014 while construction is ongoing in sites intended for STI Cubao, STI Batangas, STI Calamba and STI Lucena. Current receivables, on the other hand, increased by 19% to P297.4 million as receivables from students increased in line with the 4% increase in the number of students of STI ESG and its subsidiaries. Receivables from students of WNU contributed P34.6 million, net of allowance for doubtful accounts. 7 Inventories increased by P3.1 million or 9% as the schools increased their stocks of uniforms in preparation for the start of the coming school year. Prepaid expenses and other current assets rose by 186% to P107.0 million due to substantial increases in VAT input taxes and creditable withholding taxes arising from the swap of the Group’s land in Makati City in exchange for units in the condominium building being constructed on the same property. Property and equipment increased by 68% to P4,421.3 million due to the completion of the buildings for STI Ortigas-Cainta and STI Caloocan and the purchase of the needed furniture and equipment to complete the school facilities. The construction of the buildings for STI Cubao and STI Calamba are in full swing to meet the target availability of the facilities for school year (SY) 2014-2015. Improvement of various facilities in other owned schools were also undertaken. Renovations on buildings for STI Batangas is almost complete and the school is likewise expected to be fully operational in time for SY 2014-15. Investment properties increased slightly by 2%. Value of Investments in and advances to associates and joint ventures decreased by 47% mainly due to the decline in market value of investments in bonds and equities held by an associate and to losses incurred by some associates. Available-for-sale financial assets rose by 985% or P45.9 million due to reclassification of investments in De Los Santos-STI Megaclinic, Inc. (Megaclinic) and De Los Santos General Hospital, Inc. (the Hospital) from Investments in and advances to associates and joint ventures account as a result of the Investment Agreement entered into with Metro Pacific Investments Corporation (MPIC) which was implemented in June 2013. The infusion of equity in the Hospital by MPIC resulted to a dilution of the ownership of the Group to 10%, thus the reclassification. The shareholdings of De Los Santos-STI College (DLS-STI College) in Megaclinic were also swapped with shares in the Hospital. On August 15, 2013 STI Investments purchased 40,051 shares of Megaclinic from the Hospital. This represents 6% of the total outstanding capital stock of Megaclinic. Deferred tax assets rose by 289% or P24.6 million primarily due to deferred tax recognized on the swap of the Group’s land in Makati City in exchange for units in the condominium building being constructed on the same property. Taxes paid on the transaction were paid by the Group. The related deferred tax asset will be reversed upon completion of the condominium units swapped for the land. Goodwill, intangible and other noncurrent assets slightly increased by P90.4 million or 14%. Goodwill on the purchase of STI Batangas was computed at P2.6 million. The purchase of computer licenses for STI ESG and iACADEMY amounted to P21.2 million. Balance of the increase was due to utility bill deposits for STI Ortigas-Cainta, STI Caloocan and STI Cubao. STI ESG has also acquired a new school management system and is in the process of implementing the same. Accounts payable and other current liabilities rose by 61% or P196.7 million primarily due to bills for construction of schools buildings unpaid as of balance sheet date. Short term loans of P180.0 million were availed to finance short-term working capital requirements. Nontrade payable of P151.5 million pertains to the amount withheld for payment to WNU’s former shareholders relative to the acquisition of WNU. 8 Current portion of long-term debt of P49.9 million is part of WNU’s liabilities outstanding as of the time of purchase of the university. Current portion of obligations under finance lease increased by 16% due to new availments while the long-term portion decreased by 14% due to payment of monthly amortizations. Income tax payable grew by 18% reflecting the increase in taxable income. Long-term debt, net of current portion, amounting to P58.5 million is part of WNU’s liabilities absorbed by the Group. Pension liabilities increased by P38.5 million or 172% primarily from WNU’s pension liability. Deferred tax liability of P128.0 million represents the tax impact of acquisition-date fair value measurement of WNU’s net assets arising from business combination. Unrealized mark-to-market gains or losses on available-for-sale financial assets, including the Group’s share in its associates’ unrealized mark-to-market gains on available-for-sale financial assets, decreased by net amount of P1,477.4 million. This represents a decline in the gains earlier reported as of March 31, 2013 by an associate as a result of: (1) the realization of gains on some of the AFS assets; and (2) decrease in market values of bonds and equities held by an associate as of March 31, 2014. Cumulative actuarial gains or losses, including the Group’s share in its associates’ cumulative actuarial losses, amounted to net gain of P3.0 million as of March 31, 2014, representing realization of the remeasurement gains or losses resulting from the adoption of PAS 19R by the Group and its associates. This represents a 14% decline from last year’s net gain of P14.4 million. The increase in Unappropriated retained earnings of P1,338.7 million resulted from the year’s net income earned less dividends declared and from the reclassification of P800.0 million appropriated retained earnings. March 31, 2013 vs. 2012 The Group’s total assets as at March 31, 2013 amounted to P8,503.3 million, 85% higher than the amount as at March 31, 2012. There was a recorded increase of P4,400.9 million in capital arising from (1) the share-for-share swap between the shareholders of STI ESG and STI Holdings at an exchange ratio of 6.5 shares of STI Holdings for every one (1) STI ESG share, thus increasing the capital by P2,950.9 million, and (2) proceeds of the follow-on offering of STI Holdings on November 7, 2012 amounting to P2,610.0 million at an offer price of P0.90 per share for 2,900,000,000 shares. Paid-up capital increased by P1,450.0 million from the follow-on offering. Additional paid-in capital increased by P1,041.5 million due to the excess over par value of the shares issued arising from the follow-on offering, net of transaction costs related to the issuance of shares. Cash and cash equivalents increased by P933.2 million or 168% due to receipt of proceeds of followon offering by STI Holdings on November 7, 2012, net of transaction costs and actual use of the proceeds. It can also be attributed to the increase in the number of students of STI ESG and its subsidiaries from 66,740 last year to 68,363 students this year. Current receivables slightly decreased by 6% or P15.1 million mainly due to the conversion to equity of the P41.6 million advances to STI Investments, Inc. (STI Investments), an associate, thus, the 9 transfer to Investments in Associates account. There is no change in the percentage of ownership in STI Investments after the conversion as the other shareholders proportionately did the same. Inventories dropped by 18% or P7.4 million, ending the year at P34.7 million. This can be attributed to the increased demand for uniforms and educational materials resulting from the increased number of students. Prepaid expenses and other current assets rose by P12.8 million or 52% as VAT input taxes arising from disbursements related to the follow-on offering were recognized. Advance payments were also made to suppliers and other third parties for construction activities in various schools. Property and equipment increased by 71% or P1,091.0 million due to the acquisition of land for STI Ortigas-Cainta, STI Caloocan, STI Cubao and STI Las Piñas, construction costs incurred for STI Academic Center Novaliches, STI Ortigas-Cainta and STI Caloocan, and improvement of various facilities. Based on past experience, enrollment increased in areas where STI ESG constructed campuses with better facilities. Investment properties decreased by 17% or P7.8 million due to the disposal of STI ESG’s idle property in Manila, and the recognition of depreciation expenses. Value of Investments in and advances to associates and joint ventures increased by P1,306.6 million mainly from profitable operations of an associate, STI Investments. The recognition of the Company’s share in unrealized mark-to-market gain on investments of the same associate also contributed to the increase. Noncurrent receivables rose by P236.7 million or 104% due to the full release of loans to Unlad Resources Development Corporation (Unlad) and the Philippine Women’s University (PWU) in accordance with existing agreements. Available-for-sale financial assets slightly decreased by 6% due to decrease in fair market value of some investments. Deferred tax assets decreased by P2.5 million or 23% due to the tax impact of the adoption of PAS 19R. Goodwill, intangible and other noncurrent assets rose 133% from P275.3 million to P642.0 million due to the reclassification of land from Property and Equipment to Other Noncurrent Assets. Accounts payable and other current liabilities slightly rose by 6% to P320.7 million mainly due to increase in payables related to construction. Short-term loans of P746.7 million were fully paid during the fiscal year, using the proceeds of the follow-on offering and internally generated funds. Current portion of obligations under finance lease decreased by 34% due to payment of monthly amortizations while the long term portion increased by 49% due to additional finance lease availments. These pertain mostly to company vehicles and computer equipment purchased under finance lease arrangements. Income tax payable increased by 150% due to substantial increase in taxable income. 10 Pension liabilities declined by P32.4 million due to the impact of the adoption of PAS 19R. Capital stock increased by P4,400.9 million due to the issuance by STI Holdings of 5,901.8 million shares arising from the share-for-share swap between the shareholders of STI ESG and STI Holdings at an exchange ratio of 6.5 shares of STI Holdings for every one (1) STI ESG share and the follow-on offering where 2,900.0 million shares were issued last November 7, 2012. Additional paid-in capital increased by P1,041.5 million due to the excess over par value of the shares issued arising from the follow-offering, net of transaction costs related to the issuance of shares. Unrealized mark-to-market gains or losses on available-for-sale financial assets, including the Group’s share in its associates’ unrealized mark-to-market gains on available-for-sale financial assets increased by net amount of P865.2 million. Retained earnings increased due to the substantial net income earned less dividends declared. Results of Operations Years ended March 31, 2014 vs. 2013 Total revenues improved by 15% or P247.7 million due to the increase in the number of students of STI ESG and its subsidiaries from 68,363 to 71,195 students and the favorable enrollment mix resulting to higher revenues from tuition and other school fees. WNU’s revenues for the six-month period after acquisition contributed P78.0 million to the increase. Tuition and other school fees increased by P265.0 million or 20% from last year’s P1,357.3 million, mainly due to the increase in the number of students and the 5,000 students of WNU. STI ESG’s enrollment mix was also more favorable in SY 2014 than in 2013, as enrollment leaned more towards STI Network’s four-year programs than the two-year programs. Ratio in 2014 was 76% four-year programs and 24% two-year programs, as compared to 70% and 30%, respectively, in 2013. The four-year programs charge higher tuition and bring in more revenue per student. STI ESG’s subsidiary, iACADEMY, had a 25% increase in number of students and more enrollees in programs with higher tuition fees. WNU’s students accounted for P78.0 million of total tuition and other school fees. Revenues from educational services also improved by 2% or P4.2 million. Sale of educational materials and supplies likewise rose by 8%, following the trend of increased enrollment. Royalty fees slightly increased by 3% reflective of the almost constant number of students in franchised schools. Other income went down by 40% or P26.0 million due to various one-time adjustments recognized last year arising from the merger of schools with STI ESG. Cost of educational services increased by 14% from P485.4 million last year to P553.0 million this year due to higher faculty salaries and other direct expenses as a result of the increased number of students. Depreciation expenses of the recently completed buildings in STI Ortigas-Cainta and STI Caloocan accounted for P23.5 million of the P67.6 million cost increase. Cost of educational materials and supplies sold increased by 8%, mainly due to increased sale of uniforms. 11 General and administrative expenses rose by 13% or P93.2 million. Of this increase, WNU’s administrative expenses accounted for P26.8 million. STI ESG’s security and janitorial expenses rose by P19.7 million as STI Fairview, STI Novaliches, STI Ortigas-Cainta and STI Caloocan became fully operational. This also resulted to P19.6 million increase in depreciation costs. Salaries and employee benefits likewise rose by P17.7 million as vacant plantilla positions were filled up and performancebased increases were granted to deserving employees. Equity in net gains of associates and joint ventures decreased by P195.4 million as losses were incurred by some associates. Excess of fair values of net assets acquired over acquisition costs of P32.7 million relates to the acquisition of WNU. Loss on deemed sale amounting to P36.3 million represents the amount deemed lost due to the dilution of the Group’s ownership in the Hospital from 33% to 10%. Loss on swap in the amount of P6.7 million pertains to the exchange of shares of Megaclinic with the shares in the Hospital held by DLS-STI College. Interest expense decreased from P18.8 million last year to only P10.9 million this year, with the cost incurred this year mainly due to the long-term loan of WNU. Rental income increased by P6.2 million mainly due to the rental income recognized from canteen concessionaire, gym and auditorium. Interest income went down by P22.5 million due to the discontinued imposition of interest on the loans to PWU and Unlad. Dividend income slightly increased by P0.07 million or 16% while gain on sale of Property and equipment slightly decreased by P0.09 million or 11%. As a result of unfavorable market conditions, the Group’s unrealized mark-to-market losses on its AFS investments slightly increased by 26% while its share in associates’ unrealized mark-to-market losses, net of realized mark-to-market gains/losses recognized to profit or loss, also rose by 277%. Consequently, the Group’s total comprehensive income declined by 151%. Years ended March 31, 2013 vs. 2012 The Group registered substantial improvements in its profitability as shown by the 173% increase in net income from P291.5 million in 2012 to P794.4 million in 2013. Total comprehensive income increased by 41% to P1,665.4 million for 2013. Increase in total revenues of P93.2 million or 6% from last year is due to the increase in the number of students of STI ESG and its subsidiaries from 66,740 to 68,363 students resulting in higher revenues from tuition and other school fees. Tuition and other school fees increased by P84.6 million to P1,357.3 million from last year’s P1,272.7 million, reflective of the increased number of students. In addition, STI ESG’s enrolment mix was more favorable in 2013 than in 2012, as enrolment leaned more towards the STI Network’s four-year programs than the two-year programs. Ratio in 2013 was 70% four-year programs and 30% two-year 12 programs, as compared to 65% and 35%, respectively, in 2012. The four-year programs charge higher tuition and bring in more revenue per student. Educational services followed suit with a P9.3 million or 6% increase to P177.9 million this year. Sale of educational materials and supplies likewise rose by 6%. Cost of educational services was slightly up by 0.7% to P485.4 million as a result of additional depreciation cost due to the completion of the STI Academic Center Novaliches and the full year recognition of depreciation of the new building in STI Fairview. This was partially offset by reduced rental of school facilities from third parties. Economies of scale in terms of faculty costs and courseware development also reduced the impact of the increased depreciation cost. Cost of educational materials and supplies sold was 25% higher at P49.5 million. This is mainly due to the higher cost of items sold and changes in product mix. General and administrative expenses increased by P57.1 million or 8% from P688.3 million to P745.3 million, mainly due to the share swap and follow-on offering related expenses in 2013 amounting to P50.4 million. Taxes and licenses rose by P40.5 million as filing fees paid to the SEC and documentary stamp taxes were incurred when both STI Holdings and STI ESG increased their respective authorized capital stock. This also includes P13.1 million listing fee paid to the Philippine Stock Exchange (PSE) for the follow-on offering. Professional fees related to the follow-on offering resulted to the P4.7 million increase this year as compared to last year. Salaries and wages increased by P8.3 million from last year’s P215.9 million due to increases in retirement cost. Lower retirement cost was recorded last year due to actuarial gains recognized in the merger of the schools with STI ESG. Utilities costs also increased by P5.9 million due to increases in power rates, the increased utilization in STI Novaliches Academic Center and the full use of the new building in STI Fairview. Outside services expenses increased by P7.0 million due to the additional security and janitorial services for current and new facilities. However, this was partially offset by the P8.8 million reduction in impairment provisions for receivables and goodwill. Equity in net gains of associates and joint ventures increased by P465.8 million due to the increase in net income of STI Investments, Inc., in which STI ESG has a 20% interest. Interest expense in 2013 decreased by P15.0 million as STI ESG fully paid its short term loans during the year. Rental income decreased slightly by P0.7 million as facilities originally being leased out were utilized as school premises. Interest income increased by P18.5 million as funds from the follow-on offering were invested in time deposits and special savings accounts. Dividend income decreased by P2.4 million due to the disposal of available-for-sale financial assets which generated dividend income in 2012. Gain on sale of property and equipment was recognized in 2013 due to disposal of fully depreciated transportation equipment. Loss on disposal of investment property amounted to P2.3 million as STI ESG’s idle property was sold. 13 Key Performance Indicators (KPIs) The top five key performance indicators of the Group include tests of profitability, liquidity and solvency. Profitability refers to the Group’s earning capacity and ability to earn income for its stockholders. This is measured by profitability ratios analyzing margins and returns. Liquidity refers to the Group’s ability to pay its short-term liabilities as and when they fall due. Solvency refers to the Group’s ability to pay all its debts as and when they fall due, whether such liabilities are current or non-current. EBITDA margin Net income excluding depreciation and amortization, equity in net earnings (losses) of associates and joint ventures, interest expense, interest income, provision for income tax and loss on deemed sale and share swap of an associate, excess of fair values of net assets acquired over acquisition costs from a business combination divided by total revenues Net income attributable to equity holders of the Parent company divided by average equity attributable to equity holders of the Parent company 36.0% 32.9% EBITDA margin improved due to faster increase in revenues from tuition and other school fees, the Group’s main source of revenues, as compared to direct and operating costs. 9.1% 13.8% Gross profit divided by total revenues 68.4% 68.0% Current ratio Current assets divided by Current liabilities 1.12:1.00 5.46:1.00 Debt to equity ratio Total liabilities divided by Total equity 0.16:1.00 0.05:1.00 Net income attributable to equity holders of the Parent Company decreased by 12% or P96.3 million from P777.4 million in 2013 to P681.1 million in 2014. Meantime, Equity attributable to equity holders of the parent company increased by 33%. Increase in gross profit margin resulted mainly from the increase in the number of students of STI ESG and its subsidiaries from 68,363 last year to 71,195 students this year resulting to increased revenues from tuition and other school fees. The substantial decrease in current ratio as of March 31, 2014 is due to the payments made for acquisition of property and equipment in accordance with the expansion plan and payments for the acquisition of WNU. Slight increase due to payables to contractors for building construction and to former shareholders for Return equity on Gross margin profit 14 WNU acquisition as well as loans incurred for shortterm working capital requirements. Financial Risk Disclosure The Group’s present activities expose it to liquidity risk, credit risk, interest rate risk and equity price risk. Liquidity risk – Liquidity risk relates to the possibility that the Group might not be able to settle its obligations/commitments as they fall due. To cover its financing requirements, the Group uses internally-generated funds and avails of various bank loans. On November 7, 2012 the Company received the proceeds from its follow on offering. The usage of funds is in line with the plan as approved by the SEC and the PSE. There are unutilized funds as of the end of the fiscal year, which funds are invested in short-term bank deposits that provide flexibility of withdrawing the funds anytime. The Group regularly evaluates available financial products and monitors market conditions for opportunities to enhance yields at acceptable risk levels. Credit risk – Credit risk is the risk that the Group will incur a loss arising from students, franchisees or counterparties that fail to discharge their contractual obligations. The Group manages and controls credit risk by setting limits on the amount of risk that the Group is willing to accept for each counterparty and by monitoring expenses in relation to such limits. It is STI ESG’s policy to require students to pay all their tuition and other incidental fees before they can get their report cards and other credentials. Receivable balances are monitored such that exposure to bad debts is minimal. STI Holdings’ loan exposure to Unlad and PWU are secured by real estate mortgages which minimize the credit risk to these institutions. Agreements/Commitments and Contingencies/Other Matters a. There are no changes in accounting estimates used in the preparation of the audited consolidated financial statements for the current and prior financial periods. b. Except for STI Holdings’ commitments under the JVA with PWU, Unlad and a private individual and under the Shareholders’ Agreement governing the aforementioned parties’ relationship as shareholders of the joint venture company, there are no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the company with unconsolidated entities or other persons created during the reporting period. c. On June 3, 2013, STI ESG executed a deed of pledge on all its shares in the Hospital in favor of Neptune Stroika Holdings, Inc., a wholly owned subsidiary of MPIC, to cover the indemnity obligations of STI ESG enumerated in the Investment Agreement with MPIC. d. There are no material events and uncertainties known to management that would address the past and would have an impact on future operations of the Group. e. There are no known trends, demands, commitments, events of uncertainties that will have an impact on the Group’s liquidity except for the contingencies and commitments 15 enumerated in Note 29 of the Notes to Audited Consolidated Financial Statements attached as Annex “A”. f. Except for the conditions set forth in the accession made by STI Holdings to the JVA and Shareholders’ Agreement between PWU, Unlad, a private individual and Mr. Eusebio H. Tanco, there are no other events that will trigger direct or contingent financial obligations that is material to the Group, including any default or acceleration of an obligation. g. Construction of school buildings and improvements for STI Batangas, STI Cubao, STI Calamba and STI Lucena are ongoing as of March 31, 2014. Source of funds for the capital expenditures are provided by financing and internally-generated funds. h. The various loan agreements entered into by the Group provide certain restrictions and conditions with respect to, among others, change in majority ownership and management and maintenance of financial ratios. The Group is fully compliant with all the covenants of the loan agreements. Please see notes 16 and 33 of the Notes to Audited Consolidated Financial Statements of the Company attached as Annex “A”. i. The education landscape in the Philippines has changed with the introduction of the K+ 12 program which in summary adds two (2) years prior to tertiary education. For the schools in the Philippines that offer tertiary education, similar to STI ESG, this will mean two (2) academic years with no incoming college freshmen students. This threat has been constructively converted into an opportunity for the STI ESG network of campuses nationwide. STI ESG has decided to capitalize on its nationwide presence and ample facilities to be able to implement the first-to-market approach of the Senior High School program. Seventy three (73) STI Colleges and Education Center nationwide have applied for the advance implementation of Senior High School for SY 2014-15 and six (6) STI campuses for SY 2015-16. The Senior High School offering of STI ESG aims to minimize the impact of the expected reduction in enrollment since there will be no incoming freshmen during the transition period from Senior High School to College. Likewise, there is an opportunity for STI ESG to increase its student retention and migration when the students graduate in Senior High School and decide to pursue a Baccalaureate degree. j. There are no significant elements of income or loss that did not arise from the Group’s continuing operations. k. The Group’s business is linked to the academic cycle. The academic cycle which is one academic year starts in the month of June and ends in the month of March. The core business and revenues of the Group, which is mainly from tuition and other school fees, is recognized as income over the corresponding academic year to which they pertain. SEC FORM 17-A A COPY OF THE COMPANY’S ANNUAL REPORT ON SEC FORM 17-A WILL BE PROVIDED, WITHOUT ANY CHARGE, TO ANY STOCKHOLDER OF THE COMPANY UPON WRITTEN REQUEST ADDRESSED TO: ATTY. ARSENIO C. CABRERA, JR., CORPORATE SECRETARY, 5th FLOOR, SGV II BUILDING, 6758 AYALA AVENUE, MAKATI CITY, METRO MANILA, PHILIPPINES 1229. 16 SIGNATURE Pursuart to the requirements of the Securities Regulation Code, the Company has duly caused this report to be signed on its behalf by the undersigned hereurto duly authorized. 511 EDUCATION S11S HOLDINGS, INC. / Issur, ARS!NIO C. BRERA, JR. Corporat Secretary Date: B Augus: 2014 17 SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines Tel: (632) 891 0307 Fax: (632) 819 0872 ey.com/ph BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015 SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015 INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors STI Education Systems Holdings, Inc. We have audited the accompanying consolidated financial statements of STI Education Systems Holdings, Inc. (formerly JTH Davies Holdings, Inc.) and Subsidiaries, which comprise the consolidated statements of financial position as at March 31, 2014 and 2013, and the consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended March 31, 2014, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the Philippines as described in Note 2 to the consolidated financial statements, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. *SGVFS008027* A member firm of Ernst & Young Global Limited -2Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of STI Education Systems Holdings, Inc. and its subsidiaries as at March 31, 2014 and 2013, and their financial performance and their cash flows for each of the three years in the period ended March 31, 2014 in accordance with accounting principles generally accepted in the Philippines as described in Note 2 to the consolidated financial statements. SYCIP GORRES VELAYO & CO. Roel E. Lucas Partner CPA Certificate No. 98200 SEC Accreditation No. 1079-AR-1 (Group A), March 4, 2014, valid until March 3, 2017 Tax Identification No. 191-180-015 BIR Accreditation No. 08-001998-95-2014, January 22, 2014, valid until January 21, 2017 PTR No. 4225185, January 2, 2014, Makati City July 9, 2014 *SGVFS008027* A member firm of Ernst & Young Global Limited STI EDUCATION SYSTEMS HOLDINGS, INC. (Formerly JTH Davies Holdings, Inc.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION March 31 2014 April 1 2013 2012 (As restated - Note 2) ASSETS Current Assets Cash and cash equivalents (Notes 6, 30 and 31) Receivables (Notes 7, 12, 27, 30 and 31) Inventories (Note 8) Prepaid expenses and other current assets (Notes 9, 24, 25, 30 and 31) Total Current Assets Noncurrent Assets Property and equipment (Notes 10, 11 15, 16 and 25) Investment properties (Notes 11 and 16) Investments in and advances to associates and joint ventures (Notes 12, 27, 30 and 31) Noncurrent receivables (Notes 27, 30 and 31) Available-for-sale financial assets (Notes 14, 30 and 31) Deferred tax assets - net (Note 26) Goodwill, intangible and other noncurrent assets (Notes 15, 25, 30 and 31) Total Noncurrent Assets P1,489,451,909 P =583,302,563 = 250,773,204 297,350,741 34,740,103 37,833,467 P556,282,842 = 265,915,000 42,143,148 107,001,375 1,025,488,146 37,467,793 1,812,433,009 24,660,884 889,001,874 4,421,253,356 40,197,895 2,635,275,971 39,325,291 1,544,229,394 47,107,290 1,532,051,587 463,978,935 50,599,940 33,103,977 2,897,068,557 463,978,935 4,663,478 8,505,574 1,590,477,010 227,254,574 4,987,638 10,989,343 642,000,576 275,286,520 732,429,451 7,273,615,141 6,690,818,382 3,700,331,769 P8,503,251,391 = P4,589,333,643 P =8,299,103,287 = LIABILITIES AND EQUITY Current Liabilities Accounts payable and other current liabilities (Notes 17, 18, 30 and 31) Short-term loans (Notes 16, 30 and 31) Nontrade payable (Note 3) Current portion of long-term debt (Note 16) Current portion of obligations under finance lease (Note 25) Income tax payable Total Current Liabilities Noncurrent Liabilities Long-term debt - net of current portion (Note 16) Obligations under finance lease - net of current portion (Note 25) Pension liabilities (Note 24) Deferred tax liability (Notes 3 and 26) Total Noncurrent Liabilities Total Liabilities (Carried Forward) P =517,430,492 180,000,000 151,470,221 49,940,706 7,435,444 5,917,572 912,194,435 P =320,685,821 – – – 6,419,251 5,030,213 332,135,285 P =301,720,294 746,687,336 – – 9,741,235 2,015,617 1,060,164,482 58,465,494 – – 11,430,653 60,875,268 127,967,442 258,738,857 1,170,933,292 13,339,807 22,420,108 – 35,759,915 367,895,200 8,956,367 54,774,132 – 63,730,499 1,123,894,981 *SGVFS008027* -2- 2014 April 1 2013 2012 (As restated - Note 2) P =1,170,933,292 =367,895,200 P P =1,123,894,981 March 31 Total Liabilities (Brought Forward) Equity Attributable to Equity Holders of the Parent Company (Note 18) Capital stock Additional paid-in capital Cost of shares held by a subsidiary Unrealized mark-to-market gain (loss) on available-for-sale financial assets (Note 14) Share in associates’ unrealized mark-to-market gain on available-for-sale financial assets (Note 12) Cumulative actuarial gain (loss) Share in associates’ cumulative actuarial gain (loss) (Note 12) Other equity reserve (Note 3) Retained earnings: Appropriated Unappropriated Total Equity Attributable to Equity Holders of the Parent Company Equity Attributable to Non-controlling Interests Total Equity 4,952,403,462 1,119,079,467 (500,009,337) 4,952,403,462 1,119,079,467 (500,009,337) (525,048) (121,773) 428,253,571 1,905,291,022 21,253,817 18,014,452 (6,845,516) (15,003,756) (1,653,497,803) (1,649,448,394) – 2,690,263,952 800,000,000 1,351,532,167 551,500,000 77,592,234 (500,009,337) 207,684 1,039,792,823 (12,708,006) 2,882,164 648,667,134 800,000,000 668,155,173 7,038,978,960 7,993,134,915 3,276,079,869 142,221,276 189,358,793 89,191,035 7,128,169,995 8,135,356,191 3,465,438,662 P8,503,251,391 = P4,589,333,643 P =8,299,103,287 = See accompanying Notes to Consolidated Financial Statements. *SGVFS008027* STI EDUCATION SYSTEMS HOLDINGS, INC. (Formerly JTH Davies Holdings, Inc.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME REVENUES Sale of services: Tuition and other school fees Educational services Royalty fees Others Sale of goods Sale of educational materials and supplies COSTS AND EXPENSES Cost of educational services (Note 20) Cost of educational materials and supplies sold (Note 21) General and administrative expenses (Note 22) INCOME BEFORE OTHER INCOME AND INCOME TAX OTHER INCOME (EXPENSES) Equity in net earnings (losses) of associates and joint ventures (Note 12) Loss on deemed sale and share swap of an associate (Note 14) Excess of fair values of net assets acquired over acquisition cost from a business combination (Note 3) Interest income (Note 19) Interest expense (Note 19) Rental income (Notes 11, 25 and 27) Gain (loss) on sale of: Property and equipment Investment properties Investment in an associate Available-for-sale financial assets (Note 14) Dividend and other income INCOME BEFORE INCOME TAX (Carried Forward) 2014 Years Ended March 31 2013 2012 (As restated - Note 2) P =1,622,310,418 182,182,989 16,294,660 38,857,459 =1,357,315,423 = P P1,272,721,163 177,944,697 168,612,940 15,840,267 16,032,509 64,894,222 68,687,863 58,001,750 1,917,647,276 53,943,516 1,669,938,125 50,732,590 1,576,787,065 553,019,985 485,410,056 481,856,696 53,341,680 838,510,401 1,444,872,066 49,489,639 745,328,724 1,280,228,419 39,537,202 688,262,078 1,209,655,976 472,775,210 389,709,706 367,131,089 232,818,520 428,251,940 (37,574,331) (43,000,287) – – 32,681,078 12,199,579 (10,926,797) 10,792,540 – 34,723,888 (18,831,366) 4,610,690 – 16,198,233 (33,865,444) 5,363,360 706,578 – – – 510,329 235,781,540 795,160 (2,306,813) – – 440,507 447,684,006 – – (1,124,356) 4,679,557 2,877,934 (43,445,047) 708,556,750 837,393,712 323,686,042 *SGVFS008027* -2- 2014 INCOME BEFORE INCOME TAX (Brought Forward) PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 26) Current Deferred NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) Items to be reclassified to profit or loss in subsequent years: Share in associates’ unrealized mark-to-market gain (loss) on available-for-sale financial assets, net of realized mark-to-market gain recognized to profit or loss (Note 12) Unrealized mark-to-market loss on available-for-sale financial assets (Note 14) Realized mark-to-market gain on available-for-sale financial assets recognized to profit or loss (Note 14) Items not to be reclassified to profit or loss in subsequent years: Share in associates’ remeasurement gain (loss) on pension liability (Notes 2 and 12) Remeasurement gain (loss) on pension liability (Notes 2 and 24) Income tax effect (Note 2) TOTAL COMPREHENSIVE INCOME (LOSS) Net Income Attributable To Equity holders of the Parent Company Non-controlling interests Total Comprehensive Income Attributable To Equity holders of the Parent Company Non-controlling interests Basic/Diluted Earnings Per Share on Net Income Attributable to Equity Holders of the Parent Company (Note 28) P =708,556,750 70,633,909 (17,275,026) 53,358,883 Years Ended March 31 2013 2012 (As restated - Note 2) P =837,393,712 44,333,135 (1,380,231) 42,952,904 P =323,686,042 28,388,054 3,839,271 32,227,325 655,197,867 794,440,808 291,458,717 (1,496,110,186) 846,474,380 909,831,490 (409,190) – (1,496,519,376) (324,160) – 846,150,220 (2,708,603) (4,679,557) 902,443,330 (8,272,379) (9,938,783) 3,003,867 (3,732,410) 411,355 (11,593,434) 38,640,001 (3,864,000) 24,837,218 (14,716,241) 1,471,624 (10,240,750) (P =852,914,943) P =1,665,428,246 P =1,183,661,297 P =681,123,230 (25,925,363) P =655,197,867 =777,415,889 P 17,024,919 =794,440,808 P =287,028,095 P 4,430,622 =291,458,717 P (P =807,556,959) (45,357,984) (P =852,914,943) =1,630,224,880 P 35,203,366 =1,665,428,246 P =1,143,096,185 P 40,565,112 =1,183,661,297 P P =0.069 P =0.096 P =0.044 See accompanying Notes to Consolidated Financial Statements. *SGVFS008027* STI EDUCATION SYSTEMS HOLDINGS, INC. (Formerly JTH Davies Holdings, Inc.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED MARCH 31, 2014, 2013 AND 2012 Equity Attributable to Equity Holders of the Parent Company Capital Stock Additional Paid-in Capital Unrealized Mark-to-Market Gain (Loss) on AvailableCost of Shares Held by for-Sale Financial a Subsidiary Assets Balance at April 1, 2013 Effect of change in accounting policy on employee benefits (see Note 3) Balance at April 1, 2013, as restated Net income Other comprehensive loss Total comprehensive income (loss) Reversal of appropriation of retained earnings (Note 18) Dividend declaration (Note 18) Reallocation of non-controlling interests (Note 3) Share of non-controlling interest on dividends declared by a subsidiary (Note 18) = P4,952,403,462 = P1,119,079,467 (P = 500,009,337) (P = 121,773) – 4,952,403,462 – – – – 1,119,079,467 – – – – (500,009,337) – – – – (121,773) – (403,884) (403,884) – – – – – – – – Balance at March 31, 2014 = P4,952,403,462 = P1,119,079,467 (P = 500,009,337) (P = 525,048) =551,500,000 P =77,592,234 P (P =500,009,337) – 551,500,000 – 77,592,234 – (500,009,337) 2,950,903,462 1,450,000,000 – – – – – – 1,041,487,233 – – – – – – – – – – – – – =4,952,403,462 P – =1,119,079,467 P Balance at April 1, 2012 Effect of change in accounting policy on employee benefits (see Note 3) Balance at April 1, 2012, as restated Issuance of shares through Share Swap (Notes 1, 3 and 18) Issuance of shares through offering (Notes 1 and 18) Net income Other comprehensive income (loss) Total comprehensive income (loss) Dividend declaration (Note 18) Acquisition of non-controlling interests (Note 3) Share of non-controlling interest on dividends declared by a subsidiary (Note 18) Balance at March 31, 2013 – – – – – (P =500,009,337) – – 609 – Share in Associates’ Unrealized Mark-to-Market Gain on Availablefor-Sale Financial Assets = P1,905,291,022 Cumulative Actuarial Gain (Loss) = P– – 1,905,291,022 – (1,476,876,802) (1,476,876,802) 21,253,817 21,253,817 – (3,232,884) (3,232,884) – – (160,649) – – (6,481) Share in Associates’ Cumulative Actuarial Gain (Loss) = P– (6,845,516) (6,845,516) – (8,166,619) (8,166,619) – – 8,379 – – = P428,253,571 = P18,014,452 =207,684 P =1,039,792,823 P = P– = P– – 207,684 – 1,039,792,823 (12,708,006) (12,708,006) 2,882,164 2,882,164 – – – (306,875) (306,875) – (22,582) – – – 828,598,831 828,598,831 – 36,899,368 – – – 34,327,694 34,327,694 – (365,871) – – – (9,810,659) (9,810,659) – 82,979 – (P =121,773) – =1,905,291,022 P – (P =6,845,516) – =21,253,817 P – (P = 15,003,756) Other Equity Reserve Retained Earnings Appropriated Unappropriated = P800,000,000 – (1,649,448,394) – – – – 800,000,000 – – – (322,336) 1,351,532,167 681,123,230 – 681,123,230 14,085,965 7,993,134,915 681,123,230 (1,488,680,189) P(807,556,959) (800,000,000) – – 800,000,000 (142,391,445) – – (142,391,445) (4,207,551) – – (4,049,409) – = P1,351,854,503 Total (P = 1,649,448,394) = P7,979,048,950 Equity Attributable to NonControlling Interests = P142,037,319 183,957 142,221,276 (25,925,363) (19,432,621) (45,357,984) – – 3,354,426 14,269,922 8,135,356,191 655,197,867 (1,508,112,810) (852,914,943) – (142,391,445) (853,125) – – – = P– = P2,690,263,952 = P7,038,978,960 = P89,191,035 = P7,128,169,995 =648,667,134 P =800,000,000 P =668,670,934 P =3,286,421,472 P =189,795,480 P =3,476,216,952 P – 648,667,134 – 800,000,000 (515,761) 668,155,173 (10,341,603) 3,276,079,869 (436,687) 189,358,793 (10,778,290) 3,465,438,662 (2,367,194,841) – – – – – 69,079,313 – – – – – – – – – 777,415,889 – 777,415,889 (94,024,046) (14,849) 583,708,621 2,491,487,233 777,415,889 852,808,991 1,630,224,880 (94,024,046) 105,658,358 25,302,729 – 17,024,919 18,178,447 35,203,366 – (105,658,358) 609,011,350 2,491,487,233 794,440,808 870,987,438 1,665,428,246 (94,024,046) – – (P =1,649,448,394) – =800,000,000 P (1,985,254) =142,221,276 P (1,985,254) =8,135,356,191 P (P = 1,653,497,803) – =1,351,532,167 P – =7,993,134,915 P (11,026,683) Total Equity = P8,121,086,269 (11,026,683) *SGVFS008027* -2- Equity Attributable to Equity Holders of the Parent Company Unrealized Mark-to-Market Gain (Loss) on Cost of Shares AvailableHeld by for-Sale Financial a Subsidiary Assets Share in Associates’ Unrealized Mark-to-Market Gain on Availablefor-Sale Financial Assets Cumulative Actuarial Gain Share in Associate’s Cumulative Actuarial Gain Other Equity Reserve Total Equity Attributable to NonControlling Interests Total Equity Capital Stock Additional Paid-in Capital Balance at April 1, 2011 Restatement arising from business combination under common control (see Note 3) Balance at April 1, 2011, as restated Issuance of shares Subscription of the Parent Company's shares by a subsidiary Net income Other comprehensive income (loss) Total comprehensive income (loss) Dividend declaration (Note 18) Appropriation of retained earnings (Note 18) Movement in equity adjustment Transaction with non-controlling interest through: Subscription of shares of a subsidiary Redemption of treasury shares by a subsidiary Share of non-controlling interest on dividends declared by a subsidiary (Note 18) =153,591,106 P = P– = P– =7,283,059 P =166,823,516 P = P– = P– =727,367,827 P =– P =1,186,716,570 P =2,241,782,078 P =226,846,960 P =2,468,629,038 P – 153,591,106 397,908,894 – – 77,592,234 – – – – 7,283,059 – – 166,823,516 – – – – – – – – 727,367,827 – – – – 554,152 1,187,270,722 – 554,152 2,242,336,230 475,501,128 23,399 226,870,359 – 577,551 2,469,206,589 475,501,128 – – – – – – – – – – – – – – – – (7,075,375) (7,075,375) – – – – – 872,969,307 872,969,307 – – – (500,009,337) 287,028,095 856,068,090 1,143,096,185 (6,143,644) – (80,811,543) – 4,430,622 36,134,490 40,565,112 – – – (500,009,337) 291,458,717 892,202,580 1,183,661,297 (6,143,644) – (80,811,543) – – – – – – – – – – – – – – 2,110,850 – – – – – 2,110,850 – (2,110,850) (3,965,828) – (3,965,828) – – – – – – – – – – – (72,000,000) (72,000,000) Balance at March 31, 2012, as restated =551,500,000 P =77,592,234 P (P =500,009,337) =207,684 P =1,039,792,823 P =2,882,164 P =648,667,134 P =800,000,000 P =668,155,173 P =3,276,079,869 P (500,009,337) – – – – – – – – (12,708,006) (12,708,006) (P =12,708,006) – – 2,882,164 2,882,164 – – – – – – – – – (80,811,543) Retained Earnings Appropriated Unappropriated – – – – – 800,000,000 – – 287,028,095 – 287,028,095 (6,143,644) (800,000,000) – =189,358,793 P =3,465,438,662 P See accompanying Notes to Consolidated Financial Statements *SGVFS008027* STI EDUCATION SYSTEMS HOLDINGS, INC. (Formerly JTH Davies Holdings, Inc.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31 2013 2012 (As restated - Note 2) 2014 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Equity in net losses (earnings) of associates and joint ventures (Note 12) Depreciation and amortization (Notes 10, 11 and 15) Loss on deemed sale and share swap of an associate (Note 14) Excess of fair values of net assets acquired over acquisition costs (Note 3) Interest income (Notes 19) Interest expense (Note 19) Pension expense (Note 24) Provision for (reversal of) impairment losses on: Investment in and advances to an associate Goodwill Loss (gain) on sale of: Property and equipment Available-for-sale financial assets Investment in an associate Investment properties Dividend income Operating income before working capital changes Decrease (increase) in: Receivables Inventories Prepaid expenses and other current assets Decrease in accounts payable and other current liabilities Contributions to plan assets Net cash generated from operations Income and other taxes paid Interest received Net cash flows provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Property and equipment (Note 10) Subsidiary, net of cash acquired Intangible assets Available-for-sale financial assets Investment properties Available-for-sale financial assets Decrease (increase) in: Goodwill, intangible and other noncurrent assets Investments in and advances to associates and joint ventures Noncurrent receivables P =708,556,750 =837,393,712 P =323,686,042 P (232,818,520) 205,551,974 (428,251,940) 156,430,779 37,574,331 144,450,351 43,000,287 (32,681,078) (12,199,579) 10,926,797 10,133,891 (719,873) – – – – (34,723,888) 18,831,366 19,256,755 – (16,198,233) 33,865,444 5,151,804 4,120,636 – 3,047,124 3,383,556 (706,578) – – – (510,329) 698,533,742 (795,160) – – 2,306,813 (440,507) 574,128,566 – (4,679,557) 1,124,356 – (2,835,783) 528,569,435 12,319,381 (2,949,649) (4,452,498) (103,970,320) (20,244,897) 579,235,759 (134,479,338) 9,613,127 454,369,548 (39,846,971) 7,403,045 (14,759,440) (27,126,618) (12,970,779) 486,827,803 (37,928,948) 11,258,718 460,157,573 437,716,452 (7,732,531) (11,392,828) (21,432,295) (7,733,288) 917,994,945 (24,562,000) 7,437,611 900,870,556 (1,049,885,679) (1,539,623,771) – (200,913,272) – (24,577,384) – (19,519,759) – (3,981,559) – – (255,301,730) – – (80,811,545) (3,096,000) (7,951,224) (13,244,087) (223,998,027) (34,447,337) 21,089,801 (223,979,084) (65,656,047) 24,346,108 – (Forward) *SGVFS008027* -2Years Ended March 31 2013 2012 (As restated - Note 2) 2014 Dividends received Interest received Proceeds from sale of: Property and equipment Available-for-sale financial assets Investment in an associate Investment properties Proceeds from deposit for future stock subscription of noncontrolling interests Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from availments of long-term debts Dividends paid Payments of: Short-term loans Long-term debts Obligations under finance lease Dividends to non-controlling interest Interest Proceeds from: Issuance of capital stock Issuance of subsidiary’s shares Availments of short-term loans (Note 16) Sale of treasury shares by a subsidiary Acquisition of the Parent Company’s shares by STI ESG Redemption of treasury shares by a subsidiary Net cash flows provided by (used in) financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS P =8,117,279 2,812,228 P14,371,696 = 10,599,965 P4,787,881 = 6,237,344 1,798,746 – – – 1,967,660 – – 3,500,000 – 48,013,237 2,335,480 – 39,475 (1,327,419,864) – (1,754,377,788) – (515,171,953) 280,000,000 (153,170,255) – (101,017,657) – (6,105,785) (100,000,000) (40,677,196) (8,291,192) (7,869,976) (3,090,411) (1,285,687,336) – (6,572,944) – (18,831,366) (913,000,000) – (1,016,625) (72,000,000) (30,719,156) – – – – – – (33,099,030) 2,475,977,202 608,807,586 539,000,000 15,713,797 – – 2,227,389,282 475,501,128 – 746,000,000 – (500,009,337) (3,965,828) (305,315,603) (906,149,346) 933,169,067 80,383,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,489,451,909 556,282,842 475,899,842 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 6) P =583,302,563 P =1,489,451,909 P =556,282,842 See accompanying Notes to Consolidated Financial Statements.. *SGVFS008027* STI EDUCATION SYSTEMS HOLDINGS, INC. (Formerly JTH Davies Holdings, Inc.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information a. General STI Education Systems Holdings, Inc. (formerly JTH Davies Holdings, Inc., “STI Holdings” or the “Parent Company”) and its subsidiaries (hereafter collectively referred to as the “Group”) are all incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (“SEC”). STI Holdings was originally established in 1928 as the Philippine branch office of Theo H. Davies & Co., a Hawaiian corporation. It was reincorporated as a Philippine corporation and registered with the SEC on June 28, 1946. STI Holdings’ shares were listed on the Philippine Stock Exchange (“PSE”) on October 12, 1976. On June 25, 1996, the SEC approved the extension of the Parent Company’s corporate life for another 50 years. The primary purpose of the Parent Company is to invest in, purchase or otherwise acquire and own, hold, use, sell, assign, transfer, lease, mortgage, pledge, exchange, or otherwise dispose of real properties as well as personal and movable property of any kind and description, including shares of stock, bonds, debentures, notes, evidence of indebtedness and other securities or obligations of any corporation or corporations, association or associations, domestic or foreign and to possess and exercise in respect thereof all the rights, powers and privileges of ownership, including all voting powers of any stock so owned, but not to act as dealer in securities and to invest in and manage any company or institution. STI Holdings aims to focus on education and education-related activities and investments. STI Holdings’ registered office address, which is also its principal place of business, is at 7/F, iAcademy Building, 6764 Ayala Avenue, Makati City. b. Change in ownership of STI Holdings i) STI Education Services Group, Inc. (“STI ESG”) and Capital Managers and Advisors, Inc. (“CMA”) owns 45.54% and 45.50%, respectively, of STI Holdings’ shares as of March 31, 2012 (see Note 18). On June 14, 2012 and August 10, 2012, the Board of Directors (“BOD”) and stockholders of STI Holdings, respectively, approved the following: (i) change in its corporate name to STI Education Systems Holdings, Inc., (ii) the share-for-share swap agreement (“Share Swap”) with the shareholders of STI ESG (“STI ESG Stockholders”) and (iii) the corresponding increase in its authorized capital stock from 1,103,000,000 shares with an aggregate par value of P =551.5 million to 10,000,000,000 shares with an aggregate par value of = P5,000.0 million (see Notes 3 and 18). The change in corporate name was approved by the SEC on September 10, 2012 while the Share Swap agreement and increase in the authorized capital stock were approved on September 28, 2012. In view of the increase in its authorized capital stock and pursuant to the Share Swap, STI Holdings issued 5,901,806,924 shares to STI ESG Stockholders in exchange for 907,970,294 STI ESG shares. As a result, immediately after the Share Swap, the STI ESG Stockholders who joined the Share Swap owned approximately 84% interest in STI Holdings while STI Holdings owned 96% of STI ESG (see Notes 3 and 18). *SGVFS008027* -2ii) On August 28, 2012, the BOD approved the offering and issuance by way of a follow-on offering of up to a maximum 3,000,000,000 common shares (the “Offer”) at an offer price to be determined based on a bookbuilding process and from discussion between STI Holdings and the International Lead Manager and Domestic Lead Manager. The Offer comprised of the following: (i) up to 2,627,000,000 common shares offered to the public on a primary basis (“Primary Offering”); (ii) up to 105,209,527 common shares offered to the public on a secondary basis by Korea Merchant Banking Corporation (“Secondary Offering”); and (iii) over-allotment option to purchase up to 273,000,000 common shares (“Over-allotment Option”), granted to UBS AG, in its role as Stabilizing Agent, on the same terms and conditions as the Primary Offering and Secondary Offering. The offer price was set at = P0.90 per share on October 22, 2012. The Primary Offering and Secondary Offering were completed on November 7, 2012 while the Over-allotment Option was exercised on November 28, 2012 (see Note 18). iii) In November and December 2012, STI Holdings subscribed to 2,100,000,000 STI ESG shares at a consideration price equal to its par value of P =2,100.0 million. In July 2013, STI Holdings acquired additional 328,125 STI ESG shares. As a result, STI Holdings’ ownership interest in STI ESG is approximately 99% as of March 31, 2014 and 2013. c. STI Education Services Group, Inc. and Subsidiaries (collectively referred to as “STI ESG”) The Group has investments in several entities which own and operate STI ESG schools. STI ESG is involved in establishing, maintaining, and operating educational institutions to provide pre-elementary, elementary, secondary, and tertiary as well as post-graduate courses, postsecondary and lower tertiary non-degree programs. STI ESG also develops, adopts and/or acquires, entirely or in part, such curricula or academic services as may be necessary in the pursuance of its main activities, relating but not limited to information technology services, information technology-enabled services, nursing, education, hotel and restaurant management, engineering, business studies and care-giving. Other activities of STI ESG include computer services, such as, but not limited to, programming, systems design and analysis, feasibility studies, installation support, job processing, consultancy, and other related activities. d. West Negros University Corp. (“WNU”) WNU owns and operates West Negros University in Bacolod City. It offers pre-elementary, elementary, secondary and tertiary education and graduate courses. On October 1, 2013, the Parent Company acquired 99.45% of the issued and outstanding common shares and 99.93% of the issued and outstanding preferred shares of WNU. As a result, WNU became a subsidiary of STI Holdings as of March 31, 2014 (see Note 3). On July 9, 2014, WNU’s BOD approved WNU’s change of its corporate name to “STI West Negros University.” The said amendment is to be submitted for approval of WNU’s stockholders during its Annual Stockholders’ Meeting on July 25, 2014. The accompanying consolidated financial statements were approved and authorized by the BOD of STI Holdings on July 9, 2014. *SGVFS008027* -3- 2. Basis of Preparation, Basis of Consolidation, Changes to the Group’s Accounting Policies and Summary of Significant Accounting Policies Basis of Preparation The accompanying consolidated financial statements have been prepared on a historical cost basis, except for certain available-for-sale (“AFS”) financial assets which have been measured at fair value. The consolidated financial statements are presented in Philippine peso, which is the Parent Company’s functional and presentation currency, and all values are rounded to the nearest peso, except when otherwise indicated. Statement of Compliance The accompanying consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the Philippines, which includes all applicable Philippine Financial Reporting Standards (PFRS). PFRS also include Philippine Accounting Standards (PAS) and Philippine Interpretations based on equivalent interpretations from the International Financial Reporting Interpretations Committee (IFRIC) adopted by the Philippine Financial Reporting Standards Council (FRSC), and the accounting standards set forth in the Pre-Need Rule 31, As Amended: Accounting Standards for Pre-Need Plans and Pre-Need Uniform Chart of Accounts (PNUCA) as required by the SEC for PhilPlans First, Inc. (PhilPlans). PhilPlans is a wholly owned subsidiary of STI Investments, Inc. (“STI Investments”), an associate. Consequently, the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the Philippines. Basis of Consolidation The consolidated financial statements comprise the financial statements of the Parent Company and its subsidiaries as at March 31, 2014 and 2013. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Parent Company controls an investee, if and only if, the Parent Company has: § Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) § Exposure, or rights, to variable returns from its involvement with the investee, and § The ability to use its power over the investee to affect its returns When the Parent Company has less than a majority of the voting or similar rights of an investee, the Parent Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including: § The contractual arrangement with the other vote holders of the investee § Rights arising from other contractual arrangements § The Parent Company’s voting rights and potential voting rights The consolidated financial statements include the accounts of STI College Kalookan, Inc. (STI-Kalookan) and STI College of Novaliches, Inc. (STI-Novaliches), which are both non-stock corporations wherein the Parent Company has control by virtue of management contracts. The Parent Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Parent Company obtains control over the subsidiary and ceases when the Parent Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of *SGVFS008027* -4comprehensive income from the date the Parent Company gains control until the date the Parent Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the Parent Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Parent Company loses control over a subsidiary, it: § § § § § § § Derecognizes the assets (including goodwill) and liabilities of the subsidiary; Derecognizes the carrying amount of any non-controlling interest; Derecognizes the unrealized other comprehensive income deferred in equity; Recognizes the fair value of the consideration received; Recognizes the fair value of any investment retained; Recognizes any surplus or deficit in profit or loss; and Reclassifies the Parent Company’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate. As at March 31, 2014 and 2013, subsidiaries of STI Holdings include: Subsidiary STI ESG WNU(a) Information and Communications Technology Academy, Inc. (iAcademy) STI College Tuguegarao, Inc. (STI-Tuguegarao) STI-Kalookan (b) STI-Novaliches (b) STI College of Batangas, Inc. (STI-Batangas)(c) STI Dagupan, Inc. (STI-Dagupan) STI College Taft, Inc. (STI-Taft) De Los Santos - STI College STI College Quezon Avenue, Inc. (STI-QA)(d) (a) Principal Activities Educational Institution Educational Institution Educational Institution Educational Institution Educational Institution Educational Institution Educational Institution Educational Institution Educational Institution Educational Institution Educational Institution Effective Percentage of Ownership 2013 2014 Direct Indirect Direct Indirect – 99 – 99 – – – 99 – – – – – – – – 100 100 100 100 100 77 75 52 52 – – – – – – – – 100 100 100 100 – 77 75 52 52 Became a subsidiary of the Parent Company in October 2013 A subsidiary of STI ESG through a management contract (c) Became a subsidiary of STI ESG in June 2013 (d) A wholly owned subsidiary of De Los Santos - STI College (b) On December 9, 2010, STI ESG’s stockholders approved the following mergers: § Phase 1: The merger of three (3) majority owned schools and fourteen (14) wholly owned schools with STI ESG, with STI ESG as the surviving entity. The Phase 1 merger was approved by the Commission on Higher Education (CHED) and the SEC on March 15, 2011 and May 6, 2011, respectively. § Phase 2: The merger of one (1) majority owned school and eight (8) wholly owned preoperating schools with STI ESG, with STI ESG as the surviving entity. The Phase 2 merger was approved by the CHED and the SEC on July 18, 2011 and August 31, 2011, respectively. *SGVFS008027* -5As at July 9, 2014, STI ESG’s request for confirmatory ruling on the tax-free merger from the BIR is still pending. On September 25, 2013, STI ESG’s BOD approved the Phase 3 merger whereby STI-Taft and STI-Dagupan will be merged with STI ESG, with STI ESG as the surviving entity. As at July 9, 2014, STI ESG has not filed for approval from the CHED and the SEC. On the same date, STI ESG’s BOD approved an amendment to the Phase 1 and 2 mergers whereby STI ESG would issue shares at par value, to the stockholders of the non-controlling interests. As at July 9, 2014, the amendment is pending approval by the SEC. In 2014, STI ESG issued additional shares at par value to the stockholders of one of the merged schools (see Note 3). Accounting Policies of Subsidiaries. The financial statements of subsidiaries are prepared using uniform accounting policies for like transactions and other events in similar circumstances. The consolidated financial statements include the accounts of the Parent Company and its subsidiaries as at March 31 of each year, except for the accounts of STI-Dagupan, STI-Tuguegarao, STI-Kalookan and STI-Novaliches whose financial reporting date ends on December 31. Adjustments are made for the effects of significant transactions or events that occur between the financial reporting date of the above-mentioned subsidiaries and the financial reporting date of the Group’s consolidated financial statements. Non-Controlling Interests. Non-controlling interests represent the portion of profit or loss and net assets in the subsidiaries not held by the Parent Company and are presented in the profit or loss and within equity in the consolidated statement of financial position, separately from equity attributable to equity holders of the Parent Company. On transactions with non-controlling interests without loss of control, the difference between the fair value of the consideration and the book value of the share in the net assets acquired or disposed is treated as an equity transaction and is presented as part of “Other equity reserve” within equity section in the consolidated statement of financial position. Changes in Accounting Policies, Disclosures and Presentation The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the new and amended PFRS that became effective beginning on or after April 1, 2012. The changes introduced by such new standards and amendments are as follows: § PAS 19, Employee Benefits (Revised) For defined benefit plans, the Revised PAS 19 requires all actuarial gains and losses to be recognized in OCI and unvested past service costs previously recognized over the average vesting period to be recognized immediately in profit or loss when incurred. Prior to the adoption of the Revised PAS 19, the Group recognized actuarial gains and losses as income or expense when the net cumulative unrecognized gains and losses for each individual plan at the end of the previous period exceeded 10% of the higher of the defined benefit obligation and the fair value of the plan assets and recognized unvested past service costs as an expense on a straight-line basis over the average vesting period until the benefits become vested. Upon adoption of the Revised PAS 19, the Group changed its accounting policy to recognize all actuarial gains and losses in OCI and all past service costs in profit or loss in the period they occur. *SGVFS008027* -6The Revised PAS 19 replaced the interest cost and expected return on plan assets with the concept of net interest on defined benefit liability or asset which is calculated by multiplying the net balance sheet defined benefit liability or asset by the discount rate used to measure the employee benefit obligation, each as at the beginning of the annual period. The Revised PAS 19 also amended the definition of short-term employee benefits and requires employee benefits to be classified as short-term based on expected timing of settlement rather than the employee’s entitlement to the benefits. In addition, the Revised PAS 19 modifies the timing of recognition for termination benefits. The modification requires the termination benefits to be recognized at the earlier of when the offer cannot be withdrawn or when the related restructuring costs are recognized. Changes to the definition of short-term employee benefits and timing of recognition for termination benefits do not have any impact to the Group’s financial position and financial performance. The changes in accounting policies have been applied retrospectively. The effects of adoption on the consolidated financial statements are as follows: March 31, 2013 Increase (Decrease) April 1, 2012 (P =16,763,469) (1,063,180) (11,012,937) 18,014,444 (P =8,250,819) (2,502,305) (25,023,046) 21,253,817 P =2,036,863 1,423,906 14,239,059 (12,708,006) (15,003,756) (9,685,354) (6,845,516) (322,336) 2,882,164 (515,761) (139,046) 183,957 (436,687) March 31, 2014 Consolidated Statements of Financial Position Investments in and advances to associates and joint ventures Deferred tax asset Pension liabilities Cumulative actuarial gain Share in associates’ cumulative actuarial gain Retained earnings Equity attributable to non-controlling interests For the Years Ended March 31 2014 2013 Increase (Decrease) Consolidated Statements of Comprehensive Income Pension expense Equity in net earnings of associates and joint ventures Provision for deferred income tax Net income Other comprehensive income: Share in associates’ remeasurement gain (loss) on pension liability Remeasurement gain (loss) on pension liability Income tax effect =10,277,699 P 2012 (P =622,103) =164,541 P (240,271) (1,027,769) (9,490,200) (348,899) 62,210 210,994 (967,004) (16,454) (1,115,091) (8,272,379) (9,938,783) 3,003,867 (3,732,410) 411,355 38,640,001 (3,864,000) (14,716,241) 1,471,624 *SGVFS008027* -7The adoption did not have any significant impact on the consolidated statements of cash flows. § Philippine Interpretations Committee (PIC) Q&A No. 2013-03, PAS 19, Accounting for Employee Benefits under a Defined Contribution Plan subject to Requirements of RA No. 7641, The Philippine Retirement Law. This PIC Q&A seeks to provide guidance in accounting for post-employment benefits for an entity which has opted to provide a defined contribution plan as its only post-employment benefit plan despite the minimum retirement benefits required to be provided to employees under RA No. 7641. The benefits mandated under RA No. 7641 are considered as a minimum benefit guarantee for qualified private sector employees in the Philippines. Hence, an entity’s obligation for post-employment benefits is not limited to the amount it agrees to contribute to the fund. Therefore, the entity’s retirement plan shall be accounted for as a defined benefit plan. The relevant disclosure requirements of PAS 19 for a defined benefit plan should be complied with. In addition, the accounting policy describing the accounting treatment for such a plan should also be disclosed in the notes to financial statements. The defined contribution liability shall be recognized, and if there is an excess of the projected defined benefit obligation over the projected defined contribution obligation, the entity should apply the projected unit credit method on such excess to determine the additional liability. The PIC Q&A is effective for annual financial statements beginning on or after January 1, 2013 and requires retrospective application. Certain subsidiaries of the Group maintain a defined contribution plan that covers all regular full time employees under which they pay fixed contributions based on the employees’ monthly salaries. These entities, however, are covered under RA 7641, which provides a defined benefit minimum guarantee. The Group obtained the services of an external actuary to compute the impact on the consolidated financial statements upon adoption of the accounting interpretation and has determined that it did not have a significant impact on the consolidated financial statements. § PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendments) These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the consolidated statement of financial position; c) The net amounts presented in the consolidated statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: *SGVFS008027* -8i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above. The amendments to PFRS 7 are to be retrospectively applied. The amendments have no impact on the Group’s financial position or performance. § PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 required management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. A reassessment of control was performed by the Group on all its subsidiaries and associates in accordance with the provisions of PFRS 10. Following the reassessment and based on the new definition of control under PFRS 10, the Group determined that the adoption of this standard does not change its relationship over its subsidiaries and associates, therefore, has no impact on the Group’s financial position or performance. § PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities - Non-Monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Instead, jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method. There is no impact on the Group’s financial position or performance since its investments in joint ventures are accounted for under equity method in its consolidated financial statements. § PFRS 12, Disclosure of Involvement with Other Entities PFRS 12 includes all of the disclosures related to consolidated financial statements that were previously in PAS 27, as well as all the disclosures that were previously included in PAS 31 and PAS 28, Investments in Associates. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. The adoption of PFRS 12 will affect disclosures only and have no impact on the Group’s financial position or performance. § PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. This standard should be applied prospectively as of the beginning of the annual period in which it is initially applied. Its disclosure requirements need not be applied in comparative information provided for periods before initial application of PFRS 13. Additional disclosures were provided in Notes 11 and 31. *SGVFS008027* -9§ PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income or OCI (Amendments) The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement) will be presented separately from items that will never be recycled. The amendments affected presentation only and had no impact on the Group’s financial position or performance. § PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate financial statements. The adoption of the amended PAS 27 had no a significant impact on the separate financial statements of the entities in the Group. § PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The adoption of the revised standard did not have a significant impact on the consolidated financial statements. § Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal (stripping) costs incurred in surface mining activity, during the production phase of the mine. The interpretation addresses the accounting for the benefit from the stripping activity. This new interpretation is not relevant to the Group. § PFRS 1, First-time Adoption of International Financial Reporting Standards – Government Loans (Amendments) The amendments to PFRS 1 require first-time adopters to apply the requirements of PAS 20, Accounting for Government Grants and Disclosure of Government Assistance, prospectively to government loans existing at the date of transition to PFRS. However, entities may choose to apply the requirements of PAS 39, Financial Instruments: Recognition and Measurement, and PAS 20 to government loans retrospectively if the information needed to do so had been obtained at the time of initially accounting for those loans. These amendments are not relevant to the Group. Annual Improvements to PFRS (2009-2011 cycle). The Annual Improvements to PFRSs (20092011 cycle) contain non-urgent but necessary amendments to PFRSs. The Group adopted these amendments for the current year. § PFRS 1, First-time Adoption of PFRS – Borrowing Costs - The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with PAS 23, Borrowing Costs. The amendment does not apply to the Group as it is not a first-time adopter of PFRS. *SGVFS008027* - 10 § PAS 1, Presentation of Financial Statements – Clarification of the requirements for comparative information - These amendments clarify the requirements for comparative information that are disclosed voluntarily and those that are mandatory due to retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional comparative period does not need to contain a complete set of financial statements. On the other hand, supporting notes for the third statement of financial position (mandatory when there is a retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements) are not required. As a result of this clarification, except for employee defined benefit plan, the Group has not included comparative information in respect of the opening statement of financial position as at April 1, 2013. The amendments affect disclosures only and have no impact on the Group’s financial position or performance. § PAS 16, Property, Plant and Equipment – Classification of servicing equipment - The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory if otherwise. The amendment did not have any impact on the Group’s financial position or performance. § PAS 32, Financial Instruments: Presentation – Tax effect of distribution to holders of equity instruments - The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income Taxes. The amendment did not have any significant impact on the Group’s financial position or performance. § PAS 34, Interim Financial Reporting – Interim financial reporting and segment information for total assets and liabilities - The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the entity’s previous annual financial statements for that reportable segment. The amendment had no significant impact on the consolidated financial statements. New Accounting Standards, Interpretations and Amendments to Existing Standards Effective Subsequent to March 31, 2014 The Group will adopt the following revised standards, interpretations and amendments to existing standards enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these revised standards, interpretations and amendments to PFRS to have a significant impact on the consolidated financial statements. Effective in 2014 § PAS 36, Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets (Amendments) - These amendments remove the unintended consequences of PFRS 13 on the disclosures required under PAS 36, Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which impairment loss has been recognized or reversed during the period. These amendments are effective retrospectively for annual periods beginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 is also applied. *SGVFS008027* - 11 § Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27) - These amendments are effective for annual periods beginning on or after January 1, 2014. They provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss (FVPL). § Philippine Interpretation IFRIC 21, Levies - IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. § PAS 39, Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting (Amendments) - These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after January 1, 2014. § PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments) The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments affect presentation only and have no impact on the Group’s financial position or performance. Effective in 2015 § PFRS 9, Financial Instruments: Classification and Measurement PFRS 9, as issued, reflects the first phase on the replacement of PAS 39 and applies to the classification and measurement of financial assets and liabilities as defined in PAS 39, Financial Instruments: Recognition and Measurement. Work on impairment of financial instruments and hedge accounting is still ongoing, with a view to replacing PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through OCI or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward into PFRS 9, including the embedded derivative separation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 *SGVFS008027* - 12 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on the classification and measurement of financial liabilities. § Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The Philippine SEC and the FRSC have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. This interpretation is not relevant to the Group, thus, will not have any impact on Group’s financial position or performance. Annual Improvements to PFRSs (2010-2012 cycle). The Annual Improvements to PFRSs (20102012 cycle) contain non-urgent but necessary amendments to the following standards: § PFRS 2, Share-based Payment – Definition of Vesting Condition - The amendment revised the definitions of vesting condition and market condition and added the definitions of performance condition and service condition to clarify various issues. This amendment shall be prospectively applied to share-based payment transactions for which the grant date is on or after July 1, 2014. § PFRS 3, Business Combinations – Accounting for Contingent Consideration in a Business Combination - The amendment clarifies that a contingent consideration that meets the definition of a financial instrument should be classified as a financial liability or as equity in accordance with PAS 32. Contingent consideration that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of PAS 39, Financial Instruments: Recognition and Measurement. The amendment shall be prospectively applied to business combinations for which the acquisition date is on or after July 1, 2014. § PFRS 8, Operating Segments – Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets - The amendments require entities to disclose the judgment made by management in aggregating two or more operating segments. This disclosure should include a brief description of the operating segments that have been aggregated in this way and the economic indicators that have been assessed in determining that the aggregated operating segments share similar economic characteristics. The amendments also clarify that an entity shall provide reconciliations of the total of the reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the chief operating decision maker. These amendments are effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. § PFRS 13, Fair Value Measurement – Short-term Receivables and Payables - The amendment clarifies that short-term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial. *SGVFS008027* - 13 § PAS 16, Property, Plant and Equipment – Revaluation Method – Proportionate Restatement of Accumulated Depreciation - The amendment clarifies that, upon revaluation of an item of property, plant and equipment, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: – The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses. – The accumulated depreciation is eliminated against the gross carrying amount of the asset. The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. § PAS 24, Related Party Disclosures – Key Management Personnel - The amendments clarify that an entity is a related party of the reporting entity if the said entity, or any member of a group for which it is a part of, provides key management personnel services to the reporting entity or to the parent company of the reporting entity. The amendments also clarify that a reporting entity that obtains management personnel services from another entity (also referred to as management entity) is not required to disclose the compensation paid or payable by the management entity to its employees or directors. The reporting entity is required to disclose the amounts incurred for the key management personnel services provided by a separate management entity. The amendments are effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. § PAS 38, Intangible Assets – Revaluation Method – Proportionate Restatement of Accumulated Amortization - The amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: – The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses. – The accumulated amortization is eliminated against the gross carrying amount of the asset. The amendments also clarify that the amount of the adjustment of the accumulated amortization should form part of the increase or decrease in the carrying amount accounted for in accordance with the standard. The amendments are effective for annual periods beginning on or after July 1, 2014. The amendments shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. Annual Improvements to PFRSs (2011-2013 cycle). The Annual Improvements to PFRSs (20112013 cycle) contain non-urgent but necessary amendments to the following standards: § PFRS 1, First-time Adoption of Philippine Financial Reporting Standards – Meaning of ‘Effective PFRSs’ - The amendment clarifies that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but that permits early *SGVFS008027* - 14 application, provided either standard is applied consistently throughout the periods presented in the entity’s first PFRS financial statements. § PFRS 3, Business Combinations – Scope Exceptions for Joint Arrangements - The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively. § PFRS 13, Fair Value Measurement – Portfolio Exception - The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively. § PAS 40, Investment Property - The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as investment property or owner-occupied property. The amendment stated that judgment is needed when determining whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3. This amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively. The Group has not early adopted the above standards. The Group continues to assess the impact of the above new, amended and improved accounting standards and interpretations effective subsequent to March 31, 2014 on its consolidated financial statements in the period of initial application. Additional disclosures required by these amendments will be included in the consolidated financial statements when these amendments are adopted. Summary of Significant Accounting Policies Business Combination Involving Entities under Common Control Where there are business combinations in which all the combining entities within the Group are ultimately controlled by the same ultimate parent before and after the business combination and that the control is not transitory (“business combinations under common control”), the Group may account such business combinations under the acquisition method of accounting or pooling of interests method, if the transaction was deemed to have substance from the perspective of the reporting entity. In determining whether the business combination has substance, factors such as the underlying purpose of the business combination and the involvement of parties other than the combining entities such as the noncontrolling interest, shall be considered. In cases where the business combination has no substance, the Group shall account for the transaction similar to a pooling of interests. The assets and liabilities of the acquired entities and that of the Group are reflected at their carrying values. The difference in the amount recognized and the fair value of the consideration given, is accounted for as an equity transaction, i.e., as either a contribution or distribution of equity. Further, when a subsidiary is disposed in a common control transaction, the difference in the amount recognized and the fair value of the consideration received, is also accounted for as an equity transaction. The Group records the difference as excess of consideration over carrying amount of disposed subsidiary and presents as separate component of equity in the combined consolidated statement of financial position. Comparatives shall be restated to include balances and transactions of the entities had been acquired at the beginning of the earliest period presented as if the companies had always been combined. *SGVFS008027* - 15 Business Combination and Goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss. It is then considered in the determination of goodwill. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of PAS 39 is measured at fair value with changes in fair value recognized either in either profit or loss or as a change to OCI. If the contingent consideration is not within the scope of PAS 39, it is measured in accordance with the appropriate PFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. Current versus Noncurrent Classification The Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification. An asset is current when: § It is expected to be realized or intended to be sold or consumed in the normal operating cycle § It is held primarily for the purpose of trading § It is expected to be realized within twelve months after the reporting period, or § It is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period *SGVFS008027* - 16 All other assets are classified as noncurrent. A liability is current when: § It is expected to be settled in the normal operating cycle § It is held primarily for the purpose of trading § It is due to be settled within twelve months after the reporting period, or § There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Group classifies all other liabilities as noncurrent. Deferred tax assets and liabilities are classified as noncurrent assets and liabilities, respectively. Fair Value Measurement The Group measures financial instruments such as AFS financial assets at fair value at each reporting date. Also, fair values of financial instruments measured at amortized cost and investment properties are disclosed in the notes to the consolidated financial statements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: § In the principal market for the asset or liability, or § In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: § § § Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. *SGVFS008027* - 17 Management determines the policies and procedures for both recurring fair value measurement and non-recurring measurement. External valuers are involved for valuation of significant assets, such as investment property. Involvement of external valuers is decided upon annually. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. Management decides, after discussions with the external valuers, which valuation techniques and inputs to use for each case. At each reporting date, the management analyzes the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per accounting policies. For this analysis, the management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. Management, in conjunction with the Group’s external valuers, also compares each change in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of up to three months or less from date of acquisition and are subject to an insignificant risk of change in value. Financial Instruments - Initial Recognition and Subsequent Measurement Date of Recognition. The Group recognizes a financial asset or a financial liability in the consolidated statement of financial position when it becomes a party to the contractual provisions of the instrument. All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place. Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value. Transaction costs are included in the initial measurement of all financial assets and liabilities, except for financial instruments measured at fair value through profit or loss (FVPL). Day 1 Difference. Where the transaction price in a non-active market is different from the fair value from other observable current market transactions of the same instrument or based on a valuation technique whose variables include only data from an observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 difference) in the profit or loss unless it qualifies for recognition as some other type of asset. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in the profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the Day 1 difference amount. *SGVFS008027* - 18 Classification of Financial Instruments. A financial instrument is classified as liability if it provided for a contractual obligation to: (a) deliver cash or another financial asset to another entity; or (b) exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Group; or (c) satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group’s own shares. If the Group does not have the unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. Financial assets are categorized as either financial assets at FVPL, held-to-maturity (HTM) investments, loans and receivables or AFS financial assets. Financial liabilities, on the other hand, are categorized as financial liabilities at FVPL and other financial liabilities. The Group determines the classification at initial recognition and re-evaluates this designation at every reporting date, where appropriate. The Group has no financial instruments at FVPL and HTM investments. a. Loans and Receivables Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are measured at amortized cost using the effective interest rate method less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included in the interest income in profit or loss. Losses arising from impairment are recognized as provision for impairment loss on receivables in profit or loss. Loans and receivables are included in current assets when the Group expects to realize or collect the assets within 12 months from the financial reporting date. Otherwise, these are classified as noncurrent assets. The Group’s cash and cash equivalents, receivables (including noncurrent receivables), advances to associates and joint ventures (included under the “Investments in and advances to associates and joint ventures” account) and deposits (included under the “Prepaid expenses and other current assets” and “Goodwill, intangible and other noncurrent assets” accounts) are classified in this category (see Note 31). b. AFS Financial Assets AFS financial assets are those nonderivative financial assets that are not classified as at FVPL, loans and receivables or HTM investments. They are purchased and held indefinitely, and maybe sold in response to liquidity requirements or changes in market conditions. After initial measurement, AFS financial assets are subsequently measured at fair value with unrealized gains or losses being recognized under “Unrealized mark-to-market gain (loss) on available-for-sale financial assets” account in other comprehensive income until these are derecognized. When the investment is disposed of, the cumulative gain or loss previously recorded under “Unrealized mark-to-market gain on available-for-sale financial assets” account under equity is recycled to profit or loss. Interest earned on the investments is reported as interest income using the effective interest rate method. Dividends earned on investments are recognized in profit or loss when the right to receive payment has been *SGVFS008027* - 19 established. AFS financial assets are classified as noncurrent assets unless the intention is to dispose such assets within 12 months from financial reporting date. The fair value of AFS financial assets consisting of any investments that are actively traded in organized financial markets is determined by reference to quoted market bid prices at the close of business on the financial reporting date. The Group’s investments in club and ordinary shares are classified in this category (see Note 31). Unlisted investments in shares of stock for which no quoted market prices and no other reliable sources of their fair values are available, are carried at cost. c. Other Financial Liabilities Other financial liabilities at amortized cost pertain to issued financial instruments or their components that are not classified or designated at FVPL and contain contractual obligations to deliver cash or another financial asset to the holder as to settle the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The financial instruments are classified as current if they are expected to be settled or disposed of within 12 months from financial reporting date. Otherwise, these are classified as noncurrent. These include liabilities arising from operations such as accounts payable and other current liabilities (excluding unearned tuition and school fees, government and other statutory liabilities), short-term loans, long-term debt and nontrade payable (see Note 31). Impairment of Financial Assets The Group assesses at each reporting date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial Assets Carried at Amortized Cost. The Group first assesses whether an objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If there is an objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The *SGVFS008027* - 20 carrying amount of the asset is reduced through use of an allowance account and the amount of loss is charged to profit or loss. Interest income continues to be recognized based on the original effective interest rate of the asset. Loans and receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery and all collateral, if any, have been realized. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is later recovered, any amounts formerly charged are credited to profit or loss. The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as industry, collateral type and past due status. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss for assets with credit risk characteristics similar to those in the group. Historical loss is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with changes in related observable data from period to period (such changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the Group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any difference between loss estimates and actual loss experience. Quoted AFS Financial Assets. In the case of equity investments classified as AFS financial assets, an objective evidence of impairment would include a significant or prolonged decline in the fair value of the investments below its cost. “Significant” is to be evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss which is measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in other comprehensive income under “Unrealized mark-tomarket gain on available-for-sale financial assets” account, is removed from equity and recognized in profit or loss. Impairment losses on equity investments are not reversed in profit or loss; increases in fair value after impairment are recognized directly in other comprehensive income. Unquoted AFS Financial Assets. If there is objective evidence that an impairment loss has been incurred in an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. *SGVFS008027* - 21 Derecognition of Financial Assets and Liabilities Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: a. the rights to receive cash flows from the asset have expired; b. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or c. the Group has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss. Offsetting of Financial Instruments Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented at gross amounts in the consolidated statement of financial position. Inventories Inventories are valued at the lower of cost and net realizable value. Cost is determined using the weighted average method. Net realizable value of educational materials is the selling price in the ordinary course of business, less estimated costs necessary to make the sale. Net realizable value of promotional and school materials and supplies is the current replacement cost. Prepaid Expenses Prepaid expenses are carried at cost and are amortized on a straight-line basis over the period of expected usage, which is equal to or less than 12 months or within the normal operating cycle. Input Value-added Taxes (VAT) Input VAT represents VAT imposed on the Group by its suppliers for the acquisition of goods and services required under Philippine taxation laws and regulations. The portion of excess input VAT over output VAT is presented as part of “Prepaid taxes” under the “Prepaid expenses and *SGVFS008027* - 22 other current assets” account in the consolidated statement of financial position. Input VAT is stated at its estimated net realizable value (NRV). Creditable Withholding Taxes (CWT) CWT represents the amount of tax withheld by counterparties from the Group. These are recognized upon collection and are utilized as tax credits against income tax due as allowed by the Philippine taxation laws and regulations. CWT is presented as part of “Prepaid taxes” under the “Prepaid expenses and other current assets” account in the consolidated statement of financial position. CWT is stated at its estimated NRV. Property and Equipment Property and equipment, except land, are stated at cost less accumulated depreciation, amortization and any impairment in value, excluding the costs of day-to-day servicing. Such cost includes the cost of replacing part of such property and equipment when that cost is incurred and the recognition criteria are met. Land is stated at cost less any impairment in value. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognized. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives: Buildings Office and school equipment Office furniture and fixtures Leasehold improvements Transportation equipment Computer equipment and peripherals Library holdings 20–25 years 5 years 5 years 5 years or terms of the lease agreement, whichever is shorter 5 years or terms of the lease agreement, whichever is shorter 3 years 3–5 years The estimated useful lives and the depreciation and amortization method are reviewed periodically to ensure that the periods and depreciation and amortization method are consistent with the expected pattern of economic benefits from items of property and equipment. Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is charged to current operations. Construction in progress represents structures under construction and is stated at cost less any impairment in value. This includes cost of construction and other direct costs, including any interest on borrowed funds during the construction period. Construction in progress is not depreciated until the relevant assets are completed and become available for operational use. Investment Properties Investment properties include land and buildings held by the Group for capital appreciation and rental purposes. Buildings are carried at cost less accumulated depreciation and any impairment in value, while land is carried at cost less any impairment in value. The carrying amount includes the cost of constructing a significant portion of an existing investment property if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. *SGVFS008027* - 23 Depreciation of buildings is computed on a straight-line basis over 20–25 years. The asset’s useful life and method of depreciation are reviewed and adjusted, if appropriate, at each financial year-end. Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in profit or loss in the year of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation or commencement of an operating lease to another party. Transfers are made from investment property when there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sell. For a transfer from investment property to owner-occupied property or inventories, the cost of property for subsequent accounting is its carrying value at the date of change in use. If the property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property and equipment up to the date of change in use. Investments in Associates and Joint Ventures An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s investments in its associate and joint venture are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment. The consolidated statement of comprehensive income reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Group recognizes its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the consolidated statement of comprehensive income outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. *SGVFS008027* - 24 The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. The financial reporting dates of the associates, joint ventures and the Parent Company are identical, except for the accounts of STI College Marikina, Inc. (STI-Marikina) and Synergia Human Capital Solutions, Inc. (Synergia) whose financial reporting date ends in December, and the associates’ and joint ventures’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances. Adjustments are made for the Group’s share in the effects of significant transactions or events that occur between the financial reporting date of the above-mentioned associates and joint ventures and the financial reporting date of the Group’s consolidated financial statements. After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then recognizes the loss as ‘Share of profit of an associate and a joint venture’ in the consolidated statement of comprehensive income. Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss. The following are the associates of STI ESG (which are all incorporated in the Philippines) and STI ESG’s effective interest in the following entities as at March 31, 2014 and 2013: Associate Accent/STI Banawe, Inc. (STI-Accent) (see Note 11)(a) STI College Alabang, Inc. (STI-Alabang) Synergia(a) STI-Marikina STI Investments De Los Santos General Hospital, Inc. (De Los Santos General Hospital) (b) Global Resource for Outsourced Workers, Inc. (GROW) De Los Santos - STI Megaclinic, Inc. (De Los Santos - STI Megaclinic) (b)(c) (a) (b) (c) Principal Activities Hospital Educational Institution Management Consulting Services Educational Institution Holding Company Hospital Effective Percentage of Ownership 2013 2014 Direct Indirect Direct Indirect 49 40 – – 49 40 – – 30 24 20 – – – 30 24 20 – – – 5 5 20 13 17 – 17 – – 9 – 30 Recruitment Agency Health and Wellness Clinic Dormant entities Through De Los Santos - STI College; subsequently diluted and ceased to be an associate in 2014 (see Note 13) Through De Los Santos General Hospital The Group has interests in Philippine Healthcare Educators, Inc. (PHEI) and STI-PHNS Outsourcing Corporation (STI-PHNS), both jointly-controlled entities. *SGVFS008027* - 25 Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization in the case of intangible assets with finite lives, and any accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statement of comprehensive income in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. The Group has assessed the intangible assets as having a finite useful life, which is the shorter of its contractual term or economic life. Amortization is on a straight-line basis over the estimated useful lives of 3 years. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss when the asset is derecognized. Impairment of Nonfinancial Assets The carrying values of investments in associates and joint ventures, property and equipment, investment properties, land and intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. When an indicator of impairment exists or when an annual impairment testing for an asset is required, the Group makes a formal estimate of recoverable amount. Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is assessed as part of the cash generating unit to which it belongs. Where the carrying amount of an asset (or cash generating unit) exceeds its recoverable amount, the asset (or cash generating unit) is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or cash generating unit). In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded securities or other available fair value indicators. Impairment losses are recognized in the consolidated statement of comprehensive income in those expense categories consistent with the function of the impaired asset, except for assets previously revalued where the revaluation was taken to equity. In this case, the impairment is also recognized in equity up to the amount of any previous revaluation. *SGVFS008027* - 26 For nonfinancial assets, excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation and amortization expense is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining life. Goodwill. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating units, to which goodwill relates. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount of the cash-generating unit (or group of cash generating units) to which the goodwill has been allocated, an impairment loss is recognized in the consolidated statement of comprehensive income. Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods. The Group performs its annual impairment test of goodwill as at March 31 of each year. Borrowing Costs Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Qualifying assets are assets that necessarily take a substantial period of time to get ready for its intended use or sale. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset shall be determined as the actual borrowing costs incurred on that borrowing during the year less any investment income on the temporary investment of those borrowings. To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization shall be determined by applying a capitalizable rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to our borrowings that are outstanding during the year, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during the year shall not exceed the amount of borrowing costs incurred during that year. Capitalization of borrowing costs commences when the activities necessary to prepare the asset for intended use are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the asset is available for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, as well as exchange differences arising from foreign currency borrowings used to finance these projects, to the extent that they are regarded as an adjustment to interest costs. All other borrowing costs are expensed as incurred in the year in which they occur. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the *SGVFS008027* - 27 obligation. When the Group expects a provision to be reimbursed, such as under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flow at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. Capital Stock and Additional Paid-in Capital Common stock is measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax. Proceeds and/or fair value of consideration received in excess of par value are recognized as additional paid-in capital. Cost of Shares Held by a Subsidiary Cost of shares held by a subsidiary is accounted for similar to treasury shares which are recorded at cost. Own equity instruments which are reacquired are deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or the cancellation of the Group’s own equity instruments. Retained Earnings and Dividend on Common Stock of the Parent Company The amount included in retained earnings includes profit attributable to the Parent Company’s equity holders and reduced by dividends on capital stocks. Dividends on capital stocks are recognized as liability and deducted from equity when approved by the shareholders of the Parent Company and its subsidiaries. Dividends for the year that are approved after the financial reporting date are dealt with as an event after the financial reporting period. Earnings Per Share (EPS) Attributable to the Equity Holders of the Parent Company EPS is computed by dividing income attributed to equity holders of the Parent Company for the year by the weighted average number of shares issued and outstanding after giving retroactive effect to any stock split and stock dividend declaration, if any. Diluted EPS is calculated by dividing the net income attributable to equity holders of the Parent Company by the weighted average number of common shares outstanding during the year adjusted for the effects of any dilutive convertible common shares. Basic and diluted EPS for all periods presented are also adjusted for the effects of business combination accounted for using the pooling of interests method, thus, the Parent Company’s shares issued for the Share Swap were presumed to be issued at the beginning of the earliest period presented, i.e. April 1, 2012. Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the amount of the revenue can be measured reliably. The Group assesses whether it is acting as a principal or an agent in every revenue arrangements. It is acting as a principal when it has the primary responsibility for providing the goods or services. The Group also acts as a principal when it has the discretion in establishing the prices and bears inventory and credit risk. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates and value-added tax (VAT). *SGVFS008027* - 28 The following specific recognition criteria must also be met before revenue is recognized: Tuition and Other School Fees. Revenue from tuition and other school fees is recognized as income over the corresponding school term to which they pertain. Fees received pertaining to the school year commencing after the financial reporting date are recorded as unearned tuition and other school fees shown under “Accounts payable and other current liabilities” account in the consolidated statement of financial position. Educational Services. Revenue is recognized as services are rendered. Royalty Fees. Revenue from royalty fees is recognized on an accrual basis in accordance with the terms of the licensing agreements. Management Fees. Revenue is recognized when services are rendered (included as part of “Other revenues” account in the consolidated statement of comprehensive income). Sale of Educational Materials and Supplies. Revenue is recognized at the time of sale when significant risks and rewards of ownership have been transferred. Interest Income. Interest income is recognized as the interest accrues considering the effective yield on the asset. Rental Income. Rental income is recognized on a straight-line basis over the term of the lease agreement. Dividend Income. Revenue is recognized when the Group’s right to receive the payment is established. Costs and Expenses Costs and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Costs and expenses are recognized in profit or loss in the year these are incurred. Pension Costs The Group has the following pension plans (Plan) covering substantially all of its regular and permanent employees: STI ESG Type of Plan Funded and unfunded, noncontributory defined benefit plan Indirect Subsidiaries (except De Los Santos STI College and STI-QA) Unfunded, noncontributory defined benefit plan De Los Santos - STI College and STI-QA Funded, noncontributory defined contribution plan Defined Benefit Plan. The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. *SGVFS008027* - 29 The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method. Defined benefit costs comprise the following: - Service cost - Net interest on the net defined benefit liability or asset - Remeasurements of net defined benefit liability or asset Service costs which include current service costs, past service costs and gains or losses on nonroutine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries. Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss. Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in other comprehensive income in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods. Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually certain. Defined Contribution Plan. De Los Santos - STI College and STI-QA are members of the Catholic Educational Association of the Philippines Retirement Plan (CEAP). CEAP is a funded, defined contribution plan covering De Los Santos - STI College’s and STI-QA’s qualified employees. Pension costs consist of future service costs and past service costs. Future service costs are determined in accordance with PAS 19 while past service cost is computed based on a certain percentage of an employee’s average monthly salary for the 12-month period, immediately preceding the date of acceptance of the Group in the CEAP Plan, multiplied by the number of months of the employees past service amortized over 10 years. De Los Santos - STI College and STI-QA, however, are covered under RA 7641, The Philippine Retirement Law, which provides for its qualified employees a defined benefit (DB) minimum guarantee. The DB minimum guarantee is equivalent to a certain percentage of the monthly salary payable to an employee at normal retirement age with the required credited years of service based on the provisions of RA 7641. *SGVFS008027* - 30 Accordingly, De Los Santos - STI College and STI-QA accounts for its retirement obligation under the higher of the DB obligation relating to the minimum guarantee and the obligation arising from the defined contribution (DC) plan. For the DB minimum guarantee plan, the liability is determined based on the present value of the excess of the projected DB obligation over the projected DC obligation at the end of the reporting period. The DB obligation is calculated annually by a qualified independent actuary using the projected unit credit method. De Los Santos – STI College and STI-QA determines the net interest expense (income) on the net DB liability (asset) for the period by applying the discount rate used to measure the DB obligation at the beginning of the annual period to the then net DB liability (asset), taking into account any changes in the net DB liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to the DB plan are recognized in profit or loss. The DC liability, on the other hand, is measured at the fair value of the DC assets upon which the DC benefits depend, with an adjustment for margin on asset returns, if any, where this is reflected in the DC benefits. Remeasurements of the net DB liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. De Los Santos - STI College and STI-QA recognizes gains or losses on the settlement of a DB plan when the settlement occurs. Leases The determination whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or the arrangement conveys a right to use the asset. Group as a Lessee. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against profit or loss. Capitalized leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Operating lease payments are recognized as expense in profit or loss on a straight-line basis over the lease term. Group as a Lessor. Leases where the Group retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. *SGVFS008027* - 31 Taxes Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted at the financial reporting date. Deferred Tax. Deferred tax is provided using the liability method on temporary differences at the financial reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except: § when the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss; § in respect of taxable temporary differences associated with investments in subsidiaries and associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences and carryforward benefit of net operating loss carryover (NOLCO), unused tax credits from excess minimum corporate income tax (MCIT) over regular corporate income tax (RCIT), and to the extent that it is probable that taxable income will be available against which the deductible temporary differences and carryforward benefits NOLCO and MCIT can be utilized, except: § when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss; § in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable income will be available against which the temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at each financial reporting date and reduced to the extent that it is no longer probable that sufficient future taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each financial reporting date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax assets to be recovered. Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted at the financial reporting date. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transactions either in other comprehensive income or directly in equity. *SGVFS008027* - 32 Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Value-Added Tax (VAT). Revenue, expenses and assets are recognized net of the amount of VAT, except: § when the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; or § receivables and payables that are stated with the amount of VAT included. The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of “Prepaid expenses and other current assets” or “Accounts payable and other current liabilities” accounts in the consolidated statement of financial position. Operating Segment For management purposes, the Group is organized into business units based on the geographical location of the students and assets. Financial information about operating segments are presented in Note 4. Contingencies Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable. Events after the Reporting Period Post year-end events that provide additional information about the Group’s financial position at the financial reporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material. 3. Business Combinations a. Acquisition of WNU As discussed in Note 1, on October 1, 2013, STI Holdings acquired 99.45% of the issued and outstanding common shares and 99.93% of the issued and outstanding preferred shares of WNU for a total purchase price of P =400.0 million, including contingent consideration. The said purchase price was reduced to P =397.0 million, including contingent consideration of P =151.5 million as of March 31, 2014. In November 2013, the BOD approved the reclassification of the preferred shares into common shares, awaiting the SEC approval for WNU’s increase in its authorized capital stock. As at July 9, 2014, the SEC approval on WNU’s application is still pending. *SGVFS008027* - 33 The acquisition of WNU is accounted for as a business combination using acquisition method. The Parent Company elected not to account for the noncontrolling interests in WNU as it is considered not material to the Group. The fair values of the identifiable assets and liabilities of WNU at acquisition date and the corresponding carrying amounts immediately before the acquisition were as follows: Cash and cash equivalents Trade and other receivables Inventories Prepaid expenses and other current assets Property and equipment Investment property Deferred tax asset Other noncurrent assets Trade and other payables Short-term loan Deferred tax liability Other current liabilities Loans payable Other noncurrent liabilities Net assets acquired Excess of fair values of net assets acquired over acquisition cost from a business combination Consideration* Fair Value Recognized on Acquisition =7,703,105 P 40,960,059 143,715 677,019 750,813,061 48,972,000 7,299,317 660,870 (104,300,607) (7,026,780) (128,354,737) (999,322) (140,601,746) (46,243,536) 429,702,418 (32,681,078) =397,021,340 P *Includes contingent consideration amounting to = P 151.5 million with the corresponding liability presented as “Nontrade payable” in the consolidated statement of financial position as of March 31, 2014. b. Business Combination Involving Entities under Common Control As discussed in Note 1, as a result of the Share Swap, the original shareholders of STI ESG owned approximately 84% of STI Holdings while STI Holdings owned approximately 96% of STI ESG (including its 3% shareholding in STI ESG prior to Share Swap) immediately after the Share Swap. Management of the Group assessed that this transaction is a business combination involving entities under common control since STI Holdings and STI ESG are under common control of a shareholder (the “Controlling Shareholder”). Business combinations involving entities under common control are excluded from the scope of PFRS 3, Business Combinations. Management has elected to adopt the pooling of interests method when preparing the consolidated financial information in accordance with the guidance provided by the Philippine Interpretations Committee on its Q&A No. 2011-02 “PFRS 3.2 - Common Control Business Combinations”. *SGVFS008027* - 34 Under the pooling of interests method: § The assets and liabilities of the combining entities are reflected at their carrying amounts; § No adjustments are made to reflect fair values, or recognize any new assets or liabilities at the date of the combination. The only adjustments would be to harmonize accounting policies between the combining entities; § No ‘new’ goodwill is recognized as a result of the combination; § Any difference between the consideration transferred and the net assets acquired is reflected within equity under “Other equity reserve”; § The income statement in the year of acquisition reflects the results of the combining entities for the full year, irrespective of when the combination took place; and § Comparatives are presented as if the entities had always been combined only for the period that the entities were under common control. Common control transactions are viewed from the perspective of the ultimate parent or the Controlling Shareholder. Since STI Holdings and STI ESG were not under common control from the start, a predecessor entity should be identified. In this case, despite the legal form of the transaction (i.e. STI Holdings acquires STI ESG common shares through Share Swap), the predecessor entity is STI ESG since it was controlled by the Controlling Shareholder prior to STI Holdings. The Controlling Shareholder only acquired STI Holdings in March 2010. In the parent company financial statements, STI Holdings used the cost method of accounting for its investment in STI ESG. Thus, at initial recognition of its investment in STI ESG, the Parent Company measured its investment using the fair value of the shares it has given up in exchange for the STI ESG shares (i.e. quoted price of STI Holdings shares as of September 28, 2012). The difference between the quoted price and par value of the shares was recognized as additional paid-in capital (“APIC”) in the parent company statement of financial position. In the application of pooling of interests method in the consolidated financial statements, the acquisition-date carrying values of STI Holdings and STI ESG are the amounts used since the entities are combined at historical cost. Thus, the APIC created in the parent company financial statements is not reflected in the consolidated financial statements since effectively, the capital stock issued pursuant to the Share Swap are carried at cost under the pooling of interests method. c. Movement in Non-controlling Interests In July 2013, the Parent Company acquired additional 328,125 STI ESG shares from various shareholders further increasing its ownership interest in STI ESG by 0.01% immediately after the acquisition. In 2014, STI ESG issued additional shares at par value to the stockholders of one of the merged schools, which resulted to dilution of the Parent Company’s interest in STI ESG by 0.06%. For the year ended March 31, 2014, the Parent Company recognized a net increase in the noncontrolling interests amounting to = P3.4 million and reattributed the non-controlling interest’s share in other comprehensive income to the equity holders of the Parent Company amounting *SGVFS008027* - 35 to = P158,142 with the difference, amounting to = P4.1 million, charged to “Other equity reserve” account (see Note 18). In November 2012, the Parent Company subscribed to 1,020,000,000 STI ESG shares at = P1.00 per share. In December 2012, the Parent Company advanced = P1,080.0 million to STI ESG for future subscription of STI ESG shares, while waiting for the SEC’s approval of the increase in authorized capital stock. On March 8, 2013, STI ESG issued 1,080,000,000 shares to STI Holdings upon SEC’s approval of its application. As a result, STI Holdings’ ownership interest in STI ESG increased to approximately 99% as of March 31, 2013. For the year ended March 31, 2013, the Parent Company recognized a reduction in the noncontrolling interests amounting to = P105.7 million and reattributed the non-controlling interest’s share in other comprehensive income to the equity holders of the Parent Company amounting to P =36.6 million with the difference, amounting to = P69.1 million, charged to “Other equity reserve” account (see Note 18). d. Acquisition of STI-Batangas On June 30, 2013, the stockholders of STI-Batangas and STI ESG executed a deed of sale for the transfer of 100.00% of the outstanding shares of STI-Batangas to STI ESG with an acquisition cost amounting to = P4.0 million. Effective that date, STI ESG gained control over the financial and reporting policies of STI-Batangas. STI-Batangas is a franchisee of STI ESG and is engaged in the operation of educational institutions offering tertiary formal education, post-secondary certificate courses and shortterm courses. STI-Batangas was acquired to expand the Group’s controlled network of schools and be able to improve its operations. The purchase price consideration has been allocated, provisionally, to the assets and liabilities based on the fair values at the date of acquisition resulting to goodwill of = P2.6 million. The carrying values of the financial assets and liabilities and other assets recognized at the date of acquisition approximate their fair values due to the short-term nature of the transactions. 4. Segment Information For management purposes, the Group is organized into business units based on the geographical location of the students and assets, and has five reportable segments as follows: a. b. c. d. e. Metro Manila Northern Luzon Southern Luzon Visayas Mindanao Management monitors operating results of its business segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with profit and loss in the consolidated financial statements. *SGVFS008027* - 36 On consolidated basis, the Group’s performance is evaluated based on net income for the year and EBITDA defined as earnings before provision for income tax, interest expense, interest income, depreciation and amortization, equity in net earnings/losses of associates and nonrecurring gains/losses (excess of fair values of net assets acquired over acquisition cost and loss on deemed sale and share swap of an associate). The following table shows the reconciliation of the consolidated net income to consolidated EBITDA for the years ended March 31, 2014, 2013 and 2012: Consolidated net income Equity in net losses (earnings) of associates and joint ventures Depreciation and amortization Provision for income tax Loss on deemed sale and share swap of an associate Excess of fair values of net assets acquired over acquisition cost from a business combination Interest income Interest expense Consolidated EBITDA 2014 P =655,197,867 2013 =794,440,808 P 2012 =291,458,717 P (232,818,520) 205,551,974 53,358,883 (428,251,940) 156,430,779 42,952,904 37,574,331 144,450,351 32,227,325 43,000,287 (32,681,078) (12,199,579) 10,926,797 P =690,336,631 – – (34,723,888) 18,831,366 =549,680,029 P – – (16,198,233) 33,865,444 =523,377,935 P *SGVFS008027* - 37 The following tables present revenue and income information regarding geographical segments for the years ended March 31, 2014, 2013 and 2012: March 31, 2014 Revenues External revenue Intersegment revenue Total Revenues Results Income before other income and income tax Equity in net earnings of associates and joint ventures Interest income Interest expense Other income Provision for income tax Net Income Metro Manila Northern Luzon Southern Luzon Visayas Mindanao Total P = 1,326,510,858 265,360,474 P = 1,591,871,332 P = 98,553,335 – P = 98,553,335 P = 291,013,140 – P = 291,013,140 P = 122,597,660 – P = 122,597,660 P = 78,972,283 – P = 78,972,283 P = 1,917,647,276 265,360,474 P = 2,183,007,750 P = 275,282,351 – 11,723,181 (5,272,839) 317,046,248 (44,428,429) P = 554,350,512 P = 22,893,182 – 113,239 865,014 188,599 – P = 24,060,034 P = 82,463,620 – 185,071 (117) 144,353 94,764 P = 82,887,691 P = 21,582,488 – 149,380 (6,518,855) 1,310,978 (1,280,365) P = 15,243,626 P = 18,024,519 – 28,708 414,327 – P = 18,467,554 P = 420,246,160 – 12,199,579 (10,926,797) 319,104,505 (45,614,030) P = 695,009,417 Eliminations/ Adjustments = P– (265,360,474) (P =265,360,474) P = 52,529,050 232,818,520 – – (317,414,267) (7,744,853) (P =39,811,550) EBITDA Consolidated P = 1,917,647,276 – P = 1,917,647,276 472,775,210 232,818,520 12,199,579 (10,926,797) 1,690,238 (53,358,883) P = 655,197,867 P = 690,336,631 March 31, 2013 Revenues External revenue Intersegment revenue Total Revenues Results Income before other income and income tax Equity in net earnings of associates and joint ventures Interest income Interest expense Other income Provision for income tax Net Income EBITDA Metro Manila Northern Luzon Southern Luzon Visayas Mindanao Total P =1,208,089,762 188,858,531 P =1,396,948,293 = P83,916,512 – = P83,916,512 = P260,328,160 – = P260,328,160 = P44,593,451 – = P44,593,451 = P73,010,240 – = P73,010,240 P =1,669,938,125 188,858,531 P =1,858,796,656 = P18,229,373 – 186,445 (13,729) – – = P18,402,089 = P76,496,819 – 99,869 – 59,269 – = P76,655,957 P =8,726,225 – 27,165 – – – P =8,753,390 = P187,741,026 – 34,373,420 (18,814,558) 161,316,030 (27,878,099) = P336,737,819 P =8,218,233 – 36,989 (3,079) – – P =8,252,143 = P299,411,676 – 34,723,888 (18,831,366) 161,375,299 (27,878,099) = P448,801,398 Eliminations/ Adjustments = P– (188,858,531) (P =188,858,531) = P90,298,030 428,251,940 – – (157,835,755) (15,074,805) = P345,639,410 Consolidated P =1,669,938,125 – P =1,669,938,125 = P389,709,706 428,251,940 34,723,888 (18,831,366) 3,539,544 (42,952,904) = P794,440,808 = P549,680,029 *SGVFS008027* - 38 March 31, 2012 (As restated - see Note 2) Revenues External revenue Intersegment revenue Total Revenues Results Income before other income and income tax Equity in net losses of associates and joint ventures Interest income Interest expense Other income Benefit from (provision for) income tax Net Income Metro Manila Northern Luzon Southern Luzon Visayas Mindanao Total = P 1,123,478,215 208,864,945 P =1,332,343,160 = P98,414,257 – = P98,414,257 = P224,546,316 – = P224,546,316 = P45,417,519 – = P45,417,519 = P84,930,758 – = P84,930,758 P =1,576,787,065 208,864,945 P =1,785,652,010 P =5,871,809 – 38,661 – – 46,229 P =5,956,699 P = 13,006,153 – 58,851 (28,953) – 146,944 = P13,182,995 = P99,177,135 – 26,527,234 (37,610,943) 121,968,535 (30,378,684) = P179,683,277 = P27,249,774 – 200,924 (1,243,365) – 28,303 = P26,235,636 = P45,422,923 – 405,493 (33,000) – 3,471 = P45,798,887 = P190,727,794 – 27,231,163 (38,916,261) 121,968,535 (30,153,737) = P270,857,494 Eliminations/ Adjustments = P– (208,864,945) (P =208,862,902) = P176,403,295 (37,574,331) (11,032,930) 5,050,817 (110,172,040) (2,073,588) = P20,601,223 Consolidated P =1,576,787,065 – P =1,576,787,065 = P367,131,089 (37,574,331) 16,198,233 (33,865,444) 11,796,495 (32,227,325) = P291,458,717 = P523,377,935 EBITDA The following tables present certain assets and liabilities information regarding geographical segments as of March 31, 2014 and 2013: March 31, 2014 Assets and Liabilities Segment assets(a) Investments in and advances to associates and joint ventures Goodwill Deferred tax assets Total Assets Segment liabilities(b) Loans payable Pension liabilities Obligations under finance lease Total Liabilities Metro Manila Northern Luzon Southern Luzon Visayas Mindanao P = 5,202,405,725 16,734,825,149 – 22,677,630 P = 21,959,908,504 P = 53,145,292 – – 259,189 P = 53,404,481 P = 228,706,052 12,500,000 – 1,313,080 P = 242,519,132 P = 443,971,443 – – 7,347,603 P = 451,319,046 P = 88,531,959 – – 1,506,475 P = 90,038,434 P = 348,157,859 180,000,000 14,885,926 18,866,097 P = 561,909,882 P = 6,787,713 – 2,852,352 – P = 9,640,065 (P =31,315,814) – 14,595,697 – (P =16,720,117) 168,937,809 – 38,843,393 – P = 207,781,202 P = 6,956,942 – 4,713,387 – P = 11,670,329 Other Segment Information Capital expenditure Property and equipment Depreciation and amortization Noncash expenses other than depreciation and amortization (a) (b) Total Eliminations/ Adjustments P = 6,016,760,471 P = 514,343,507 16,747,325,149 (15,215,273,562) – 202,843,745 – 33,103,977 P = 22,797,189,597 (P =14,498,086,310) 499,524,509 180,000,000 75,890,755 18,866,097 P = 774,281,361 411,667,418 – (15,015,487) – P = 396,651,931 Consolidated P = 6,531,103,978 1,532,051,587 202,843,745 33,103,977 P = 8,299,103,287 911,191,927 180,000,000 60,875,268 18,866,097 P = 1,170,933,292 P = 1,185,736,216 205,551,974 74,057,903 Segment assets exclude goodwill, investments in and advances to associates and joint ventures and deferred tax assets. Segment liabilities exclude short-term loans, pension liabilities and obligations under finance lease. *SGVFS008027* - 39 March 31, 2013 Assets and Liabilities Segment assets(a) Goodwill Investments in and advances to associates and joint ventures Deferred tax assets Total Assets Segment liabilities(b) Pension liabilities Obligations under finance lease Total Liabilities Northern Luzon Southern Luzon Visayas Mindanao Total = P20,721,112,617 – 871,217,782 6,808,554 = P21,599,138,953 = P53,378,214 – – 259,189 = P53,637,403 = P254,742,544 – – 1,313,080 = P256,055,624 = P51,950,808 – – 124,751 = P52,075,559 = P85,465,639 – – – = P85,465,639 = P21,166,649,822 – 871,217,782 8,505,574 = P22,046,373,178 (P =15,769,230,815) 200,258,253 2,025,850,775 – (P =13,543,121,787) P =5,397,419,007 200,258,253 2,897,068,557 8,505,574 P =8,503,251,391 = P327,910,280 10,958,661 19,759,058 = P358,627,999 = P25,442,403 1,464,070 – = P26,906,473 = P66,682,255 6,822,139 – = P73,504,394 P =3,174,829 799,207 – P =3,974,036 = P20,537,146 2,376,031 – = P22,913,177 = P443,746,913 22,420,108 19,759,058 = P485,926,079 (P =118,030,879) – – (P =118,030,879) = P325,716,034 22,420,108 19,759,058 = P367,895,200 Other Segment Information Capital expenditure Property and equipment Depreciation and amortization Noncash expenses other than depreciation and amortization (a) (b) Eliminations/ Adjustments Metro Manila Consolidated P =1,634,537,504 156,430,779 58,779,699 Segment assets exclude goodwill, investments in and advances to associates and joint ventures and deferred tax assets. Segment liabilities exclude short-term loans, pension liabilities and obligations under finance lease. *SGVFS008027* - 40 5. Significant Accounting Judgments, Estimates and Assumptions The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. The estimates used are based upon management’s evaluation of relevant facts and circumstances as at the date of the consolidated financial statements, giving due consideration to materiality. Actual results could differ from such estimates. The Group believes the following represents a summary of these significant judgments, estimates and assumptions and related impact and associated risks in its consolidated financial statements. Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements. Operating Lease Commitments - Group as Lessee. The Group has entered into various operating lease agreements and has determined, based on evaluation of the terms and conditions of the arrangements, that it has not acquired significant risks and rewards of ownership of the leased properties because the lease agreements do not transfer to the Group the ownership over the leased assets at the end of the lease term and do not provide with a bargain purchase option over the leased assets and accounts for these arrangements as operating leases. Rental expense amounted to = P136.6 million, = P143.3 million and = P145.2 million in 2014, 2013 and 2012, respectively (see Notes 20, 22 and 25). Operating Lease Commitments - Group as Lessor. The Group has entered into lease of various investment properties and has determined, that it retains all the significant risks and rewards of ownership of the leased properties because the lease agreements do not transfer ownership of the leased assets to the lessee at the end of the lease term and do not give the lessee a bargain purchase option over the leased assets and accounts for these agreements as operating leases. Rental income amounted to P =10.8 million, P =4.6 million and P =5.4 million in 2014, 2013 and 2012, respectively (see Notes 11, 25 and 27). Finance Lease Commitments - Group as Lessee. The Group has entered into finance lease agreements covering its computer equipment and peripherals and transportation equipment and has determined, that it bears substantially all the risks and benefits incidental to ownership of the said properties which are on finance lease agreements. The carrying value of the obligations under finance lease amounted to P =18.9 million and P =19.8 million as at March 31, 2014 and 2013, respectively. Interest incurred amounted to = P1.3 million, = P1.5 million and = P1.3 million in 2014, 2013 and 2012, respectively (see Notes 19 and 25). Transfers of Investment Properties. The Group has made transfers to investment properties after determining that there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are also made from investment properties when there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale. These transfers are recorded using the carrying amount of the investment properties at the date of change in use. *SGVFS008027* - 41 There were no transfers to (from) investment properties in 2014 and 2013. Transfers to (from) investment properties amounted to P =24.9 million and (P =16.3 million) in 2012. Determination of Control Arising from a Management Contract. The Group has existing management contracts with STI-Kalookan and STI-Novaliches. Management has concluded that the Group in substance has the control over the financial and operating policies and has the means to obtain majority of the benefits of STI-Kalookan and STI-Novaliches, both non-stock corporations, through the management contract. Thus, management has assessed that it has control over STI-Kalookan and STI-Novaliches and accordingly, consolidates the two entities effective from the date control was obtained. Classification of Interests in Joint Ventures. Under PFRS 11, the Group classified its interest in joint arrangements as either joint operations or joint ventures depending on its rights to the assets and obligations for the liabilities of the arrangements. When making this assessment, management considers the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Management re-evaluated its involvement in its joint arrangements and assessed that it has joint control over PHEI and STI‑PHNS and accounted for such entities as joint ventures (see Note 13). Contingencies. The Group is currently a defendant to a number of cases involving claims and disputes mainly related to labor. The Group’s estimate of the probable costs for the resolution of these claims has been developed in consultation with outside legal counsels handling defense in these matters and is based upon an analysis of potential results. Management and its legal counsels believe that the Group has substantial legal and factual bases for its position and are of the opinion that losses arising from these legal actions, if any, will not have a material adverse impact on the consolidated financial statements. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of strategies relating to these proceedings (see Note 29). Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the financial reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Fair Value of Financial Instruments. The Group discloses for each class of financial instruments the fair value of that class of assets and liabilities in a way that permits it to be compared with the corresponding carrying amount in the consolidated statements of financial position, which requires the use of accounting judgment and estimates. Significant components of fair value measurement are determined using verifiable objective evidence (i.e., interest rates, volatility rates), and timing and amount of changes in fair value would differ with the valuation methodology used. Estimating Allowance for Impairment Loss on Financial Assets. The Group reviews its receivables and advances to associates and joint ventures and other related parties at each reporting date to assess whether an allowance for doubtful accounts should be recorded in the consolidated statement of financial position. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. *SGVFS008027* - 42 In addition to specific allowance against individually significant receivables and advances, the Group also makes a collective impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when originally granted. This collective allowance is based on any deterioration in the internal rating of the receivables and advances since it was granted or acquired. These internal ratings take into consideration factors such as any deterioration in industry, as well as identified structural weaknesses or deterioration in cash flows. Total receivables (including noncurrent receivables), net of allowance for doubtful accounts amounted to = P761.3 million and = P714.8 million as at March 31, 2014 and 2013, respectively. Provision for impairment loss on receivables (net of reversals) recognized amounted to P =57.6 million, = P34.5 million and = P41.0 million in 2014, 2013 and 2012, respectively (see Notes 7 and 22). Advances to associates and joint ventures, net of allowance for impairment loss, amounted to P =21.2 million and = P45.5 million as at March 31, 2014 and 2013, respectively. Provision for (reversal of ) impairment in value of advances recognized amounted to (P =0.7 million), = P4.1 million and = P3.0 million in 2014, 2013 and 2012, respectively (see Notes 12 and 22). Estimating Allowance for Inventory Obsolescence. The allowance for obsolescence relating to inventories consists of provision based on the aging of inventories and other factors that may affect recoverability of these assets. The allowance is established by charges to income in the form of excess of cost over net realizable value of inventories. Inventories at net realizable value amounted to = P37.8 million and = P34.7 million as at March 31, 2014 and 2013, respectively. Provision for inventory obsolescence in the form of excess of cost over net realizable value of inventories amounted to = P2.4 million, = P0.2 million and = P0.7 million in 2014, 2013 and 2012, respectively (see Notes 8 and 22). Impairment of AFS Financial Assets. The Group treats AFS financial assets as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Group treats “significant” generally as 20.00% or more of the original cost of investment, and “prolonged,” greater than six months. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities. No impairment loss for AFS financial assets was recognized in profit or loss in 2014, 2013 and 2012. The carrying values of AFS financial assets amounted to = P50.6 million, P =4.7 million and P =5.0 million as at March 31, 2014 and 2013 and April 1, 2012, respectively (see Note 14). Estimating Useful Lives of Nonfinancial Assets. Management determines the estimated useful lives and the related depreciation and amortization charges for its property and equipment, investment properties, excluding land, and intangible assets based on the period over which the property and equipment, investment properties and intangible assets are expected to provide economic benefits. Management’s estimation of the useful lives of property and equipment, investment properties and intangible assets is based on a collective assessment of industry practice, internal technical evaluation, and experience with similar assets while for intangible assets with a finite life, estimated useful life is based on the contractual term of the intangible assets. These estimations are reviewed periodically and could change significantly due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. Management will increase the depreciation and amortization charges where useful lives *SGVFS008027* - 43 are less than previously estimated. A reduction in the estimated useful lives of property and equipment, investment properties and intangible assets would increase recorded expenses and decrease noncurrent assets. There were no changes in the estimated useful lives of the Group’s property and equipment, investment properties and intangible assets in 2014, 2013 and 2012. Impairment of Nonfinancial Assets. An impairment review is performed whenever events or changes in circumstances indicate that the carrying amount of a nonfinancial asset may not be recoverable or that the previously recognized impairment loss may no longer exist or may have decreased. The factors that the Group considers important which could trigger an impairment review include the following: § significant underperformance relative to expected historical or projected future operating results; § significant changes in the manner of use of the acquired assets or the strategy for overall business; § significant negative industry or economic trends; § the dividend exceeds the total comprehensive income of the associate in the period the dividend is declared; or § the carrying amount of the investment in an associate in the parent company financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets, including associated goodwill. At each financial reporting date, the Group assesses whether there are any indicators of impairment. Only if indicators of impairment are present will the Group perform the impairment testing. The Group recognizes an impairment loss whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is computed using the value in use approach. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash generating unit to which the asset belongs. While it is believed that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable value and any resulting impairment loss would have a material adverse impact on the results of operations. Nonfinancial assets that are subjected to impairment testing when impairment indicators are present are as follows: Property and equipment (see Note 10) Investment properties (see Note 11) Investments in associates and joint ventures (see Note 12) Condominium deposit (see Note 15) Intangible assets (see Note 15) Advances to suppliers (see Note 15) Land (see Note 15) March 31, March 31, 2013 2014 P2,635,275,971 4,421,253,356 = 39,325,291 40,197,895 2,851,546,573 1,510,875,712 – 397,262,833 7,711,712 29,898,142 5,314,902 15,786,333 387,862,833 – No impairment loss was recognized in 2014, 2013 and 2012. *SGVFS008027* - 44 Goodwill. Acquisition method requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair market values of the acquiree’s identifiable assets, liabilities and contingent liabilities at the acquisition date. It also requires the acquirer to recognize any goodwill as the excess of the acquisition cost over the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. The Group’s business acquisitions have resulted in goodwill which is subject to an annual impairment testing. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The recoverable amounts of cash generating units have been determined based on value in use calculations using cash flow projections covering a five-year period based on long-range plans approved by management. Management used an appropriate discount rate for cash flows equal to the prevailing rates of return for a Group having substantially the same risks and characteristics. Management used the weighted average cost of capital wherein the source of the costs of equity and debt financing are weighted. The weighted average cost of capital is the overall required return on the Group. A discount rate of 12.00% was used as at March 31, 2014 and 2013 and April 1, 2012. The Group’s growth rates in extrapolating its cash flows beyond the period covered by its recent budgets ranged from 8.00% to 10.00%. Other assumptions used in the calculations for impairment testing of goodwill are projection rates of new students, retention rates of old students, tuition fee increase rates and inflation rates. Current and historical transactions have been used as indicators of future transactions. Management believes that any reasonable change in any of the above key assumptions on which the recoverable amount is based on would not cause the carrying value of the goodwill to materially exceed its recoverable amount. No provision for impairment loss was recognized in 2014 and 2013. Impairment loss recognized in 2012 amounted to P =3.4 million. Goodwill, net of allowance for impairment loss, amounted to P =202.8 million and = P200.3 million as at March 31, 2014 and 2013, respectively (see Notes 15 and 22). Realizability of Deferred Tax Assets. Deferred tax assets are recognized for all deductible temporary differences and carryforward benefits of NOLCO and MCIT to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of NOLCO and MCIT can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Deductible temporary differences and unused NOLCO and MCIT for which no deferred tax assets were recognized by the Group amounted to P =122.2 million and = P111.5 million as at March 31, 2014 and 2013, respectively. Deferred tax assets recognized amounted to = P33.1 million and P =8.6 million as at March 31, 2014 and 2013, respectively (see Note 26). Present Value of Pension Liabilities. The cost of the defined benefit pension plan as well as the present value of the pension obligation are determined using actuarial valuations. The actuarial valuation involves making various assumptions. These include the determination of the discount *SGVFS008027* - 45 rates, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers the interest rates of government bonds that are denominated in the currency in which the benefits will be paid, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. Future salary increases and pension increases are based on expected future inflation rates for the specific country. Pension liabilities recognized amounted to P =60.9 million and = P22.4 million as at March 31, 2014 and 2013, respectively (see Note 24). 6. Cash and Cash Equivalents This account consists of the following: Cash on hand and in banks Cash equivalents March 31, 2014 P =397,988,727 185,313,836 P =583,302,563 March 31, 2013 =209,549,974 P 1,279,901,935 =1,489,451,909 P Cash in banks earn interest at their respective bank deposit rates. Cash equivalents are short-term investments which are made for varying periods of up to three months, depending on the immediate cash requirements of the Group, and earn interest at their respective short-term investment rates. Interest earned from cash in banks and cash equivalents amounted to P =11.0 million, = P19.0 million and = P9.8 million for the years ended March 31, 2014, 2013 and 2012, respectively (see Note 19). 7. Receivables This account consists of: Tuition and other school fees Educational services Advances to officers and employees (see Note 27) Current portion of advances to associates, joint ventures and other related parties (see Note 27) Rent and other related receivables (see Note 27) Others Less allowance for doubtful accounts March 31, 2014 P =276,546,802 56,155,911 25,024,703 March 31, 2013 =159,127,235 P 48,276,130 22,592,828 12,356,218 7,575,384 25,321,407 402,980,425 105,629,684 P =297,350,741 11,419,489 12,970,554 54,202,769 308,589,005 57,815,801 =250,773,204 P *SGVFS008027* - 46 The terms and conditions of the above receivables are as follows: a. Tuition and other school fees receivables are noninterest-bearing and are normally collected on or before the date of major examinations. b. Educational services receivables pertain to receivables from franchisees arising from educational services, royalty fees and other charges. These receivables are generally noninterest-bearing and are normally collected within 40 days. Interest is charged on past-due accounts. Interest earned from past due accounts amounted to P =0.3 million, = P0.4 million and = P31,951 for the years ended March 31, 2014, 2013 and 2012, respectively (see Note 19). c. For terms and conditions relating to advances to associates, joint ventures and other related parties, refer to Note 27. d. Advances to officers and employees are normally liquidated within one month. e. Rent and other related receivables are normally collected within the next financial year. f. Other receivables include receivable from CEAP and other miscellaneous receivables, and are expected to be collected within the next financial year. The movements in the allowance for doubtful accounts as a result of individual and collective assessments are as follows: March 31, 2014 Balance at beginning of year Effect of business combination (see Note 3) Provisions (see Note 22) Reclassification to advances to associates and joint ventures (see Note 12) Write-off Balance at end of year Tuition and Other School Fees =46,191,864 P Educational Services =– P Others =11,623,937 P Total =57,815,801 P 33,711,471 57,648,376 – – 1,510,778 – 35,222,249 57,648,376 – – =– P (8,500,000) – =4,634,715 P – (36,556,742) =100,994,969 P (8,500,000) (36,556,742) =105,629,684 P March 31, 2013 Balance at beginning of year Provisions (see Note 22) Write-off Balance at end of year Tuition and Other School Fees =41,435,131 P 34,534,038 (29,777,305) =46,191,864 P Educational Services =– P – – =– P Others =11,623,937 P – – =11,623,937 P Total P53,059,068 = 34,534,038 (29,777,305) =57,815,801 P As at March 31, 2014 and 2013, allowance for doubtful accounts amounting to = P4.6 million and = P11.6 million, respectively, relates to individually significant accounts that were assessed as impaired. The remaining balance of = P101.0 million and = P46.2 million as at March 31, 2014 and 2013, respectively, relates to accounts that were collectively assessed as impaired. *SGVFS008027* - 47 - 8. Inventories This account consists of: At net realizable value: Educational materials Promotional materials School materials and supplies March 31, 2014 March 31, 2013 P =31,440,575 5,539,944 852,948 P =37,833,467 =29,618,188 P 4,494,601 627,314 =34,740,103 P The cost of inventories carried at net realizable value amounted to P =48.0 million and = P42.7 million as at March 31, 2014 and 2013, respectively. Provision for inventory obsolescence in the form of excess of cost over net realizable value of inventories amounted to P =2.4 million, P =0.2 million and = P0.7 million in 2014, 2013 and 2012, respectively (see Note 22). Inventories charged to cost of educational materials and supplies sold for the years ended March 31, 2014, 2013 and 2012 amounted to P =53.3 million, P =49.5 million and = P39.5 million, respectively (see Note 21). 9. Prepaid Expenses and Other Current Assets This account consists of: Prepaid taxes Prepaid rent (see Note 25) Excess contributions to CEAP (see Note 24) Deposits Prepaid license and insurance Others March 31, 2014 P =85,698,938 10,609,722 3,233,030 1,831,769 589,772 5,038,144 P =107,001,375 March 31, 2013 =18,426,069 P 7,260,566 3,645,974 1,379,769 1,767,813 4,987,602 =37,467,793 P Prepaid taxes represent excess creditable withholding tax which may be applied against future income tax, and other internal revenue taxes, which mainly arose from the acquisition of office condominium units from TechZone (see Notes 15 and 27). Prepaid rent represents advance rent paid for the lease of land and building, which shall be applied to the monthly rental in accordance with the lease agreements (see Note 25). Excess contributions to CEAP pertains to contributions made by De Los Santos - STI College to CEAP which are already considered forfeited pension benefits of those employees who can no longer avail their pension benefits or when De Los Santos - STI College has already advanced the benefits of qualified employees (see Note 24). These will be recognized as expense depending on the required future contributions to the fund. Prepaid license represents software license costs which are amortized over one year. Deposits pertain to security deposits made for warehouse and office space rentals, which expire within one year, to be applied against future lease payments in accordance with the respective lease agreements (see Note 25). *SGVFS008027* - 48 10. Property and Equipment The rollforward analysis of this account follows: March 31, 2014 Cost, Net of Accumulated Depreciation and Amortization Balance at beginning of year Additions Effect of business combination (see Note 3) Reclassifications Disposal Depreciation and amortization (see Notes 20 and 22) Balance at end of year At March 31, 2014: Cost Accumulated depreciation and amortization Net carrying amount Office and School Equipment Office Furniture and Fixtures Leasehold Improvements Transportation Equipment (see Note 25) Computer Equipment and Peripherals Library Holdings Construction In Progress Land Buildings P = 1,296,723,152 60,098,428 494,887,999 48,972,001 – P = 696,730,272 147,410,908 248,256,609 921,159,367 – P = 61,520,527 76,706,514 4,906,441 (5,599) (69,857) P = 31,012,008 40,061,020 509,284 5,599 (17,314) P = 93,491,471 20,098,796 64,163 3,332,693 (10,128) P = 22,238,184 13,402,650 – – (994,104) P = 28,880,111 27,651,209 1,886,415 – – P = 30,004,141 226,895 1,902,490 (118,473) (765) P = 374,676,105 800,079,796 – (924,373,587) – P = 2,635,275,971 1,185,736,216 752,413,401 48,972,001 (1,092,168) – P = 1,900,681,580 (75,428,552) P = 1,938,128,604 (32,842,432) P = 110,215,594 (16,267,375) P = 55,303,222 (35,815,307) P = 81,161,688 (9,615,292) P = 25,031,438 (22,091,737) P = 36,325,998 (7,991,370) P = 24,022,918 – P = 250,382,314 (200,052,065) P = 4,421,253,356 P = 1,900,681,580 – P = 1,900,681,580 P = 2,355,082,628 416,954,024 P = 1,938,128,604 P = 357,709,729 247,494,135 P = 110,215,594 P = 165,672,192 110,368,970 P = 55,303,222 P = 346,890,623 265,728,935 P = 81,161,688 P = 68,986,903 43,955,465 P = 25,031,438 Total P = 369,693,500 333,367,502 P = 36,325,998 P = 165,972,882 141,949,964 P = 24,022,918 P = 250,382,314 – P = 250,382,314 P = 5,981,072,351 1,559,818,995 P = 4,421,253,356 Computer Equipment and Peripherals Library Holdings Construction In Progress Total = P35,817,767 17,829,902 = P15,802,480 20,660,316 = P132,120,932 374,676,105 P =1,544,229,394 1,634,537,504 – – – – – – March 31, 2013 Land Buildings Office and School Equipment = P648,949,537 1,035,636,448 = P489,952,915 113,903,997 = P84,054,171 5,571,344 = P26,551,149 16,164,912 = P90,149,525 36,937,557 – 132,120,932 – – – – – – – – – – Cost, Net of Accumulated Depreciation and Amortization Balance at beginning of year Additions Reclassification to other noncurrent assets (see Note 15) Reclassifications Disposal Depreciation and amortization (see Notes 20 and 22) Balance at end of year – P =1,296,723,152 (39,247,572) = P696,730,272 At March 31, 2013: Cost Accumulated depreciation and amortization Net carrying amount P =1,296,723,152 – P =1,296,723,152 = P927,986,992 231,256,720 = P696,730,272 (387,862,833) – – (28,104,988) = P61,520,527 = P262,656,033 201,135,506 = P61,520,527 Office Furniture and Fixtures Leasehold Improvements (11,704,053) = P31,012,008 = P122,600,237 91,588,229 = P31,012,008 (33,595,611) = P93,491,471 = P337,876,133 244,384,662 = P93,491,471 Transportation Equipment (see Note 25) = P20,830,918 13,156,923 – – (1,172,501) (10,577,156) = P22,238,184 = P65,416,128 43,177,944 = P22,238,184 (24,767,558) = P28,880,111 = P308,398,041 279,517,930 = P28,880,111 – (132,120,932) – (387,862,833) – (1,172,501) (6,458,655) = P30,004,141 – = P374,676,105 (154,455,593) P =2,635,275,971 = P82,171,080 52,166,939 = P30,004,141 = P374,676,105 – = P374,676,105 P =3,778,503,901 1,143,227,930 P =2,635,275,971 *SGVFS008027* - 49 Additions Acquisitions. In 2014, the Group acquired land and a building located in Batangan, Batangas amounting to P =122.5 million. These properties will be the new site of STI-Batangas. In 2013, the Group acquired land located in Cainta, Rizal, Las Piñas City, Quezon City, Valencia and Caloocan City, aggregating to = P1,035.6 million. These properties will be the new sites of the schools of the Group in the area mentioned. Property and Equipment under Construction. As at March 31, 2014, the construction in-progress account includes costs incurred for the construction of the school buildings and improvements located in Batangas, Calamba, Quezon City and Lucena. The related construction contracts amounted to = P1,248.8 million, inclusive of materials, cost of labor and overhead and all other costs necessary for the proper execution of the works in the next fiscal year. As at March 31, 2013, the construction in progress account includes costs incurred for the construction of the school buildings and improvements located in Cainta, Rizal and Caloocan City. The related construction contracts amounted to P =1,057.2 million, inclusive of materials, cost of labor and overhead and all other costs necessary for the proper execution of the works in the next two years. These were completed and reclassified as part of the “Buildings” account in 2014. Capitalized Borrowing Costs. Total borrowing costs capitalized as part of property and equipment amounted to nil and = P19.7 million as at March 31, 2014 and 2013, respectively. Average interest capitalization rate is at 3.3% in 2013 which is the effective rate of the general borrowing. Finance Leases Certain transportation equipments were acquired under finance lease agreements. The net book value of this equipment amounted to = P16.4 million and = P15.9 million as at March 31, 2014 and 2013, respectively (see Note 25). Collaterals As at March 31, 2014, property and equipment with a carrying value amounting to = P27.9 million are pledged as security to the short-term loan of the Group (see Note 16), while transportation equipment, which were acquired under finance lease, are pledged as security for the related finance lease liabilities as at March 31, 2014 and 2013. 11. Investment Properties The rollforward analysis of this account follows: Cost: Balance at beginning of year Additions Balance at end of year Accumulated depreciation: Balance at beginning of year Depreciation (see Note 22) Balance at end of year Net book value Land March 31, 2014 Condominium units Total P =23,986,424 – 23,986,424 P =32,758,893 3,981,559 36,740,452 P =56,745,317 3,981,559 60,726,876 – – – P =23,986,424 17,420,026 3,108,955 20,528,981 P =16,211,471 17,420,026 3,108,955 20,528,981 P =40,197,895 *SGVFS008027* - 50 - Land Cost: Balance at beginning of year Disposal Balance at end of year Accumulated depreciation: Balance at beginning of year Depreciation (see Note 22) Disposal Balance at end of year Net book value March 31, 2013 Condominium units Total P =28,521,424 (4,535,000) 23,986,424 P =36,723,893 (3,965,000) 32,758,893 P =65,245,317 (8,500,000) 56,745,317 – – – – P =23,986,424 18,138,027 1,975,186 (2,693,187) 17,420,026 P =15,338,867 18,138,027 1,975,186 (2,693,187) 17,420,026 P =39,325,291 Land Level 3 fair value of land had been derived using the sales comparison approach. The sales comparison approach is a comparative approach to value that considers the sales of similar or substitute properties and related market data and establishes a value estimate by process involving comparison. Listings and offerings may also be considered. Sales prices of comparable land in close proximity (external factor) are adjusted for differences in key attributes (internal factors) such as location and size. The following table shows the valuation technique used in measuring the fair value of the land, as well as the significant unobservable inputs used: Fair value at March 31, 2014 Valuation technique Unobservable input Relationship of unobservable inputs to fair value P37,070,000 = Sales comparison approach Net price per square meter The higher the price per square meter, the higher the fair value The highest and best use of the land is commercial utility. Condominium Units Level 3 fair values of buildings have also been derived using the sales comparison approach. The following table shows the valuation technique used in measuring the fair value of the building, as well as the significant unobservable inputs used: Fair value at March 31, 2014 Valuation technique Unobservable input Relationship of unobservable inputs to fair value P86,435,200 = Sales comparison approach Net price per square meter The higher the price per square meter, the higher the fair value The highest and best use of the condominium units is commercial utility (commercial/office condominium building). Collateral As at March 31, 2014, investment properties with a carrying value amounting to = P13.9 million are pledged as security to the short-term loans of the Group (see Note 16). Rental income earned from investment properties amounted to P =10.8 million, = P4.6 million and P =5.4 million in 2014, 2013 and 2012, respectively (see Notes 25 and 27). Direct operating *SGVFS008027* - 51 expenses, including repairs and maintenance, arising from investment properties amounted to = P0.4 million, = P0.7 million and = P0.3 million in 2014, 2013 and 2012, respectively. 12. Investments in and Advances to Associates and Joint Ventures The details and movements in this account follow: March 31, 2013 (As restated see Note 2) April 1, 2012 (As restated see Note 2) P =249,252,600 – (76,000,000) 173,252,600 =207,664,874 P 41,587,726 – 249,252,600 =208,375,212 P – (710,338) 207,664,874 680,371,081 261,722,342 303,031,267 March 31, 2014 Investments in associates and joint ventures: Acquisition cost: Balance at beginning of year Conversion of advances Disposal Balance at end of year Accumulated equity in net earnings: Balance at beginning of year, as previously reported Effect of adoption of PAS 19R (see Note 2) Balance at beginning of year, as restated Equity in net earnings (losses) Disposal Dividends received Reclassification (see Note 14) Balance at end of year Share in associates’ other comprehensive income: Balance at beginning of year, as previously reported Effect of adoption of PAS 19R (see Note 2) Balance at beginning of year, as restated Unrealized MTM gain (loss) Remeasurement gain (loss) on pension liability Balance at end of year (Notes 3 and 18) Advances (see Note 27) Less allowance for impairment loss (1,315,903) 679,055,178 232,818,520 – – 6,893,184 918,766,882 (967,004) 260,755,338 428,251,940 – (9,952,100) – 679,055,178 – 303,031,267 (37,574,331) (2,749,498) (1,952,100) – 260,755,338 1,083,699,331 173,867,841 (6,934,916) 3,003,867 – 1,923,238,795 (1,496,110,186) 1,086,703,198 846,474,380 173,867,841 909,831,490 1,930,173,711 (8,272,379) 418,856,230 1,510,875,712 36,123,762 14,947,887 21,175,875 P =1,532,051,587 (9,938,783) 1,923,238,795 2,851,546,573 52,689,744 7,167,760 45,521,984 =2,897,068,557 P 3,003,867 1,086,703,198 1,555,123,410 38,400,724 3,047,124 35,353,600 =1,590,477,010 P *SGVFS008027* - 52 The detailed carrying values of the Group’s investments in and advances to associates and joint ventures are as follows: 2014 Advances Total =1,500,471,108 P 14,326,499 10,597,308 (20,166,002) 1,650,967 46,969 P– = – – 35,923,762 – – =1,500,471,108 P 14,326,499 10,597,308 15,757,760 1,650,967 46,969 3,948,863 1,510,875,712 200,000 36,123,762 4,148,863 1,546,999,474 – 7,167,760 7,167,760 Investments Associates: STI Investments STI-Alabang GROW STI-Accent STI-Marikina Synergia Joint ventures: PHEI (see Note 13) Allowance for impairment loss Balance at beginning of year Reclassification from receivables (see Note 7) Reversal (see Note 22) Balance at end of year – – – =1,510,875,712 P 8,500,000 (719,873) 14,947,887 =21,175,875 P 2013 (As restated - see Note 2) Investments Advances Associates: STI Investments De Los Santos - General Hospital STI-Accent De Los Santos - STI Megaclinic STI-Alabang GROW STI-Marikina Synergia Joint ventures: PHEI STI-PHNS Allowance for impairment loss Balance at beginning of year Provisions (see Note 22) Balance at end of year 8,500,000 (719,873) 14,947,887 =1,532,051,587 P Total =2,759,989,922 P 59,440,352 (20,166,002) 18,352,722 14,326,499 10,529,778 1,042,897 46,969 P– = – 27,333,762 24,396,410 216,000 143,572 – – =2,759,989,922 P 59,440,352 7,167,760 42,749,132 14,542,499 10,673,350 1,042,897 46,969 6,999,009 984,427 2,851,546,573 600,000 – 52,689,744 7,599,009 984,427 2,904,236,317 – – – =2,851,546,573 P 3,047,124 4,120,636 7,167,760 =45,521,984 P 3,047,124 4,120,636 7,167,760 =2,897,068,557 P Information about and major transactions of significant indirect associates are discussed below: STI Investments. STI Investments is a holding company that holds investments in PhilPlans, PhilHealth Care, Inc. (PhilCare) and Banclife Insurance Co., Inc. (Banclife). PhilPlans is a leading pre-need company, providing innovative pension, education and life plans while PhilCare provides a multi-service healthcare program that makes available to its clients a comprehensive healthcare benefits package that provides quality healthcare services at a cost-efficient price. Banclife is engaged in life insurance business in the Philippines. In October 2013, PhilPlans acquired 65% of Rosehills Memorial Management Philippines, Inc. (RMMI). RMMI is presently *SGVFS008027* - 53 engaged in the operation and management of a memorial park, memorial and internet services and sale of memorial products. In 2013, STI Investments acquired 70% equity interest in Philippine Life Financial Assurance Corporation (PhilLife, formerly AsianLife and General Assurance Corporation). PhilLife is engaged in the business of life insurance and, in particular, to grant or effect assurances of all kinds of the payments of money by way of single payment or by several payments, or by way of immediate or deferred annuities upon the death of or upon attaining a given age by any person or persons. Condensed financial information for STI Investments is as follows: Current assets Noncurrent assets Current liabilities Noncurrent liabilities Total equity Less equity attributable to equity holders of noncontrolling interests Equity attributable to equity holders of the parent company Proportion of the Group’s ownership Carrying amount of the investment Revenues Net income Other comprehensive income (loss) Total comprehensive income Less total comprehensive income attributable to equity holders of non-controlling interests Total comprehensive income attributable to equity holders of the parent company Proportion of the Group’s ownership Share in total comprehensive income 2014 P =17,648,121,501 27,722,263,499 37,547,030,692 82,847,336 7,740,506,972 2013 P4,817,840,974 = 46,402,910,790 36,917,889,979 344,253,638 13,958,608,147 238,151,432 158,658,537 7,502,355,540 13,799,949,610 20% 20% P = 2,759,989,922 P =1,500,471,108 =8,393,171,350 P =7,161,375,046 P 2,220,567,110 1,252,149,077 (7,524,711,486) 4,182,128,852 (6,272,562,409) 6,402,695,962 25,031,656 27,840,525 (6,297,594,065) 6,374,855,437 20% 20% P1,274,971,087 (P =1,259,518,813) = De Los Santos - General Hospital. De Los Santos General Hospital is primarily engaged in the operation, managing and maintenance of hospitals, clinics, medical and chemical laboratories. De Los Santos - STI Megaclinic. De Los Santos - STI Megaclinic was organized primarily to establish, maintain, adopt and engage in the business of offering, providing and promoting medical services to the general public through accessible, economical and private clinics, health and treatment centers, together with the professional management of the services rendered by licensed and competent physicians, surgeons, medical specialists within the said clinics, health and treatment centers. As a result of the Share Swap transaction discussed in Note 14, the Group’s investments in De Los Santos - General Hospital and De Los Santos - STI Megaclinic were diluted and reclassified to AFS financial assets. STI-Accent. STI-Accent is engaged in providing medical and other related services. In 2012, the contract of usufruct between STI-Accent and Dr. Fe Del Mundo Medical Center Foundation Phil., Inc. to operate the hospital and its related healthcare service businesses for an initial term of *SGVFS008027* - 54 twenty years starting July 2007 was rescinded. Thus, the Group ceased the recognition of its share in the losses of STI-Accent. In 2013, the Group recognized its previously unrecognized equity in losses of STI-Accent amounting to = P6.2 million as at March 31, 2012. As at March 31, 2014 and 2013, the Group provided allowance for impairment loss on its investments in STI-Accent and related advances amounting to = P14.9 million and = P7.2 million, respectively. Interest income earned from the Group’s advances to its associates and joint ventures amounted to = P0.9 million, = P2.6 million and = P2.0 million in 2014, 2013 and 2012, respectively (see Notes 19 and 27). The Group’s share in the net earnings (losses) of its associates, which are individually immaterial, amounted to = P0.1 million, (P =7.5 million) and P =0.1 million in 2014, 2013 and 2012, respectively. For terms and conditions relating to advances to associates and joint ventures, refer to Note 27. The associates had no contingent liabilities and capital commitments as at March 31, 2014 and 2013. 13. Interests in Joint Ventures PHEI On March 19, 2004, STI ESG, together with University of Makati (UMak) and another shareholder, incorporated PHEI. STI ESG and UMak each owns 40.00% of the equity of PHEI with the balance owned by the other shareholder. PHEI is envisioned as the College of Nursing of UMak. The following are certain key terms under the Joint Venture Agreement (JVA) dated May 2, 2003 signed by STI ESG and UMak: a. STI ESG shall be primarily responsible for the design of the curriculum for the Bachelors Degree in Nursing (BSN) and Masters Degree in Nursing Informatics, with such curriculum duly approved by the University Council of UMak; b. UMak will allow the use of its premises as a campus of BSN while the premises of iAcademy will be the campus of the post graduate degree; and c. STI ESG will recruit the nursing faculty while UMak will provide the faculty for basic courses that are non-technical in nature. STI-PHNS On September 16, 2005, GROW and PHNS International Holdings, Inc., a company incorporated in Dallas, Texas, USA, entered into a JVA. Under the JVA, the parties have agreed to incorporate a joint venture company in the Philippines and set certain terms with regards to capitalization, organization, conduct of business and the extent of their participation in the management of affairs of the joint venture company for the primary purpose of engaging, directly or indirectly, in the business of medical transcription and other related business in the Philippines. In relation to the incorporation of a joint venture company, the parties incorporated STI-PHNS. The parties each have a 50.00% ownership of the outstanding capital stock of STI-PHNS. *SGVFS008027* - 55 A Deed of Assignment between GROW and STI ESG was executed on May 5, 2006 to transfer all the rights of GROW in the JVA to the latter. STI-PHNS has already ceased operations in 2014. The Group’s share in the net earnings of its joint ventures amounted to P =4.0 million, = P3.3 million and = P12.0 million in 2014, 2013 and 2012, respectively. The unrecognized share in the net losses of the joint ventures amounted to P =4.1 million and nil as at March 31, 2014 and 2013, respectively. For terms and conditions relating to advances to associates and joint ventures, refer to Note 27. The joint ventures had no contingent liabilities or capital commitments as at March 31, 2014 and 2013. 14. Available-for-Sale Financial Assets This account consists of: Quoted equity shares - at fair value Unquoted equity shares - at cost March 31, 2014 P =3,757,345 46,842,595 P =50,599,940 March 31, 2013 =3,716,495 P 946,983 =4,663,478 P a. Quoted Equity Shares The quoted equity shares above are traded in the PSE. These are carried at fair value with cumulative changes in fair values presented as a separate component in equity under the “Unrealized mark-to-market gain (loss) on available-for-sale financial assets” account in the consolidated statements of financial position. The fair values of these shares are based on the quoted market price as at financial reporting date. The rollforward analysis of the “Unrealized mark-to-market gain (loss) on available-for-sale financial assets”, gross of non-controlling interests, follows: Balance at beginning of year Unrealized MTM loss on AFS financial assets Balance at end of year (see Note 18) March 31, 2014 (P =131,189) (409,190) (P =540,379) March 31, 2013 =192,971 P (324,160) (P =131,189) Dividend income earned from AFS financial assets amounted to = P0.5 million, P =0.4 million and = P2.8 million in 2014, 2013 and 2012, respectively. *SGVFS008027* - 56 b. Unquoted Equity Shares Unquoted equity shares pertain to unlisted shares of stocks which the Group will continue to carry as part of its investment. The fair value if these unquoted equity shares is not reasonably determinable due to the unpredictable nature of future cash flows and the lack of suitable method of arriving at a reliable fair value, hence, these are carried at cost less impairment, if any. c. Share Swap Transactions with Metro Pacific Investments Corporation (MPIC) On December 21, 2012, De Los Santos - STI College, De Los Santos General Hospital, STI ESG, the Delos Santos family (a shareholder in De Los Santos - STI College, De Los Santos General Hospital and De Los Santos - STI Megaclinic) and MPIC entered into an investment agreement, wherein MPIC shall invest in De Los Santos General Hospital by subscribing to 401,942 new common shares or equivalent to 51% equity interest in General Hospital, subject to certain terms and conditions. The terms and conditions include De Los Santos - STI College’s sale of its 42% ownership in De Los Santos - STI Megaclinic to De Los Santos General Hospital, in exchange for De Los Santos - STI College’s additional subscription of 29,399 new common shares or equivalent to 4% equity interest in De Los Santos General Hospital. On February 6, 2013, STI ESG executed a Deed of Assignment with De Los Santos General Hospital wherein the latter would open for subscription to STI ESG 40,000 common shares with an aggregate par value of = P4.0 million. On the same date, De Los Santos - STI College also executed a Deed of Assignment with the De Los General Hospital wherein the latter would likewise open for subscription to De Los Santos - STI College 50,000 common shares with an aggregate par value of P =5.0 million. On June 3, 2013, STI ESG executed a deed of pledge on all of its De Los Santos General Hospital shares in favor of Neptune Stroika Holdings, Inc., a wholly owned subsidiary of MPIC, to cover the indemnity obligations of ESG enumerated in its investment agreement with MPIC. The completion of MPIC’s subscription transpired in June 2013, following the fulfillment of the conditions specified in the agreement. As a result, De Los Santos - STI Megaclinic and De Los Santos General Hospital ceased to be associates of the Group effective June 2013. Consequently, the Group’s effective percentage ownership in De Los Santos General Hospital was diluted and such was reclassified to AFS financial assets. The Group then recognized a loss arising from the dilution amounting to = P43.0 million presented as “Loss on deemed sale and share swap of an associate” in the consolidated statement of comprehensive income. On August 15, 2013, STI Investments purchased 40,051 shares of De Los Santos - STI Megaclinic representing 6.06% of the total outstanding capital stock of the latter from De Los Santos General Hospital. The Group, through De Los Santos – STI College also made an additional investment to De Los Santos General Hospital amounting to P =11.8 million. Out of the total amount, = P5.8 million remain unpaid as at March 31, 2014, which was included as part of “Other payables” under the “Accounts payable and other current liabilities” account. *SGVFS008027* - 57 - 15. Goodwill, Intangible and Other Noncurrent Assets This account consists of: Condominium deposit Goodwill Deposits (see Note 25) Intangible assets Deposit for future purchase of net assets Advances to suppliers Land (see Note 10) Others March 31, 2014 P =397,262,833 202,843,745 38,755,552 29,898,142 20,000,000 15,786,333 – 27,882,846 P =732,429,451 March 31, 2013 =– P 200,258,253 31,962,268 7,711,712 – 5,314,902 387,862,833 8,890,608 =642,000,576 P Land and Condominium Deposit On March 21, 2013, STI ESG’s BOD approved the transfer of a parcel of land to TechZone Philippines, Inc. (TechZone), an entity under common control with the Group (see Note 27), in exchange for condominium units to be developed by TechZone. In April 2013, STI ESG and TechZone, entered into a real estate mortgage for TechZone’s loan amounting to P =800.0 million. STI ESG’s land was used as collateral for TechZone’s loan, the proceeds of which were used by TechZone to develop the property. In August 2013, the Deed of Absolute Sale for the sale of the land was executed between STI ESG and TechZone in accordance with the BOD approval. Title to the land has now been transferred in favor of TechZone and consequently, the amount was reclassified, including other directly attributable costs, as “Condominium deposit.” Development of the condominium project is likewise ongoing. Goodwill The rollforward analyses of this account follow: Balance at beginning of year Additions due to business combinations (see Note 3) Balance at end of year March 31, 2014 P =200,258,253 2,585,492 P =202,843,745 March 31, 2013 =200,258,253 P – =200,258,253 P Goodwill acquired through business combinations have been allocated to the following entities which are considered as separate CGUs: STI-Kalookan STI-Novaliches STI-Taft STI-Tuguegarao (see Note 3) STI-Dagupan (see Note 3) March 31, 2014 P =64,147,877 21,803,322 19,030,844 13,638,360 6,835,818 March 31, 2013 =64,147,877 P 21,803,322 19,030,844 13,638,360 6,835,818 (Forward) *SGVFS008027* - 58 - STI-Batangas Merged entities: STI-Cubao STI-Global City STI-Edsa Crossing STI-Ortigas-Cainta STI-Meycauayan STI-Makati STI-Las Piñas STI-Kalibo STI-Naga March 31, 2014 P =2,585,492 March 31, 2013 =– P 28,327,670 11,360,085 11,213,342 7,476,448 5,460,587 3,261,786 2,922,530 2,474,216 2,305,368 P =202,843,745 28,327,670 11,360,085 11,213,342 7,476,448 5,460,587 3,261,786 2,922,530 2,474,216 2,305,368 =200,258,253 P Deposits This account includes security deposits made for utility companies and warehouse and office space rentals to be applied against future lease payments in accordance with the respective lease agreements. Intangible Assets Intangible assets represent STI ESG’s new accounting software, which was implemented and started to be amortized in June 2013. In 2014, the Group is in the process of implementing its new school management software. The rollforward analyses of this account follow: Balance at beginning of year Additions Reclassification Amortization (see Note 22) Balance at end of year March 31, 2014 P =7,711,712 24,577,384 – (2,390,954) P =29,898,142 March 31, 2013 =7,521,312 P – 190,400 – =7,711,712 P Cost Accumulated amortization Net carrying amount 2014 P =32,289,096 2,390,954 P =29,898,142 2013 =7,711,712 P – =7,711,712 P Deposit for Future Purchase of Net Assets On February 21, 2014, WNU’s BOD approved the acquisition of net assets of Bacolod Educational Service and Technology Center, Inc. (formerly STI College Bacolod, Inc.), which is owned by a franchisee of STI ESG. In March 2014, WNU made an initial deposit for the purchase amounting to P =20 million. In May 2014, the sale was consummated and the deed of absolute sale was executed with agreed total purchase price of P =24 million. Advances to Suppliers Advances to suppliers pertain to advance payments made in relation to the acquisition of property and equipment. These will be reclassified to the “Property and equipment” account when the goods are received or the services are rendered. *SGVFS008027* - 59 - 16. Short-term Loans and Long-term Debt Short-term Loans In 2014, STI ESG availed of short-term loans from Security Bank Corporation (Security Bank) amounting to = P280.0 million with an interest rate of 3.75% and maturing on September 2014. The proceeds from these short-term loans will be used for working capital purposes. STI ESG settled P =100.0 million in November 2013. Outstanding short-term loan as of March 31, 2014 amounted to = P180.0 million. STI ESG availed of unsecured, interest-bearing loans from Metropolitan Bank and Trust Company (Metrobank), Security Bank, Bank of the Philippine Islands (BPI), UnionBank of the Philippines and Classic Finance, Inc. (an entity under common control) aggregating to = P539.0 million. These loans bear interest rates ranging from 5.00% to 6.00%. The proceeds from these loan availments and proceeds from issuances of STI ESG shares were used for the payment of its outstanding loans, acquisition of various properties and construction of new school buildings. These loans were fully settled in December 2012. The loan agreements provide certain restrictions and requirements with respect to, among others, change in majority ownership and management, merger or consolidation with other corporation resulting to loss of control over the overall resulting entity and sale, lease, transfer or otherwise disposal of all or substantially all of its assets. The Group has complied with the notice requirement under the loan agreements with the creditor banks. As discussed in Notes 10 and 11, as at March 31, 2014, property and equipment and investment properties with a carrying value amounting toP =27.9 million and P =13.9 million are pledged as security to the short-term loans of the Group. Long-term Debt As at March 31, 2014, long-term debt consists of: Bank loans - China Banking Corporation (Chinabank) Loan from WNU’s former stockholders Mortgage payable Less current portion =88,811,174 P 19,485,271 109,755 108,406,200 49,940,706 =58,465,494 P The loan from Chinabank is secured by certain land of the Group and WNU’s former owners. These loans have maturities of 5 years or less with interest rates ranging from 4.75% to 13.60% in 2014. The loan agreements provide certain restrictions and requirements with respect to, among others, change in majority ownership and management, merger or consolidation with other corporation resulting to loss of control over the overall resulting entity and sale, lease, transfer or otherwise disposal of all or substantially all of its assets. As at March 31, 2014, WNU has complied with these covenants. WNU has also complied with the notice requirement under the loan agreements with the creditor banks. As at July 9, 2014, the loan from WNU’s former stockholders were already paid in full. *SGVFS008027* - 60 Corporate Notes Facility On March 20, 2014, STI ESG entered into a Corporate Notes Facility Agreement (Credit Facility Agreement) with China Banking Corp. (Chinabank) granting STI ESG a credit facility amounting to = P3.0 billion with a term of either 5 or 7 years. The net proceeds from the issuance of the notes shall be used for capital expenditures and other general corporate purposes. The interest rate shall either be floating or fixed and the term can either be 5 or 7 years depending on the election made by STI ESG on the first drawdown date. The interest rate is benchmarked on the Philippine Dealing System Treasury - Fixing (PDST-F) rate plus a margin of 2% or 2.5% per annum, depending on the term, but in no case be lower than the Bangko Sentral ng Pilipinas overnight rate plus a margin of 0.75% per annum. The Credit Facility Agreement provides certain restrictions and requirements with respect to, among others, change in majority ownership and management, merger or consolidation with other corporation resulting to loss of control over the overall resulting entity and sale, lease, transfer or otherwise disposal of all or substantially all of its assets. As at March 31, 2014, STI ESG has complied with these covenants. STI ESG has also complied with the notice requirement under the loan agreements with the creditor banks. The Credit Facility Agreement also contains, among others, covenants regarding incurring additional debt and declaration of dividends, to the extent that such will result in a breach of the required debt-to-equity and debt service coverage ratios. As at March 31, 2014, STI ESG has complied with the above covenants. STI ESG has also complied with the notice requirement under the loan agreements with the other creditor banks. As of March 31, 2014, STI ESG has not drawn on the credit facility. Interest Interest incurred from short-term loans amounted to = P3.1 million, = P17.3 million and P =32.5 million in 2014, 2013 and 2012, respectively (see Note 19). 17. Accounts Payable and Other Current Liabilities This account consists of: Accounts payable Accrued expenses: Rent School-related expenses Salaries, wages and benefits Advertising and promotion Contracted services Utilities Others Dividends payable (see Note 18) Unearned tuition and other school fees Withholding taxes payable Others March 31, 2014 P =310,531,279 March 31, 2013 =174,408,815 P 29,850,740 22,151,354 13,257,284 13,277,589 28,036,409 3,766,903 7,873,563 12,745,604 9,621,664 11,504,184 54,813,919 P =517,430,492 47,913,702 18,514,400 9,283,290 7,131,086 4,259,353 4,187,980 12,189,508 11,840,316 5,342,406 8,115,060 17,499,905 =320,685,821 P *SGVFS008027* - 61 The terms and conditions of the above liabilities are as follows: a. Accounts payable are noninterest-bearing and are normally settled within a 30 to 60-day term. b. Accrued expenses and withholding taxes payable are expected to be settled within the next financial year. c. Unearned tuition and other school fees are amortized over the related school term. d. Other payables primarily include costs related to the demolition of the existing building on a recently purchased property and equipment and nontrade payables related to purchase of certain property. These are expected to be settled within the next financial year. e. For terms and conditions with related parties, refer to Note 27. 18. Equity Common Stock and Additional Paid-in Capital Details and movement in common stock follow: March 31, 2014 Shares Amount March 31, 2013 Shares Amount Common Stock - P =0.50 par value per share Authorized =5,000,000,000 10,000,000,000 P =5,000,000,000 10,000,000,000 P Issued and outstanding: Balance at beginning of year Issuances (see Note 1) Balance at end of year 9,904,806,924 P =4,952,403,462 – – 9,904,806,924 P =4,952,403,462 1,103,000,000 P =551,500,000 8,801,806,924 4,400,903,462 9,904,806,924 = P4,952,403,462 In December 2011, the Parent Company issued 397,908,895 and 397,908,894 of its unissued common shares to STI ESG and CMA, respectively, via a private placement for an aggregate subscription amount of = P477.5 million. Documentary stamp taxes paid relative to the issuances of shares amounting to P =2.0 million is presented as deduction from additional paid-in capital. The 795,817,789 private placement shares were approved for listing with the PSE on September 28, 2012 subject to the fulfillment of certain conditions. On May 10, 2013, the SEC granted the Parent Company’s request for exemptive relief from the requirements of the mandatory tender offer relative to the private placement transaction. On June 27, 2013, the PSE advised the Parent Company to submit duly executed lock-up agreements to facilitate the listing of private placement shares. The lock-up agreements were executed on August 5, 2013 and were submitted to the PSE on August 7, 2013. The lock-up period expired on February 18, 2014. On September 28, 2012, the Parent Company issued 5,901,806,924 shares to STI ESG stockholders in exchange for 907,970,294 STI ESG shares pursuant to the Share Swap transaction resulting to recognition of common stock of P =2,950.9 million, decrease in other equity reserve of = P2,367.2 million and increase in non-controlling interests of = P25.3 million (see Notes 1 and 3). *SGVFS008027* - 62 On November 7, 2012, the Parent Company issued 2,627,000,000 new shares relative to the Primary Offering at = P0.90 per share following its listing in the PSE. The transaction resulted to increases in common stock and APIC of P =1,313.5 million and = P1,050.8 million, respectively. On November 28, 2012, the Parent Company issued the 273,000,000 Over-allotment Option shares to UBS AG (see Note 1) resulting to recognition of common stock and APIC of = P136.5 million and = P109.2 million, respectively. Transaction costs incurred in connection with the issuance of shares, charged against APIC, amounted to = P118.5 million. Set out below is the Parent Company’s track record of registration of its securities: Date of Approval December 4, 2007* November 25, 2011** September 28, 2012*** November 7, 2012 November 28, 2012 Number of Shares Authorized Issued 1,103,000,000 307,182,211 1,103,000,000 795,817,789 10,000,000,000 5,901,806,924 10,000,000,000 2,627,000,000 10,000,000,000 273,000,000 Issue/ Offer Price =0.50 P 0.60 2.22 0.90 0.90 *** Date when the registration statement covering such securities was rendered effective by the SEC. *** Date when the Parent Company filed SEC form 10-1(k) (Notice of Exempt Transaction) with the SEC in accordance with the Securities Regulation Code and its Implementing Rules and Regulations *** Date when the SEC approved the increase in authorized capital stock. As of March 31, 2014 and 2013, the Parent Company has a total number of shareholders on record of 1,245 and 1,243, respectively. Cost of Shares Held by a Subsidiary This account includes 502,308,895 STI Holdings shares owned by STI ESG as of March 31, 2014 and 2013 amounting to = P500.0 million which is treated as treasury shares in the consolidated statements of financial position. Dividends related to these shares, amounting to P =7.6 million and = P5.0 million, were offset against the dividends declared in 2014 and 2013, as shown in the consolidated statement of changes in equity. Other Comprehensive Income (Loss) March 31, 2014 Unrealized MTM loss on AFS financial assets (Notes 3 and 14) Share in associates’ unrealized MTM gain on AFS financial assets (Notes 3 and 12) Cumulative actuarial gain Share in associates’ cumulative actuarial loss Attributable to Equity Holders of the Parent Company Non-controlling interests Total (P =525,048) (P = 15,331) (P = 540,379) 428,253,571 18,014,452 (15,003,756) P =430,739,219 5,809,954 195,877 (203,540) P =5,786,960 434,063,525 18,210,329 (15,207,296) P =436,526,179 *SGVFS008027* - 63 March 31, 2013 (As restated - see Note 2) Attributable to Equity Holders of the Parent Non-controlling Company interests Unrealized MTM loss on AFS financial assets (Notes 3 and 14) Share in associates’ unrealized MTM gain on AFS financial assets (Notes 3 and 12) Cumulative actuarial gain Share in associates’ cumulative actuarial loss Total = P (121,773) P = (9,416) P =(131,189) 1,905,291,022 21,253,817 (6,845,516) P =1,919,577,550 24,882,689 277,567 (89,400) P =25,061,440 1,930,173,711 21,531,384 (6,934,916) = P1,944,638,990 April 1, 2012 (As restated - see Note 2) Attributable to Equity Holders Non-controlling of the Parent Company interests Unrealized MTM gain (loss) on AFS financial assets (Note 14) Share in associates’ unrealized MTM gain on AFS financial assets (Note 12) Cumulative actuarial loss Share in associates’ cumulative actuarial gain Total P =207,684 P = (14,713) P =192,971 1,039,792,823 (12,708,006) 2,882,164 P =1,030,174,665 43,906,508 (536,611) 121,703 P =43,476,887 1,083,699,331 (13,244,617) 3,003,867 = P1,073,651,552 Other Equity Reserve This account consists of: i. Equity adjustment resulting from the Share Swap transaction (see Notes 1 and 3). The table below summarizes the impact at acquisition date of the Share Swap: Issuance of STI Holdings shares at par Recognition of non-controlling interests (NCI) Elimination of STI ESG common shares Elimination of STI ESG additional paid in capital Elimination of retained earnings of STI Holdings prior to being under common control Elimination of other comprehensive income of STI Holdings prior to being under common control Transfer from STI ESG’s retained earnings to NCI relative to amount attributed to minority shareholders Transfer from STI ESG’s other comprehensive income to NCI relative to amount attributed to minority shareholders Elimination of investment of STI Holdings to STI ESG prior to the Share Swap Reclassification of STI ESG’s investment in STI Holdings and elimination of STI ESG’s share in net income of STI Holdings Stock issue cost relative to the Share Swap Accounts affected Capital stock Non-controlling interests Capital stock Additional paid-in capital Retained earnings Amount P =2,950,903,462 173,954,704 (980,000,000) (379,937,290) (24,004,083) Other comprehensive income 119,472 Retained earnings (74,108,762) Other comprehensive income (44,748,649) Available-for-sale financial assets Investments in and advances to associates and joint ventures Cost of shares held by a subsidiary Retained earnings 80,811,545 501,153,708 (500,009,337) (1,144,371) 15,510,031 P =1,718,500,430 *SGVFS008027* - 64 ii. Parent Company’s equity adjustment for the excess of acquisition cost over the carrying value of non-controlling interests in STI ESG, after reattribution of non-controlling interests’ share in other comprehensive income to the equity holders of the Parent Company, amounting to P =65.0 million = P69.1 million as of March 31, 2014 and 2013, respectively (see Note 3). Retained Earnings Consolidated retained earnings represent STI ESG’s retained earnings, net of amount attributable to NCI, and STI Holdings’ accumulated earnings, net of dividends declared from April 1, 2010, after the Controlling Shareholder’s acquisition of STI Holdings (see Note 3). Consolidated retained earnings include undeclared retained earnings of subsidiaries and associates amounting to P =2,511.1 million and = P1,443.0 million as at March 31, 2014 and 2013, respectively. The Parent Company’s retained earnings available for dividend declaration, computed based on the guidelines provided in the SEC Memorandum Circular No. 11, amounted to P =106.4 million and = P11.2 million as at March 31, 2014 and 2013, respectively. STI ESG’s BOD approved the appropriation amounting to = P800.0 million out of its unappropriated retained earnings balance on December 7, 2011 for the Group’s future expansion of nine schools within the next two years. On August 29, 2013, STI ESG’s BOD approved the reversal of the amount to unappropriated retained earnings. On September 4, 2013, cash dividends amounting to P =0.015144 per share or the aggregate amount of P =150.0 million were declared by the Parent Company’s BOD in favor of all stockholders on record as at September 18, 2013, payable on October 14, 2013. On December 5, 2012, cash dividends amounting to P =0.01 per share or the aggregate amount of = P99.0 million were declared by the Parent Company’s BOD in favor of all stockholders on record as of December 19, 2012, payable on December 28, 2012. On October 13, 2011, cash dividends amounting to P =0.02 per share or the aggregate amount of = P6.1 million were declared by the Parent Company’s BOD in favor of all stockholders on record as of November 11, 2011, payable on December 8, 2011. As of March 31, 2014 and 2013, long outstanding unclaimed dividends amounting to = P11.8 million pertains to dividend declarations from 1998 to 2006. Dividends Declared by Noncontrolling Interest Dividends declared by subsidiaries to non-controlling interest owners amounted to P =11.0 million, = P2.0 million and = P72.0 million for the year ended March 31, 2014, 2013 and 2012, respectively. *SGVFS008027* - 65 - 19. Interest Income and Interest Expense Interest income is derived from the following sources: Cash and cash equivalents (see Note 6) Advances to associates and joint ventures (see Note 27) Past due accounts receivables (see Note 7) Noncurrent receivables (see Note 27) Restructured receivables Accretion of discount on refundable deposits (see Note 15) 2014 =10,997,206 P 2013 =18,975,999 P 2012 =9,750,825 P 925,114 277,259 – – 2,608,782 412,772 12,726,335 – 2,020,625 31,951 3,725,489 560,995 – =12,199,579 P – =34,723,888 P 108,348 =16,198,233 P 2014 P6,518,855 = 3,090,411 1,317,531 =10,926,797 P 2013 =– P 17,320,345 1,511,021 =18,831,366 P 2012 =– P 32,533,323 1,332,121 =33,865,444 P 2014 2013 2012 P =238,054,539 92,718,562 87,691,656 P =190,101,113 101,543,377 95,083,498 P =192,126,640 91,731,260 97,054,973 110,553,121 6,444,628 17,557,479 =553,019,985 P 87,088,146 1,525,885 10,068,037 =485,410,056 P 79,229,573 3,205,510 18,508,740 =481,856,696 P 2013 P25,659,453 = 13,076,515 9,105,552 1,648,119 =49,489,639 P 2012 P18,467,803 = 11,384,345 8,675,101 1,009,953 =39,537,202 P Interest expenses are incurred from the following sources: Long-term debts (see Note 16) Short-term loans (see Note 16) Obligations under finance lease (see Note 25) 20. Cost of Educational Services This account consists of: Faculty salaries and benefits (see Notes 23 and 24) Cost of student activities Rental (see Note 25) Depreciation and amortization (see Note 10) Courseware development Others 21. Cost of Educational Materials and Supplies Sold This account consists of: Educational materials Promotional materials School materials and supplies Others 2014 P32,565,707 = 11,837,412 7,557,627 1,380,934 =53,341,680 P *SGVFS008027* - 66 - 22. General and Administrative Expenses This account consists of: 2014 Salaries, wages and benefits (see Notes 23, 24 and 27) Light and water Depreciation and amortization (see Notes 10 and 11) Taxes and licenses Rental (see Note 25) Professional fees Provision for (reversal of) impairment loss on: Receivables (see Note 7) Investments in and advances to associates and joint ventures (see Note 12) Goodwill (see Note 15) Outside services Advertising and promotions Transportation Meetings and conferences Entertainment, amusement and recreation Office supplies Repairs and maintenance Communication Purchased services and utilities Insurance Excess of cost over net realizable value of inventories (see Note 8) Others 2013 2012 (As restated - see Note 2) P =242,730,816 99,131,497 P =224,270,503 93,622,687 P =215,934,947 87,728,365 94,998,853 34,939,382 48,869,422 48,854,457 69,342,633 68,800,958 48,232,708 39,097,439 65,220,778 28,325,491 48,161,313 34,396,335 57,648,376 34,534,038 40,994,410 (719,873) – 58,037,324 23,092,713 25,204,879 15,874,352 14,997,531 13,029,334 11,786,754 9,812,693 6,049,955 5,450,574 4,120,636 – 34,263,759 21,168,920 21,158,560 13,438,035 12,078,133 10,235,845 9,430,056 7,565,325 6,099,640 4,515,053 3,047,124 3,383,556 27,277,269 18,466,455 21,079,158 14,129,561 9,980,928 8,637,864 9,745,033 7,410,537 7,438,820 4,234,335 246,168 23,107,628 =745,328,724 P 679,052 31,990,747 =688,262,078 P 2,420,456 26,300,906 =838,510,401 P Share Swap and follow-on offering expenses in 2013, included as part of “General and administrative expenses”, amounted to P =50.4 million. 23. Personnel Costs This account consists of: Salaries and wages Pension expense (see Note 24) Other employee benefits (see Note 27) 2014 =414,814,263 P 10,133,891 55,837,201 =480,785,355 P 2013 2012 (As restated - see Note 2) =344,045,511 P =348,679,602 P 19,256,756 5,151,804 51,069,349 54,230,181 =414,371,616 P =408,061,587 P *SGVFS008027* - 67 - 24. Pension Liabilities Defined Benefit Plans The Group (except De Los Santos - STI College and STI-QA) has separate, noncontributory, defined benefit retirement plans covering substantially all of its faculty and regular employees. The benefits are based on the faculties’ and employees’ salaries and length of service. Under the existing regulatory framework, RA No. 7641 requires a provision for retirement pay to qualified private sector employees in the absence of any retirement plan in the entity, provided however that the employee’s retirement benefits under any collective bargaining and other agreements shall not be less than those provided under the law. The law does not require minimum funding of the plan. Retirement benefits are payable in the event of termination of employment due to: (i) early, normal, or late retirement; (ii) physical disability; (iii) voluntary resignation; or (iv) involuntary separation from service. For plan members retiring under normal, early or late terms, retirement benefit is equal to a percentage of final monthly salary for every year of credited service. In case of involuntary separation from service, benefit is determined in accordance with the Termination Pay provision under the Philippine Labor Code or similar legislation on involuntary termination. The funds are administered by a trustee bank under the supervision of the Board of Trustees of the plan. The Board of Trustees is responsible for investment of the assets. It defines the investment strategy as often as necessary, at least annually, especially in the case of significant market developments or changes to the structure of the plan participants. When defining the investment strategy, it takes account of the plans’ objectives, benefit obligations and risk capacity. The investment strategy is defined in the form of a long-term target structure (Investment policy). The Board of Trustees delegates the implementation of the Investment policy in accordance with the investment strategy as well as various principles and objectives to an Investment Committee, which also consists of members of the Board of Trustees, a Director and the Chief Finance Officer (CFO). The CFO oversees the entire investment process. The following tables summarize the components of the Group’s net pension costs recognized in profit or loss and amounts recognized in the consolidated statements of financial position: 2014 Pension expense (recognized under the “Salaries, wages and benefits” account): Current service cost Net interest cost Pension liabilities (recognized in the consolidated statements of financial position): Present value of defined benefit obligations Fair value of plan assets 2013 (As restated see Note 2) P =10,382,377 (627,573) P =9,754,804 =10,972,534 P 934,297 =11,906,831 P P =137,381,189 (76,505,921) P =60,875,268 =107,466,613 P (85,046,505) =22,420,108 P *SGVFS008027* - 68 - 2014 2013 (As restated see Note 2) Changes in the present value of defined benefit obligations: Balance at beginning of year Effect of business combination (see Note 3) Current service cost Interest cost Benefits paid Actuarial loss (gain) on obligations Balance at end of year 107,466,613 46,399,488 10,382,377 2,031,669 (7,590,094) (21,308,864) P =137,381,189 84,147,605 – 10,972,534 4,592,186 (20,928,160) 28,682,448 =107,466,613 P Changes in the fair value of plan assets: Balance at beginning of year Effect of business combination (see Note 3) Contributions Return on plan assets Benefits paid Actuarial gain (loss) on plan assets Balance at end of year P =85,046,505 1,565,732 19,865,810 2,659,242 (7,590,094) (25,041,274) P =76,505,921 =29,373,472 P – 5,620,855 3,657,889 (20,928,160) 67,322,449 =85,046,505 P (P =20,850,191) P =71,192,302 Actual return (loss) on plan assets The principal assumptions used in determining pension liabilities are shown below: Discount rate Future salary increases April 1, 2013 3.04–7.90% 5.00–8.00% April 1, 2012 3.00–8.00% 5.00–8.00% April 1, 2011 5.00–11.00% 6.00–8.00% The maximum economic benefit available is a combination of expected refunds from the plan and reductions in future contributions. The major categories of the Group’s total plan assets as a percentage of the fair value of the total plan assets are as follows: Cash Investment in debt securities Investments in equity securities 2014 30% 5% 65% 100% 2013 14% 4% 82% 100% The plan assets of the Group are maintained by Union Bank of the Philippines, United Coconut Planters Bank and Rizal Commercial Banking Corporation. *SGVFS008027* - 69 Details of STI ESG’s net assets available for plan benefits and their related market values are as follows: Cash Short-term fixed income Investments in government securities Investments in equity securities Others 2014 P =10,858,828 14,736,492 4,716,657 46,178,969 14,975 P =76,505,921 2013 =– P 12,329,338 3,043,165 69,674,002 – =85,046,505 P Short-term Fixed Income. Short-term fixed income investment includes time deposits and special savings deposits. Medium and Long-term Fixed Income. Investments in medium and long-term fixed income which include Philippine peso-denominated bonds, such as government securities whose maturities range from 1 to 25 years with interest rates ranging from 2.75% to 6.38%. Investments in Government Securities. Investments in government securities include treasury bills and fixed-term treasury notes with maturities ranging from one to thirteen years and bear interest rates ranging from 5.9% to 9.0%. These securities are fully guaranteed by government of the Republic of the Philippines. The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is expected to be settled. The plan may expose the Group to a concentration of equity market risk since the Group’s plan assets are primarily composed of investments in listed equity securities. The management performed an Asset-Liability Matching Study (ALM) annually. The overall investment policy and strategy of the Group’s defined benefit plans is guided by the objective of achieving an investment return which, together with contributions, ensures that there will be sufficient assets to pay pension benefits as they fall due while also mitigating the various risk of the plans. The Group’s current strategic investment strategy consists of 65% of equity instruments, 5% of debt instruments and 30% cash. The average duration of the defined benefit obligation at the end of the period is 22 years. Shown below is the maturity analysis of the undiscounted benefit payments: Less than one year More than one year to five years More than five years to 10 years More than 10 years to 15 years More than 15 years to 20 years Amount =20,324,738 P 24,330,827 49,580,356 105,040,687 144,729,170 The expected contribution of the Group in 2015 is = P10.9 million. *SGVFS008027* - 70 The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation (DBO) as of the end of the reporting period, assuming all other assumptions were held constant: Discount rates Future salary increases Employee turnover Increase Present Value of (decrease) DBO 1.00% (P =15,030,045) (1.00%) 15,233,234 1.00% 15,233,234 (1.00%) (15,030,045) 10.00% (2,123,774) (10.00%) 2,123,774 Defined Contribution Plans De Los Santos - STI College and STI-QA have funded, noncontributory defined contribution plan (De Los Santos Plan) covering all regular and permanent employees and is a participating employer in CEAP Retirement Plan. The De Los Santos Plan has a defined contribution format wherein the obligation is limited to specified contributions to the De Los Santos Plan and the employee’s contribution is optional. De Los Santos - STI College and STI-QA’s contributions consist of future service cost and past service cost. Future service cost is equal to 4.00% of employee’s monthly salary from the date an employee becomes a member in CEAP. Past service cost is equal to 5.00% of the employees’ average monthly salary for a 12 month period, immediately preceding the date of De Los Santos STI College and STI-QA’s participation in CEAP, multiplied by the number of years of past service amortized over 10 years. Future service refers to the periods of covered employment on or after the date of De Los Santos - STI College and STI-QA’s participation in CEAP. Past service refers to the continuous service of an employee from the date employee met the requirements for membership in the retirement plan to the date of acceptance of De Los Santos - STI College and STI-QA as a Participating Employer in CEAP Retirement Plan. In addition, De Los Santos - STI College and STI-QA give the employee an option to make a personal contribution to the fund at an amount not to exceed 4.00% of his monthly salary. De Los Santos - STI College and STI-QA then provide an additional contribution of 1.00% of the employee’s contribution based on the latter’s years of tenure. Although the De Los Santos Plan has a defined contribution format, the Group regularly monitors compliance with RA 7641. As at March 31, 2014 and 2013, the Group is in compliance with the requirements of RA 7641. As at March 31, 2014 and 2013, De Los Santos -STI College and STI-QA have excess contributions to CEAP amounting to = P3.2 million and = P3.6 million, respectively (see Note 9). These excess contributions are classified as prepaid expense and will be offset against De Los Santos -STI College and STI-QA’s future required contributions to CEAP. In 2012, De Los Santos - STI College offered an early retirement program to its employees even when the required tenure of ten years or retirement age of sixty has not been reached. As a result, several employees availed of the early retirement program and De Los Santos - STI College recognized the payments as part of pension expense amounting to = P1.6 million in 2012. Pension expense recognized by De Los Santos - STI College and STI-QA in 2014, 2013 and 2012, shown as part of “Cost of educational services” and “General and administrative expenses” accounts, amounted to P =0.4 million, P =7.3 million and P =2.8 million, respectively. *SGVFS008027* - 71 Total pension expense recognized in profit or loss follows: Defined benefit plans Defined contribution plans 2014 =9,754,804 P 379,087 =10,133,891 P 2013 2012 (As restated - see Note 2) =11,906,831 P =2,391,707 P 7,349,924 2,760,097 =19,256,755 P =5,151,804 P 25. Leases a. Finance Lease The Group acquired various transportation equipment under various finance lease arrangements. These are included as part of transportation equipment under the “Property and equipment” account in the consolidated statements of financial position. Future annual minimum lease payments under the lease agreements, together with the present value of the minimum lease payments as at financial reporting date follow: Within one year After one year but not more than five years Total minimum lease payments Less amount representing interest Present value of lease payments Less current portion of obligations under finance lease Noncurrent portion of obligations under finance lease 2014 P8,617,060 = 14,466,643 23,083,703 4,217,606 18,866,097 2013 P8,216,385 = 14,205,559 22,421,944 2,662,886 19,759,058 2012 P8,521,931 = 16,273,590 24,795,521 6,097,919 18,697,602 7,435,444 6,419,251 9,741,235 P =11,430,653 P =13,339,807 P =8,956,367 Interest incurred from finance lease amounted to = P1.3 million, = P1.5 million and = P1.3 million in 2014, 2013 and 2012, respectively (see Note 19). b. Operating Lease As Lessor The Group entered into several lease agreements, as lessors, on their buildings under operating lease agreements with varying terms and periods. All leases are subject to annual repricing based on a pre-agreed rate. Total rental income amounted to = P10.8 million, = P4.6 million and P =5.4 million in 2014, 2013 and 2012, respectively (see Notes 11 and 27). Future minimum rental receivable for the remaining lease terms as at financial reporting date follow: Within one year After one year but not more than five years Total 2014 P3,888,786 = 2,714,374 =6,603,160 P 2013 P1,195,760 = 4,248,000 =5,443,760 P 2012 P467,692 = 18,303,132 =18,770,824 P As Lessee The Group lease land and building spaces, where the corporate office, schools, and warehouse are located, under operating lease agreements with varying terms and periods. The lease rates *SGVFS008027* - 72 are subject to annual repricing based on a pre-agreed rate. Total rental expense charged to operations amounted to P =136.6 million, P =143.3 million and = P145.2 million for the years ended March 31, 2014 and 2013 and April 1, 2012, respectively (see Notes 20 and 22). Certain subsidiaries also paid its lessors refundable deposits equivalent to several months of rental payments as security for its observance and faithful compliance with the terms and conditions of the agreement (see Notes 9 and 15). Future minimum rental payables under the lease agreements as at financial reporting date follow: Within one year After one year but not more than five years After five years and onwards Total 2014 P184,313,624 = 435,951,409 345,719,361 =965,984,394 P 2013 P99,988,542 = 291,361,404 133,723,061 =525,073,007 P 2012 P54,895,288 = 97,999,009 141,389,342 =294,283,639 P 26. Income Tax Except for STI-UWI, all domestic subsidiaries qualifying as private educational institutions are subject to tax under RA No. 8424, “An Act Amending the National Internal Revenue Code, as amended, and For Other Purposes” which was passed into law effective January 1, 1998. Title II Chapter IV - Tax on Corporation - Sec 27(B) of the said Act defines and provides that: a “Proprietary Educational Institution” is any private school maintained and administered by private individuals or groups with an issued permit to operate from DepEd, or CHED, or TESDA, as the case may be, in accordance with the existing laws and regulations and shall pay a tax of ten percent (10.00%) on its taxable income. The components of recognized deferred tax assets and liabilities are as follows: March 31, 2014 Net deferred tax assets: Gain on constructive sale of land held for swap Allowance for doubtful accounts Pension liabilities Excess of: Cost over net realizable value of inventories Rental under operating lease computed on a straight-line basis Unearned tuition and other school fees Others Accrued rent Deferred tax liability Excess of fair values over carrying values of net assets acquired in business combination March 31, 2013 (As restated see Note 2) P =17,213,717 7,453,869 5,812,161 =– P 4,251,262 2,230,932 1,025,741 783,695 734,310 853,351 10,828 33,103,977 – 33,103,977 879,814 482,108 – 8,627,811 (122,237) 8,505,574 127,967,442 (P =94,863,465) – =8,505,574 P *SGVFS008027* - 73 Certain deferred tax assets of subsidiaries were not recognized as at March 31, 2014 and 2013 as it is not probable that future taxable profits will be sufficient against which these can be utilized. The following are the deductible temporary differences and unused NOLCO and MCIT for which no deferred tax assets were recognized: NOLCO Allowance for doubtful accounts Pension liabilities Acquisition-related expenses Unearned tuition and other school fees MCIT Excess of: Cost over net realizable value of inventories Rental under operating lease computed on a straight-line basis Unrealized foreign exchange losses Provision for impairment loss Others 2014 P80,683,803 = 31,090,994 2,753,658 4,773,584 1,088,154 740,309 2013 P76,012,347 = 30,019,589 1,947,714 – 521,326 454,137 2012 P52,067,934 = 12,902,776 3,537,685 – – 112,243 194,274 194,274 194,274 – 145,604 – 273,900 =121,744,280 P 1,356,488 2,541 – 1,034,481 =111,542,897 P 2,325,252 2,849 1,709,044 2,078,213 =74,930,270 P As at March 31, 2014, the Group also did not recognize any deferred tax assets on the provision for impairment losses on investment in and advances to an associate and goodwill aggregating to = P4.1 and = P1.0 million, respectively, because management does not expect to generate enough capital gains against which these capital losses can be offset. The details of the Group’s NOLCO, which can be claimed as deduction from future taxable income, are as follows: Year Incurred December 31, 2010 March 31, 2011 December 31, 2011 March 31, 2012 December 31, 2012 March 31, 2013 December 31, 2013 March 31, 2014 Expiry Dates December 31, 2013 March 31, 2014 December 31, 2014 March 31, 2015 December 31, 2015 March 31, 2016 December 31, 2016 March 31, 2017 Beginning P =13,987,456 10,001,279 2,613,791 17,323,404 3,747,181 28,339,236 – – P =76,012,347 Addition P =– – – – – – 1,382,082 27,278,109 P =28,660,191 Applied/ Expired = P13,987,456 10,001,279 – – – – – – P =23,988,735 End = P– – 2,613,791 17,323,404 3,747,181 28,339,236 1,382,082 27,278,109 P =80,683,803 The details of the Group’s excess MCIT over RCIT, which can be claimed as deduction from future tax payable, are as follows: Year Incurred March 31, 2011 March 31, 2012 March 31, 2013 March 31, 2014 Expiry Date March 31, 2014 March 31, 2015 March 31, 2016 March 31, 2017 Beginning =18,628 P 56,782 378,727 – =454,137 P Addition (Applied/ Expired) (P =18,628) – – 304,800 =286,172 P End =– P 56,782 378,727 304,800 =740,309 P *SGVFS008027* - 74 The reconciliation of the provision for income tax on income before income tax computed at the effect of the applicable statutory income tax rate to the provision for income tax as shown in the consolidated statements of comprehensive income is summarized as follows: 2013 2012 (As restated - see Note 2) 2014 Provision for income tax at statutory income tax rate Income tax effects of: Equity in net losses (earnings) of associates and joint ventures Nondeductible expenses Loss on deemed sale of an investment in an associate Excess of fair values of net assets acquired over acquisition costs Gain on sale of investment in associate Others Difference in 10% and 30% tax rate P =212,567,025 (69,845,555) 17,906,494 P =251,218,114 P =97,105,813 (128,475,582) 8,069,513 11,272,299 7,585,677 – 12,900,087 (9,804,323) – (4,131,908) (106,232,937) =53,358,883 P – – (2,710,785) (85,148,356) =42,952,904 P – – (1,512,015) (17,601,237) (64,623,212) =32,227,325 P Others pertain to the income tax effects of income subject to final tax, change in unrecognized deferred tax assets, expired NOLCO and MCIT and other items. 27. Related Party Transactions Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. This includes: (a) enterprises or individuals owning, directly or indirectly through one or more intermediaries, control or are controlled by, or under common control; (b) associates; and (c) enterprises or individuals owning, directly or indirectly, an interest in the voting power of the company that gives them significant influence over the company, key management personnel, including directors and officers of the Group and close members of the family of any such enterprise or individual. The following are the Group’s transactions with its related parties: Category Associates STI Investments Advances for working capital requirements GROW Advances for various expenses Rental and related charges Amount/Volume March 31, March 31, March 31, 2014 2013 2012 Outstanding Balance Receivable (Payable) March 31, March 31, 2014 2013 Terms = P– = P– P =5,946,690 = P– 3,933,836 – – 4,077,408 2,834,199 43,936 – 5,259,339 Conditions = P– 30 days upon receipt of billings; Noninterest-bearing 143,572 30 days upon receipt of billings but no intention to collect within one year; Noninterestbearing 8,093,538 30 days upon receipt of billings but no intention to collect within one year; Noninterestbearing Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment (Forward) *SGVFS008027* - 75 - Category Amount/Volume March 31, March 31, March 31, 2014 2013 2012 De Los Santos - STI Megaclinic Advances for various P = 31,061,257 expenses and working capital Interest income STI-Alabang Advances for various expenses and working capital STI-Accent Advances for various expenses and other charges Others Advances for various expenses Joint Venture PHEI Management fees Affiliates Philippine Women’s University (PWU)* Principal Interest UNLAD* Principal Interest Outstanding Balance Receivable (Payable) March 31, March 31, 2014 2013 Terms Conditions = P– = P– 2,608,782 2,020,625 216,000 – – – 8,590,000 10,365,820 3,047,124 35,923,762 4,596,630 – – 4,596,630 – 30 days upon receipt of billings; Noninterest-bearing 600,000 3,025,815 3,475,103 200,000 600,000 30 days upon receipt of billings; Noninterest-bearing Unsecured; no impairment 26,470,915 223,529,085 250,000,000 250,000,000 To be settled by way of assignment of investments in shares 9,189,946 3,725,489 12,651,546 12,651,546 Secured; no impairment – – – 198,000,000 P34,743,437 Payable in 5 years; bears 6.50% P = 3,682,180 = interest Unsecured; no impairment – 216,000 30 days upon receipt of billings; Noninterest-bearing 27,333,762 30 days upon receipt of billings but no intention to collect within one year; Noninterestbearing – 198,000,000 198,000,000 To be settled by way of equity conversion Unsecured; no impairment Unsecured; with impairment Unsecured; no impairment Secured; no impairment – 3,536,389 – 3,327,389 CMA** Rentals and related charges – – – 58,830 58,830 30 days upon receipt of billings; Noninterest-bearing Unsecured; no impairment Comm & Sense, Inc**. Rentals and related charges 134,590 138,466 57,764 282,197 147,607 30 days upon receipt of billings; Noninterest-bearing Unsecured; no impairment Phil First Condominium, Inc. ** Rentals and related 12,447,228 charges 80,704 – 6,074 30 days upon receipt of billings; Noninterest-bearing Unsecured; no impairment 16,729 – – 168,922 185,651 30 days upon receipt of billings; Noninterest-bearing Unsecured; no impairment Employee benefits – 6,716,054 3,484,752 – (407,670) 30 days upon receipt of billings; Noninterest-bearing Unsecured PhilCare** Rentals and related charges 49,959 1,314,992 902,776 309,844 259,885 30 days upon receipt of billings; Noninterest-bearing Unsecured; no impairment Employee benefits 4,808 7,278,847 4,350,433 – PhilPlans** Rentals and related charges – 593,863 967,511 113,521 113,521 30 days upon receipt of billings; Noninterest-bearing Unsecured; no impairment 163,985 359,863 243,975 15,926 Unsecured; no impairment – 142,660 113,600 – 179,911 30 days upon receipt of billings; Noninterest-bearing – Phil First Insurance Co., Inc. ** Rentals and related charges Banclife** Rentals and related charges Employee benefits (1,023,915) 3,327,389 – (Forward) *SGVFS008027* - 76 - Category Ventures Securities** Rentals and related charges Classic Finance** Availment of short-term loan Interest expense Officers and employees Advances for various expenses Amount/Volume March 31, March 31, March 31, 2014 2013 2012 Outstanding Balance Receivable (Payable) March 31, March 31, 2014 2013 Terms Conditions = P– = P– P = 36,465 – 160,000,000 – – – 1 year; interest-bearing – 2,442,736 – – – 7,269,928 38,694,691 36,492,764 = P– = P36,465 30 days upon receipt of billings; Noninterest-bearing Unsecured 22,592,828 Liquidated within one month; Noninterest-bearing =558,282,346 P = 542,704,747P 25,024,703 Unsecured; no impairment Unsecured; no impairment *Entities under common management **Entities under common control Outstanding receivables, before any allowance for impairment, and payables arising from these transactions are summarized below: Noncurrent receivables Advances to associates and joint ventures (see Note 12) Advances to officers and employees (see Note 7) Current portion of advances to associates, joint ventures and other related parties (see Note 7) Rent and other related receivables (see Note 7) Accounts payable (see Note 17) March 31, 2014 P =463,978,935 36,123,762 25,024,703 March 31, 2013 P =463,978,935 52,689,744 22,592,828 12,356,218 6,245,044 (1,023,915) P =542,704,747 11,419,489 8,009,020 (407,670) P =558,282,346 Other information on major transactions with related parties follows: a. Agreements with Philippine Women’s University (“PWU”), UNLAD Resources Development Corporation (“UNLAD”) and an unrelated individual (“Individual”) In November 2011, the Parent Company acceded to a joint venture agreement and a shareholders’ agreement by and amongst PWU, UNLAD, an Individual and Mr. Eusebio H. Tanco, STI Holdings’ BOD Chairman, for the formation of a strategic arrangement with regard to the efficient management and operation of PWU. PWU is a private non-stock, non-profit educational institution, which provides basic, secondary and tertiary education to its students while UNLAD is a real estate company controlled by the Benitez Family and has some assets which are used to support the educational thrust of PWU. Pursuant to the Agreement, the Parent Company acquired PWU’s debt (the “Receivable from PWU”) from PWU’s creditor bank, together with all of the bank’s rights to the underlying collateral and security, for the amount of = P223.5 million, on a without recourse basis, in November 2011. Likewise in accordance with the Agreement, the Parent Company is obliged to extend: (a) a direct loan to PWU in the amount of = P26.5 million (the “Loan to PWU”) and (b) a loan to UNLAD in the amount of = P198.0 million (the “Loan to UNLAD”). The Receivable from PWU and the Loan to PWU aggregating to = P250.0 million shall be secured by the PWU Indiana Property and PWU Taft Property while the Loan to UNLAD shall be secured by the PWU Quezon City Property, UNLAD Davao Property and UNLAD Quezon City Property. *SGVFS008027* - 77 The Receivable from PWU and Loan to PWU, inclusive of 5% interest per annum, shall be accrued and paid by way of the assignment by PWU of its shares in UNLAD (which PWU will acquire through a Property-for-Share Swap Transaction). Likewise, the Loan to UNLAD, inclusive of 5% interest per annum, shall be paid by way of conversion of said loan into equity in UNLAD to enable the Parent Company to acquire, together with the shares assigned by PWU to the Parent Company as payment for the Receivable from PWU and Loan to PWU, a total of forty percent (40%) equity in UNLAD. On May 17, 2012, the Individual, who’s a party to the Agreement with the Parent Company, PWU and UNLAD, assigned his rights, title and interest in the Agreement to Attenborough Holdings Corporation (“AHC”). AHC thereby assumed the Individual’s obligation to grant a loan to UNLAD in the principal amount of P =224.0 million (the “AHC Loan to UNLAD”). Pursuant to the agreement, the Parent Company and AHC (collectively referred to as the “Lenders”) agreed to lend UNLAD a principal amount of P =422.0 million consisting of the Parent Company’s loan to UNLAD (“Loan to UNLAD”) and the AHC Loan to UNLAD. Accordingly, on June 8, 2012, the Parent Company entered into an Omnibus Agreement with UNLAD and AHC (“Omnibus Agreement”) which consisted of: (1) a prefatory agreement; (2) a loan agreement; and (3) a real estate mortgage. Under said loan agreement, the Lenders will extend a loan to UNLAD which is payable by way of conversion into equity in UNLAD. Said conversion into equity in UNLAD must enable: (a) the Parent Company to acquire, together with the shares acquired by it as payment of the Parent Company's Loan to PWU, 40.0% of the issued and outstanding capital stock of UNLAD, as discussed above; and (b) AHC to acquire 20.0% of UNLAD’s issued and outstanding capital stock. In June 2012, the Parent Company extended the direct loan to PWU amounting to P =26.5 million in accordance with the Agreement, while in August and October 2012, the Parent Company granted the Loan to UNLAD amounting to P =166.0 million and P =32.0 million, respectively. On March 25, 2013, the joint venture agreement and Omnibus Agreement have been amended to discontinue imposition of interest on the Loan to PWU, Loan to UNLAD and AHC Loan to UNLAD effective January 1, 2013. As of March 31, 2014 and 2013, noncurrent receivables consist of loans of = P448.0 million and accrued interest of P =16.0. Interest income in 2013 amounted to P =12.7 million (see Note 19). As of March 31, 2014 and 2013, the equity interest in UNLAD has not been assigned to the Parent Company in exchange for the receivables from PWU and the Loan to UNLAD. The said receivables from PWU and the Loan to UNLAD are presented as “Noncurrent receivables” in the consolidated statements of financial position. Currently, the Parent Company is working on the submission of all required documents to effect the conversion of these receivables into equity. The Parent Company has nominated its representatives as directors/trustees and officers of PWU and UNLAD. b. Land held for Swap As discussed in Note 15, STI ESG’s BOD approved the transfer of the land to TechZone, a company under common control with the Group, in exchange for condominium units to be developed by TechZone. Subsequent to the transfer, the land was reclassified as “Deposit for *SGVFS008027* - 78 condominium units” under the “Goodwill and other noncurrent assets” account in the consolidated statements of financial position. Compensation and Benefits of Key Management Personnel of the Group Short-term employee benefits Post-employment benefits 2014 =28,970,705 P 1,436,336 =30,407,041 P 2013 2012 (As restated - see Note 2) =22,191,822 P =21,444,985 P 1,809,718 1,048,982 =24,001,540 P =22,493,967 P 28. Basic and Diluted Earnings Per Share on Net Income Attributed to Equity Holders of STI Holdings The table below shows the summary of net income and weighted average number of common shares outstanding used in the calculation of earnings per share for the year ended March 31, 2014 and 2013: 2014 Net income attributable to equity holders of STI Holdings Common shares outstanding at beginning of period Weighted average number of: 5,901,806,924 shares issued Share Swap (see Note 2) 795,817,789 shares issued on November 24, 2011 2,627,000,000 shares issued on November 7, 2012 273,000,000 shares issued on November 28, 2012 Weighted average number of common shares Basic and diluted earnings per share on net income attributed to equity holders of STI Holdings 2013 2012 (As restated - see Note 2) P =681,123,230 P =777,415,889 P =287,028,095 9,904,806,924 7,004,806,924 307,182,211 – – 5,901,806,924 – – 276,900,984 – 1,039,252,747 – – 9,904,806,924 92,250,000 8,136,309,671 – 6,485,890,119 P =0.069 P =0.096 P =0.044 The basic and diluted earnings per share are the same for the years ended March 31, 2014, 2013 and 2012 as there are no dilutive potential common shares. 29. Contingencies and Commitments Contingencies a. STI ESG filed a petition for review with the Court of Tax Appeals (CTA) on October 12, 2009. This is to contest the Final Decision on Disputed Assessment issued by the BIR assessing STI ESG for deficiencies on income tax, and expanded withholding tax for the year ended March 31, 2003 amounting to = P124.3 million. On February 20, 2012, STI ESG rested *SGVFS008027* - 79 its case and its evidence has been admitted into the records. On June 27, 2012, the BIR rested its case and has formally offered its evidence. On April 17, 2013, the CTA issued a Decision which granted STI ESG’s petition for review and ordered a cancellation of the said BIR’s assessment since the right to issue an assessment for the alleged deficiency taxes had already prescribed. On May 16, 2013, STI ESG received a copy of the Commissioner of Internal Revenue’s (CIR) Motion for Reconsideration dated May 8, 2013. STI ESG filed its Comment to CIR’s Motion for Reconsideration on June 13, 2013. On August 22, 2013, the CIR filed its Petition for Review dated August 16, 2013, with the CTA en banc. On October 29, 2013, STI ESG filed its Comment to the CIR’s Petition for Review. The CTA en banc deemed the case submitted for decision on May 19, 2014, considering the CIR’s failure to file its memorandum. As at July 9, 2014, the case is still for decision by the CTA en banc. b. A case for illegal dismissal, previously filed by a group of former employees of a school owned by STI ESG, was terminated in favor of STI ESG with the finality of the decision of the Supreme Court dated April 16, 2010 denying the claimants’ Petition for Review on Certiorari. Said Petition for Review sought, among others, to assail the decisions of both the Court of Appeals and National Labor Relations Commission (NLRC) finding that no illegal dismissal was committed by STI ESG upon said former employees. Also, STI ESG is waiting for the resolution of the Supreme Court of a Petition for Review on Certiorari filed by a former employee for constructive dismissal. The former employee filed said Petition with the Supreme Court after both the Court of Appeals and NLRC denied her claims and rendered prior decisions in favor of STI ESG. c. Due to the nature of STI ESG’s business, it is involved in various legal proceedings, both as plaintiff and defendant, from time to time. The majority of outstanding litigation involves illegal dismissal cases under which faculty members have brought claims against STI ESG by reason of their faculty contract. Except as discussed in (d), STI ESG is not engaged in any legal or arbitration proceedings (either as plaintiff or defendant), including those which are pending or known to be contemplated and its BOD has no knowledge of any proceedings pending or threatened against STI ESG or its franchises or any facts likely to give rise to any litigation, claims or proceedings which might materially affect its financial position or business. Management and its legal counsels believe that STI ESG has substantial legal and factual bases for its position and is of the opinion that losses arising from these legal actions and proceedings, if any, will not have a material adverse impact on STI ESG’s consolidated financial position and results of operations. d. STI ESG is likewise contingently liable for lawsuits or claims filed by third parties, including labor-related cases, which are pending decision by the courts, the outcome of which are not presently determinable. e. Other subsidiaries also stand as defendant of various lawsuits and claims filed by their former employees. The complainants are seeking payment of damages such as backwages and attorney’s fees. As at July 9, 2014, the cases are pending before the Labor Arbiter. Management and their legal counsels believe that the outcome of these cases will not have a significant impact on the consolidated financial statements. *SGVFS008027* - 80 Commitments a. Financial Commitments STI ESG has a = P50.0 million domestic bills purchase line from a local bank specifically for the purchase of local and regional clearing checks. Interest on drawdown from such facility is waived except when drawn against returned checks, to which the interest shall be the prevailing lending rate of such local bank. The terms of such facility include, among others, the continuing suretyship of the major shareholder. As at March 31, 2014, the Group has P =3.0 billion of undrawn committed borrowing facilities related to its Credit Facility Agreement with Chinabank (see Note 16). b. Capital Commitments The Group has contractual commitments and obligations for the construction of the school buildings and improvements in Batangas, Calamba, Quezon City and Lucena aggregating to P =1,057.2 million as at March 31, 2014. The Group has contractual commitments and obligations for the construction of the school buildings and improvements in STI-Kalookan and STI-Ortigas-Cainta aggregating P =1,057.2 million as at March 31, 2013. c. Other Matters i) The Group, as an educational institution, is subject to CHED Memorandum Order No. 13, Series of 1998, otherwise known as the “Guidelines on the Procedure to be Followed by Higher Education Institutions (HEIs) Intending to Increase Their Tuition Fees, Effective School Year 1998–2000,” which states that 70.00% of the proceeds derived from the tuition fee increase for the current school year should be used for the payment of increase in salaries and wages, allowances and other benefits of its teaching and non-teaching personnel and other staff, except those who are principal stockholders of the HEIs. On April 21, 2014, WNU filed a Petition for Certiorari with an application for the issuance of temporary restraining order and preliminary injunction against the CHED with the Regional Trial Court of Quezon City. The Petition was filed in response to the Order dated January 6, 2014 issued by Atty. Julito Vitriolo, CHED’s Executive Director, which affirmed/executed the Closure Order(s) dated July 19, 2011 and April 26, 2013 of WNU’s Bachelor of Science in Marine Transportation (“BS MT”) and Bachelor of Science in Maritime Engineering (“BS MarE”) degrees. In the said Order , CHED resolved: (1) to allow WNUs existing students enrolled prior to the issuance of the denial of its Motion for Reconsideration, Academic Year (AY) 20122013, to complete and graduate their Bachelor of Science in Marine Transportation (BSMT) and Bachelor of Science in Maritime Engineering (BS MarE) degrees in WNU; (2) WNU shall be directed to submit a complete list of the students enrolled as of AY 2012-2013; and (3) effective AY 2013-2014, WNU offering of maritime programs shall be considered to have shifted to a rating school and shall be recognized as a pilot maritime technical school in Western Visayas with 2-3 year “non-officer maritime program” and that students admitted in WNU’s maritime programs effective AY 2013-2014 shall not be *SGVFS008027* - 81 considered to have enrolled in degree program but only in a “non-officer maritime program” of WNU. The issues presented in the Petition filed by WNU are as follows: (a) the April 26, 2013 Order denying WNU’s Motion for Reconsideration of the July 11, 2011 Closure Order was issued despite full compliance by WNU on the required areas for evaluation of WNU’s Maritime Programs; (b) the January 6, 2014 Order did not resolve nor mention the status of the Verified Appeal filed on June 7, 2013; (c) the January 6, 2014 Order downgrading WNU’s BS MT and BS MarE did not provide guidelines for its implementation; (d) the shifting of the enrollees/students for AY 2013-2014 from a rating/degree program to a pilot non officer program/certification will cause grave and irreparable damage on the part of the affected students; (e) under the Manual of Regulations for Private Higher Education, the January 6, 2014 Order should be effected at the end of the academic year. On May 23, 2014, the Trial Court issued an Order dismissing the case on the ground that (a) the period to file the petition for certiorari lapsed on July 28, 2013 or after the sixty (60) day period from receipt of the April 26, 2013 Order of CHED and (b) the Court of Appeals has jurisdiction over petition for certiorari against quasi- judicial agencies such as CHED. On June 11, 2014, WNU filed a Motion for Reconsideration of the May 23, 2014 Order of the Trial Court. In the said Motion for Reconsideration, WNU asserted that (a) the sixty (60) day period to file the petition for certiorari should be counted from the time of the receipt of the assailed order, January 6, 2014 Order of CHED and (b) the Regional Trial Court of Quezon City has jurisdiction over the said case. WNU set the Motion for Reconsideration for hearing on June 20, 2014. However, the presiding judge of the Trial Court was on leave. The Trial Court instead informed the parties that it will issue a notice of the schedule of hearing of the WNU’s Motion for Reconsideration. 30. Financial Risk Management Objectives and Policies The principal financial instruments of the Group comprise cash and cash equivalents and shortterm loans. The main purpose of these financial instruments is to raise working capital and major capital investment financing for the Group’s school operations. The Group has various other financial assets and liabilities such as receivables and accounts payable and other current liabilities, which arise directly from its operations. The main risks arising from the Group’s financial instruments are liquidity risk and credit risk. The BOD and management reviews and agrees on the policies for managing each of these risks as summarized below. Liquidity Risk The Group’s liquidity profile is managed to be able to finance its operations and capital expenditures and other financial obligations. To cover its financing requirements, the Group uses internally-generated funds. As part of its liquidity risk management program, the Group regularly evaluates the projected and actual cash flow information and continuously assesses conditions in the financial markets for opportunities to pursue fund-raising initiatives. *SGVFS008027* - 82 Any excess funds are primarily invested in short-dated and principal-protected bank products that provide flexibility of withdrawing the funds anytime. The Group regularly evaluates available financial products and monitors market conditions for opportunities to enhance yields at acceptable risk levels. The Group’s current liabilities are mostly made up of trade liabilities with 30 to 60-day payment terms. On the other hand, the biggest components of the Group’s current assets are cash, receivables from students and franchisees and advances to associates and joint ventures with credit terms of 30 days and AFS financial assets. As at March 31, 2014 and 2013 and April 1, 2012, the Group’s current assets amounted to P =1,025.5 million, = P1,812.4 million and = P889.0 million, respectively, while current liabilities amounted to = P912.2 million, = P332.1 million and = P1,060.2 million, respectively. The table below summarizes the maturity profile of the Group’s financial assets held for liquidity purposes and other financial liabilities as at financial reporting date based on undiscounted contractual payments. March 31, 2014 Financial Assets Loans and receivables: Cash and cash equivalents Receivables (current and noncurrent)* Advances to associates and joint ventures (included as part of “Investments in and advances to associates and joint ventures” account) Deposits (included as part of “Prepaid expenses and other current assets” and “Goodwill, intangible and other noncurrent assets” accounts) AFS financial assets Financial Liabilities Other financial liabilitiesAccounts payable and other current liabilities** Nontrade payable Short-term loan: Principal Interest Long-term debt: Principal Due and Demandable Less than 2 Months P = 583,302,563 26,653,074 = P– 65,764,225 = P– 14,548,895 36,123,762 – – – P = 646,079,399 More than 1 Year Total = P– 165,359,844 = P– 463,978,935 P = 583,302,563 736,304,973 – – – 36,123,762 – – P = 65,764,225 – – P = 14,548,895 1,831,769 – P = 167,191,613 P = 211,421,740 151,470,221 P = 27,744,853 – P = 10,947,443 – P = 244,293,427 – = P– – P = 494,407,463 151,470,221 – – – – – 1,706,250 180,000,000 1,650,000 – – 180,000,000 3,356,250 – P = 362,891,961 – P = 27,744,853 – P = 12,653,693 49,940,706 P = 475,884,133 58,465,494 P = 58,465,494 108,406,200 P = 937,640,134 Due and Demandable Less than 2 Months 2 to 3 Months 3 to 12 Months More than 1 Year Total = P– 17,918,138 = P– 3,939,716 = P– 10,944,280 – – – – – = P17,918,138 – – P =3,939,716 – – = P10,944,280 = P219,860,121 P =1,110,063 P =3,746,413 2 to 3 Months 3 to 12 Months 38,755,552 40,587,321 50,599,940 50,599,940 P = 553,334,427 P = 1,446,918,559 March 31, 2013 Financial Assets Loans and receivables: Cash and cash equivalents P =1,489,451,909 Receivables (current and noncurrent)* 240,539,396 Advances to associates and joint ventures (included as part of “Investments in and advances to associates and joint ventures” account) 52,689,744 Deposits (included as part of “Prepaid expenses and other current assets” and “Goodwill, intangible and other noncurrent assets” accounts) – AFS financial assets – P =1,782,681,049 Financial Liabilities Other financial liabilitiesAccounts payable and other current liabilities** = P80,417,708 = P– P =1,489,451,909 418,817,781 692,159,311 – 52,689,744 33,342,037 33,342,037 4,663,478 4,663,478 = P456,823,296 P =2,272,306,479 = P552,956 = P305,687,261 * Excluding advances to officers and employees amounting to P =25,024,073 and = P 22,592,828 as at March 31, 2014 and 2013, respectively. ** Excluding taxes payable, unearned tuition and school fees, subscriptions payable, SSS, Philhealth and Pag-ibig benefits payable amounting to P =23,023,029 and = P14,998,560 as at March 31, 2014 and 2013, respectively. *SGVFS008027* - 83 As at March 31, 2014 and 2013, the Group’s current ratios are as follows: Current assets Current liabilities Current ratios March 31, 2013 =1,812,433,009 P 332,135,285 5.457:1.000 March 31, 2014 =1,025,488,146 P 912,194,435 1.124:1.000 Credit Risk Credit risk is the risk that the Group will incur a loss arising from students, franchisees or other counterparties that fail to discharge their contractual obligations. The Group manages and controls credit risk by setting limits on the amount of risk that the Group is willing to accept for individual counterparties and by monitoring expenses in relation to such limits. It is the Group’s policy to require the students to pay all their tuition and other school fees before they can get their report cards and other credentials. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and AFS financial assets, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. At financial reporting date, there is no significant concentration of credit risk. Credit Risk Exposures. The table below shows the maximum exposure to credit risk for the components of the consolidated statements of financial position as at financial reporting date: March 31, 2014 Gross Net Maximum Maximum Exposure(1) Exposure(2) Financial Assets Loans and receivables: Cash and cash equivalents (excluding cash on hand) Receivables (current and noncurrent)* Advances to associates and joint ventures** Deposits*** AFS financial assets P =581,840,338 736,304,973 21,175,875 40,587,321 50,599,940 P =1,430,508,447 P =575,340,337 272,326,038 21,175,875 40,587,321 50,599,940 P =960,029,511 March 31, 2013 Financial Assets Loans and receivables: Cash and cash equivalents (excluding cash on hand) Receivables (current and noncurrent)* Advances to associates and joint ventures** Deposits*** AFS financial assets Gross Maximum Exposure(1) Net Maximum Exposure(2) P =1,488,848,927 692,159,311 52,689,744 33,342,037 4,663,478 P =2,271,703,497 P =1,481,845,131 228,180,376 52,689,744 33,342,037 4,663,478 P =1,800,720,766 * Excluding advances to officers and employees amounting to = P 25,024,703 and = P 22,592,828 as at March 31, 2014 and 2013, respectively. **Included as part of “Investments in and advances to associates and joint ventures” account ***Included as part of “Prepaid expenses and other current assets” and “Goodwill, intangible and other noncurrent assets” account (1) Gross financial assets before taking into account any collateral held or other credit enhancements or offsetting arrangements. (2) Gross financial assets after taking into account any collateral held or other credit enhancements or offsetting arrangements or insurance in case of bank deposits. *SGVFS008027* - 84 The credit quality of financial assets is managed by the Group using its internal credit ratings. The table below shows the credit quality by class of financial assets that are neither past due nor impaired as at financial reporting date: Class A(1) Financial Assets Loans and receivables: Cash and cash equivalents (excluding cash on hand) Receivables (current and noncurrent)* Advances to associates and joint ventures Deposits AFS financial assets Total P =– P =581,840,338 – 78,722,372 – 21,175,875 – 40,587,321 – 50,599,940 P =– P =772,925,846 P =581,840,338 78,722,372 21,175,875 40,587,321 50,599,940 P =772,925,846 Class A(1) Financial Assets Loans and receivables: Cash and cash equivalents (excluding cash on hand) Receivables (current and noncurrent)* Advances to associates and joint ventures Deposits AFS financial assets March 31, 2014 Class B(2) March 31, 2013 Class B(2) P =1,488,848,927 63,498,628 45,521,984 33,342,037 4,663,478 P =1,635,875,054 Total = P– P =1,488,848,927 – 63,498,628 – 45,521,984 – 33,342,037 – 4,663,478 = P– P =1,635,875,054 * Excluding advances to officers and employees amounting to = P 25,024,703 and = P 22,592,828 as at March 31, 2014 and 2013, respectively.. **Included as part of “Investments in and advances to associates and joint ventures” account ***Included as part of “Prepaid expenses and other current assets” and “Goodwill, intangible and other noncurrent assets” account (1) This includes low risk and good paying customer accounts with no history of account treatment for a defined period and no overdue accounts as at report date and deposits or placements to counterparties with good credit rating or bank standing financial review. (2) This includes medium risk and average paying customer account with no overdue accounts as at report date and new customer accounts for which sufficient credit history has not been established and deposits or placements to counterparties not classified as Class A. The table below shows the aging analysis of financial assets that are past due but not impaired as at financial reporting date: March 31, 2014 Neither Past Due Nor Impaired Financial Assets Loans and receivables: Cash and cash equivalents (excluding cash on hand) Receivables (current and noncurrent)* Advances to associates and joint ventures Deposits AFS financial assets Past Due but not Impaired 31 to 60 Days 61 to 90 Days Over 90 days Impaired Total P = 581,840,338 78,722,372 = P– 61,586,694 = P– 132,016,972 = P– 463,978,935 = P– 105,629,684 P = 581,840,338 841,934,657 21,175,875 40,587,321 50,599,940 P = 772,925,846 – – – P = 61,586,694 – – – P = 132,016,972 – – – P = 463,978,935 14,947,887 – – P = 120,577,571 36,123,762 40,587,321 50,599,940 P = 1,551,086,018 March 31, 2013 Neither Past Due Nor Impaired Financial Assets Loans and receivables: Cash and cash equivalents (excluding cash on hand) Receivables (current and noncurrent)* Advances to associates and joint ventures Deposits AFS financial assets Past Due but not Impaired 31 to 60 Days 61 to 90 Days Over 90 days Impaired Total P =1,488,848,927 63,498,628 = P15,871,279 = P151,653,229 = P461,136,175 = P57,815,801 P =1,488,848,927 749,975,112 45,521,984 33,342,037 4,663,478 P =1,635,875,054 = P15,871,279 = P151,653,229 = P461,136,175 7,167,760 = P64,983,561 52,689,744 33,342,037 4,663,478 P =2,329,519,298 * Excluding advances to officers and employees amounting to = P 25,024,703 and = P 22,592,828 as at March 31, 2014 and 2013, respectively. **Included as part of “Investments in and advances to associates and joint ventures” account ***Included as part of “Prepaid expenses and other current assets” and “Goodwill, intangible and other noncurrent assets” account *SGVFS008027* - 85 Impairment Assessment The main consideration for the impairment assessment include whether any payments of principal or interest are overdue by more than 90 days or there are any known difficulties in the cash flows of counterparties or infringement of the original terms of the contract. Individually Assessed Allowances. The Group determines the allowance appropriate for each individually significant account balance on an individual basis. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance once a financial difficulty has arisen, projected receipts and the expected dividend payout should bankruptcy ensue, the availability of other financial support, the realizable value of collateral, if any, and the timing of the expected cash flows. The impairment losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention. Collectively Assessed Allowances. Allowances are assessed collectively for losses on account balances that are not individually significant and for individually significant loans and advances where there is no objective evidence of individual impairment. Allowances are evaluated on each reporting date with each portfolio receiving a separate review. The collective assessment takes account of impairment that is likely to be present in the portfolio even though there is no objective evidence of the impairment in an individual assessment. Impairment losses are estimated by taking into consideration the following information; historical losses on the portfolio, current economic conditions, the approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance and expected receipts and recoveries once impaired. The impairment allowance is then reviewed by credit management to ensure alignment with the Group’s policy. Capital Risk Management Policy Parent Company. The Parent Company aims to achieve an optimal capital structure in pursuit of its business objectives which include maintaining healthy capital ratios and strong credit ratings, and maximizing shareholder value. STI ESG. STI ESG’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for stockholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. The Group is not subject to externally imposed capital requirements. The Group considers its equity contributed by stockholders as capital. Capital stock Additional paid-in capital Treasury stock Retained earnings March 31, March 31, 2013 2014 P4,952,403,462 P =4,952,403,462 = 1,119,079,467 1,119,079,467 (500,009,337) (500,009,337) 2,151,532,167 2,690,263,952 =7,723,005,759 P =8,261,737,544 P *SGVFS008027* - 86 The Group monitors capital on the basis of the debt-to-equity ratio which is calculated as total debt divided by total equity. The Group includes all liabilities within debt. The Group defines total equity as common stock, additional paid-in capital, unrealized mark-to-market gain (loss) on investments in equity securities and retained earnings. As at March 31, 2014 and 2013, the Group’s debt-to-equity ratios are as follows: Total liabilities Total equity Debt-to-equity ratio March 31, 2013 =367,895,200 P 8,135,356,191 0.045:1.000 March 31, 2014 P =1,170,933,292 7,128,169,995 0.164:1.000 Another approach used by the Group is the asset-to-equity ratios shown below: Total assets Total equity Asset-to-equity ratio March 31, 2014 P =8,299,103,287 7,128,169,995 1.164:1.000 March 31, 2013 =8,503,251,391 P 8,135,356,191 1.045:1.000 No changes were made in the objectives, policies or processes in 2014, 2013 and 2012. 31. Financial Instruments The Group’s financial instruments consist of cash and cash equivalents, receivables, advances to associates and joint ventures, deposits, loans payable, accounts payable and other current liabilities. The primary purpose of these financial instruments is to finance the Group’s operations. There are no material unrecognized financial assets and liabilities as at March 31, 2014 and 2013. Fair Value Information Due to the short-term nature of cash and cash equivalents, receivables, short-term loans, accounts payable and other current liabilities, current portion of long-term debt, their carrying values reasonably approximate their fair values at year end. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value. Advances to Associates and Joint Ventures and Deposits. The fair value of these instruments are computed by discounting the face amount using PDSTF-R2 at reporting date. The fair value of advances to associates and joint ventures, classified under Level 2, amounted to P =36.5 million and = P34.8 million as at March 31, 2014 and 2013, respectively. The fair value of rental deposits, classified under Level 2, amounted to = P37.9 million and P =30.6 million as at March 31, 2014 and 2013, respectively. *SGVFS008027* - 87 AFS Financial Assets. The fair values of publicly-traded instruments are determined by reference to market bid quotes as of financial reporting date. Investments in unquoted equity securities for which no reliable basis for fair value measurement is available are carried at cost, net of impairment. As of March 31, 2014 and 2013, there were no other financial assets and liabilities other than quoted AFS financial assets which are measured at fair value determined in reference with quoted prices in active market (Level 1 Hierarchy). Noncurrent receivables. The fair value of noncurrent receivables from unlisted entities to be settled by common shares does not materially differ from its fair value. Long-term debt. The carrying value approximates fair value because of recent and regular repricing based on market conditions. Variable rate loans are repriced on a quarterly/ semi-annual basis (see Note 16). The carrying value of long-term debt, classified under Level 2, amounted to = P58.5 million as at March 31, 2014. For the years ended March 31, 2013 and 2012, there were no transfers between Level 1 and 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. 32. Note to Consolidated Statements of Cash Flows Non-cash investing and financing activities pertain to the following: a. Share Swap between the Parent Company and STI ESG in September 2012 amounting to P =2,950.9 million (see Notes 1, 3 and 18). b. Acquisitions of property and equipment under finance lease recorded under the “Property and equipment” account amounted to = P6.1 and P =7.6 million as at March 31, 2014 and 2013, respectively (see Note 10). c. Unpaid progress billing for construction in progress amounting to P =129.6 million and P =46.2 million as at March 31, 2014 and 2013, respectively (see Note 10). d. Conversion of advances to related parties amounting to P =41.6 million into equity investment (see Note 12). e. Reclassification of land amounting to P =387.9 million from “Property and equipment” account to “Other noncurrent assets” account in 2013 (see Note 10). f. Application of the cash bond amounting to = P21.9 million to purchase a certain land to be used for the construction of a school building in 2013. *SGVFS008027* - 88 - 33. Events after the Reporting Date The Group entered into the following transactions after March 31, 2014: a. Deposit for Future Stock Subscription in AHC In May 2014, the Parent Company made a deposit for future subscription to 40% of outstanding common stock of AHC. b. Chinabank Credit Facility On May 9, 2014, the first drawdown date, STI ESG elected to have a 7 year term loan with floating interest based on the 1-year PDST-F plus a margin of two percent (2.00%) per annum, which interest rate shall in no case be lower than the BSP overnight rate plus a margin of three-fourth percent (0.75%) per annum. Said interest rate shall be repriced and determined on the relevant interest rate repricing date, and thereafter, such repriced interest rate shall be the applicable interest rate for the immediately succeeding two (2) interest periods. The amounts of = P200.0 million and = P100.0 million were drawn from the facility in May 2014, subject to 4.34% and 4.43% interest rates, respectively. These loans are unsecured and are due in July 2021. c. Land Acquisition Subsequent to March 31, 2014, STI ESG made various payments to acquire a parcel of land in San Jose del Monte, Bulacan with a total purchase price amounting to = P154.4 million. *SGVFS008027* SCHEDULE A – FINANCIAL ASSETS March 31, 2014 (Amount in Pesos) STI EDUCATION SYSTEMS HOLDINGS, INC. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Name of Issuing Entity and Description of Each Issue Number of Shares or Principal Amount of Bonds and Notes Amount Shown in the Balance Sheet The Group has no financial assets at FVPL as of March 31, 2014 Value Based on Market Quotations at Balance Sheet Date Income Received and Accrued SCHEDULE B – AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED PARTIES, AND PRINCIPAL STOCKHOLDERS (Other than Related Parties) March 31, 2014 (Amount in Pesos) STI EDUCATION SYSTEMS HOLDINGS, INC. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Name and Designation of Debtor Balance at beginning of year Collections / Liquidations Additions Balance at end of year Andaya, Mitch VP - Academics 196,693 13,070 209,763 - Aporo , Kathy Deputy School Administrator 448,393 - 448,393 - Basilio, Rowena School Administrator 305,902 - 305,902 - Bautista, Teodoro VP – Academics - 356,288 129,418 226,870 Bundoc, Restituto O. VP - School Operations 156,632 318,781 102,520 372,893 Cualoping, Vanessa Director 239,312 - 239,312 - De Guzman, Engelbert L VP – Communications 635,322 1,304,075 1,731,666 207,731 Fabro, Ferdinand AVP - Campus Development - 326,992 86,210 240,782 Fernandez, Peter EVP and COO 884,989 5,120 643,284 246,825 Jacob, Monico V. President 2,537,308 427,411 1,292,018 1,672,701 Jamandre, Jay Joseph C. AVP – HROD 219,545 1,662 221,207 - Joson, Harry Alfonso AVP – ARA/CCD/MIS - 308,043 121,154 186,889 Magano, Shiela AVP - School Management - 511,285 296,358 214,927 Ortega, Ferdie Creative Manager - 502,061 262,459 239,602 Pebenito, Vanessa Special Assistant to the COO - 289,430 112,615 176,815 Rabaya, Colbert Senior School Administrator 240,013 1,391 120,855 120,549 Sangalang, Amiel VP – Comptrollership 292,790 40,905 116,149 217,546 Tabije, Karen Precious Brand Manager - 420,524 188,012 232,512 Tan, Suzette R. AVP - Comptrollership 224,398 - 224,398 - Tubongbanua, John VP – CIS 266,178 - 266,178 - 6,647,475 4,827,038 7,117,871 4,356,642 The above schedule of advances to officers and employees of the Group with balances above P100,000 as of March 31, 2014 pertain to car plan agreements. Such advances are non-interest bearing and are liquidated on a semi-monthly basis. There were no amounts written off during the year. SCHEDULE C – AMOUNTS RECEIVABLE FROM/PAYABLE TO RELATED PARTIES WHICH ARE ELIMINATED DURING THE CONSOLIDATION OF THE FINANCIAL STATEMENTS March 31, 2014 (Amount in Pesos) STI EDUCATION SYSTEMS HOLDINGS, INC. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Name and Designation of Debtor Balance at beginning of year Additions Collections/ Liquidations Balance at end of year 5,100,000 - Receivable of STI Education Systems Holdings, Inc. (“STI Holdings”) from STI Education Services Group, Inc. (“STI ESG”) 5,100,000 Receivable of STI ESG from STI Holdings - 13,539,911 3,290,996 Receivable of West Negros University from STI Holdings - 7,321,342 Receivable of STI ESG from West Negros University - 22,515,669 - Description Terms Business advisory fees Non-interest bearing and to be settled within the year 10,248,915 Reimbursement Non-interest bearing and to be settled within the year - 7,321,342 Assignment of liability Non-interest bearing and to be settled within the year - 22,515,669 Advances Non-interest bearing and to be settled within the year The above-mentioned receivables are current and to be settled within the year. SCHEDULE D – INTANGIBLE ASSETS – OTHER ASSETS March 31, 2014 (Amount in Pesos) STI EDUCATION SYSTEMS HOLDINGS, INC. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Description Beginning balance Additions at cost Reclassifications Charged to cost and expenses Ending balance - 397,262,833 - - 397,262,833 Goodwill 200,258,253 2,585,492 - - 202,843,745 Deposits 31,962,268 6,793,284 - - 38,755,552 - 20,000,000 - - 20,000,000 7,711,712 24,577,384 - 2,390,954 29,898,142 387,862,833 - 387,862,833 - - 14,205,510 29,463,669 642,000,576 480,682,662 Condominium deposit Deposit for future purchase of net assets Computer Software Land Other non current asset 43,669,179 387,862,833 2,390,954 732,429,451 SCHEDULE E – LONG TERM DEBT March 31, 2014 (Amount in Pesos) STI EDUCATION SYSTEMS HOLDINGS, INC. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Title of issue and type of obligation Amount authorized by indenture Amount shown under caption “Current portion of long-term debt” in related balance sheet Amount shown under caption “Long-Term Debt” in related balance sheet China Banking Corporation (Chinabank) Bank loans: Maturity Date / Interest Rate 09.25.14 / 6% 20,279,160 05.16.18 / 4.75% 2,901,479 05.16.18 / 4.75% 8,218,765 09.29.15 / 6% 1,428,590 09.29.15 / 6% 250,000 09.29.15 / 6% 325,000 04.20.18 / 6% 18,500,000 12.16.15 / 6% 6,562,500 58,465,494 Loan from WNU’s former stockholders Mortgage payable 88,811,174 30,345,680 19,485,271 19,485,271 109,755 109,755 108,406,200 49,940,706 58,465,494 SCHEDULE F –INDEBTEDNESS TO RELATED PARTIES (LONG-TERM LOANS FROM RELATED COMPANIES) March 31, 2014 (Amount in Pesos) STI EDUCATION SYSTEMS HOLDINGS, INC. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Name of Related Party The Group has no longterm loans from related parties as of March 31, 2014 Beginning balance Additions at cost Ending balance SCHEDULE G - GUARANTEES OF SECURITIES OF OTHER ISSUERS March 31, 2014 (Amount in Pesos) STI EDUCATION SYSTEMS HOLDINGS, INC. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Name of Issuing Entity of Securities Guaranteed by the Company Not applicable Title of Issue of Each Class of Securities Guaranteed Total Amount Guaranteed and Outstanding Amount Owed by Person for which Statement is Filed Nature of Guarantee SCHEDULE H –CAPITAL STOCK March 31, 2014 (Amount in Pesos) STI EDUCATION SYSTEMS HOLDINGS, INC. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City Number of Shares Held By Title of Issue Number of Shares Authorized Common 10,000,000,000 Stock Number of Shares Issued Stock Dividends declared Number of Shares Outstanding Number of Treasury Shares Number of Shares Reserved for Options Warrants, Conversions, and Other Rights 9,904,806,924 - 9,904,806,924 None None *Related Parties Prudent Resources, Inc. Rescom Developers, Inc. Eujo Philippines, Inc. Insurance Builders, Inc. Capital Managers and Advisors, Inc. STI Education Services Group, Inc. TOTAL 1,614,264,964 794,343,934 763,873,130 579,675,992 397,908,894 502,307,895 4,652,374,809 **Directors/Officers: Eusebio H.Tanco Monico V. Jacob Vanessa Rose L. Tanco Joseph Augustin L. Tanco Martin K. Tanco Paolo Martin O. Bautista Rainerio M. Borja Maulik R. Parekh Jesli A. Lapus Ernest Lawrence Cu Johnip G. Cua Yolanda M. Bautista Arsenio C. Cabrera, Jr. TOTAL 1,442,013,875 33,784,057 1 2,000,001 36,560,000 3,250,000 3,200,000 1,000 6,500,000 26,000,000 1,000 5,000,001 6,500,000 1,564,809,935 Related Parties Directors, Officers and Employees Others 4,652,374,809* 1,564,809,935** 3,687,622,180 SCHEDULE I –USE OF PROCEEDS March 31, 2014 (Amount in Pesos) STI EDUCATION SYSTEMS HOLDINGS, INC. 7/F iAcademy Building, 6764 Ayala Avenue, Makati City No. of Offer Shares: Offer Price: Gross Proceeds: 2,900,000,000 P 0.90 P 2,610,000,000 USE OF PROCEEDS AS OF MARCH 31, 2014 Disbursements Subscription to 2.1 billion STI Education Services Group, Inc.(“STI ESG”) shares (Refer to Annex A below) Underwriting fees Professional fees and other expenses Documentary stamp taxes paid Acquisition of West Negros University (WNU) Equity contribution to WNU TOTAL Amount P2,100,000,000.00 90,432,409.01 23,643,137.50 7,250,000.00 242,970,428.04 145,704,025.45 P2,610,000,000.00 ANNEX A USE OF PROCEEDS by STI ESG Disbursements Acquisition of land – Cubao and Las Piñas Acquisition of land, buildings and renovation of buildings – STI Batangas Construction of school buildings – Ortigas-Cainta, Caloocan, Cubao, Calamba and Las Piñas Purchase of equipment for Ortigas-Cainta, Caloocan and Cubao Purchase of furniture for Ortigas-Cainta and Caloocan Payment of loans incurred for the purchase of land in Ortigas- Cainta, Caloocan and Cubao Payment of loans incurred for working capital requirements TOTAL Amount P 434,921,286.54 141,251,067.29 792,931,285.82 32,806,153.33 21,250,068.13 591,388,300.00 85,451,838.89 P2,100,000,000.00 STI EDUCATION SYSTEMS HOLDINGS, INC. RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION MARCH 31, 2014 Unappropriated retained earnings, beginning Adjustments: Unappropriated retained earnings as adjusted, beginning Net income based on the face of the AFS Less: Non-actual/unrealized income net of tax Equity in net income of associate/joint venture Unrealized foreign exchange gain - net (except those attributable to Cash and Cash equivalents) Unrealized actuarial gain Fair Value adjustment (M2M gains) Fair Value adjustment of Investment Property resulting to gain Adjustment due to deviation from PFRS/GAAP-gain Other unrealized gains or adjustments to the retained earnings as a result of certain transactions accounted for under the PFRS Add: Non-actual losses Depreciation on revaluation increment (after tax) Adjustments due to deviation from PFRS/GAAP-loss Loss on fair value adjustment of Investment property (after tax) Net income actual/realized Add (Less): Dividend declarations during the period Appropriation of Retained Earnings during the period Reversals of appropriations Effects of prior period adjustments Treasury shares TOTAL RETAINED EARNINGS AVAILABLE FOR DIVIDEND, MARCH 31, 2014 =11,232,418 P – 11,232,418 245,120,656 256,353,074 (149,998,396) =106,354,678 P STI EDUCATION SYSTEMS HOLDINGS, INC. MAP OF RELATIONSHIPS BETWEEN AND AMONG THE COMPANY AND ITS ULTIMATE PARENT COMPANY, MIDDLE PARENT, SUBSIDIARIES OR CO-SUBSIDIARIES, AND ASSOCIATES MARCH 31, 2014 STI EDUCATION SYSTEMS HOLDINGS, INC.* 99% 99% STI EDUCATION SERVICES GROUP, INC.* SUBSIDIARIES WEST NEGROS UNIVERSITY CORP. ASSOCIATES iAcademy 100% STI College Tuguegarao, Inc. 100% STI Investments, Inc. 20% STI College Alabang, Inc. 40% STI College of Batangas, Inc. 100% STI College of Dagupan, Inc. 77% Global Resource for Outsourced Workers, Inc. 17% STI Marikina, Inc. 24% STI College Taft, Inc. 75% De Los Santos – STI College 52% Accent Healthcare, Inc. / STI-Banawe, Inc. 49%** DLS-STI College Quezon Avenue, Inc. 100% *STI Education Services Group, Inc. owns 5% equity interest in STI Holdings as at March 31, 2014. **A dormant company accounted for as an associate for accounting purposes and the carrying value has been reduced to zero. STI EDUCATION SYSTEM HOLDINGS, INC. SCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS March 31, 2014 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as at March 31, 2014 Framework for the Preparation and Presentation of Financial Statements Conceptual Framework Phase A: Objectives and qualitative characteristics PFRSs Practice Statement Management Commentary Philippine Financial Reporting Standards PFRS 1 (Revised) First-time Adoption of Philippine Financial Reporting Standards Amendments to PFRS 1 and PAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Amendments to PFRS 1: Additional Exemptions for First-time Adopters Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters Amendments to PFRS 1: Government Loans PFRS 2 Share-based Payment Amendments to PFRS 2: Vesting Conditions and Cancellations Amendments to PFRS 2: Group Cash-settled Sharebased Payment Transactions PFRS 3 (Revised) Business Combinations PFRS 4 Insurance Contracts Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts PFRS 5 Non-current Assets Held for Sale and Discontinued Operations PFRS 6 Exploration for and Evaluation of Mineral Resources PFRS 7 Financial Instruments: Disclosures Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition Adopted Not Not Not Early Adopted Applicable Adopted PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as at March 31, 2014 Amendments to PFRS 7: Improving Disclosures about Financial Instruments Amendments to PFRS 7: Disclosures - Transfers of Financial Assets Amendments to PFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures PFRS 8 Operating Segments PFRS 9* Financial Instruments Amendments to PFRS 9: Mandatory Effective Date of PFRS 9 and Transition Disclosures Financial Instruments – New hedge accounting requirements PFRS 10* Consolidated Financial Statements PFRS 11* Joint Arrangements PFRS 12* Disclosure of Interests in Other Entities PFRS 13* Fair Value Measurement Investment entities (amendments to PFRS 10, PFRS 12 and PAS 27) Philippine Accounting Standards PAS 1 (Revised) Presentation of Financial Statements Amendment to PAS 1: Capital Disclosures Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to PAS 1: Presentation of Items of Other Comprehensive Income PAS 2 Inventories PAS 7 Statement of Cash Flows PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors PAS 10 Events after the Reporting Period PAS 11 Construction Contracts PAS 12 Income Taxes Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets PAS 16 Property, Plant and Equipment Adopted Not Not Not Early Adopted Applicable Adopted PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as at March 31, 2014 PAS 17 Leases PAS 18 Revenue PAS 19 Amendments to PAS 19: Actuarial Gains and Losses, Group Plans and Disclosures Employee Benefits (Amended) Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments) PAS 20 Accounting for Government Grants and Disclosure of Government Assistance PAS 21 The Effects of Changes in Foreign Exchange Rates Amendment: Net Investment in a Foreign Operation PAS 23 (Revised) Borrowing Costs PAS 24 (Revised) Related Party Disclosures PAS 26 Accounting and Reporting by Retirement Benefit Plans PAS 27 (Amended)* Separate Financial Statements PAS 28 (Amended)* Investments in Associates and Joint Ventures PAS 29 Financial Reporting in Hyperinflationary Economies PAS 31 Interests in Joint Ventures PAS 32 Financial Instruments: Disclosure and Presentation Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation Amendment to PAS 32: Classification of Rights Issues Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities PAS 33 Earnings per Share PAS 34 Interim Financial Reporting PAS 36 Impairment of Assets Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets (Amendments) PAS 37 Provisions, Contingent Liabilities and Contingent Assets PAS 38 Intangible Assets PAS 39 Financial Instruments: Recognition and Measurement Adopted Not Not Not Early Adopted Applicable Adopted PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as at March 31, 2014 Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions Amendments to PAS 39: The Fair Value Option Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets – Effective Date and Transition Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives Amendment to PAS 39: Eligible Hedged Items Financial Instruments: Recognition and Measurement Novation of Derivatives and Continuation of Hedge Accounting (Amendments) PAS 40 Investment Property PAS 41 Agriculture Philippine Interpretations IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments IFRIC 4 Determining Whether an Arrangement Contains a Lease IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment IFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 8 Scope of PFRS 2 IFRIC 9 Reassessment of Embedded Derivatives Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment IFRIC 11 PFRS 2- Group and Treasury Share Transactions IFRIC 12 Service Concession Arrangements Adopted Not Not Not Early Adopted Applicable Adopted PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as at March 31, 2014 IFRIC 13 Customer Loyalty Programmes IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Amendments to Philippine Interpretations IFRIC- 14, Prepayments of a Minimum Funding Requirement IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 18 Transfers of Assets from Customers IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine IFRIC 21 Levies SIC-7 Introduction of the Euro SIC-10 Government Assistance - No Specific Relation to Operating Activities SIC-12 Consolidation - Special Purpose Entities Amendment to SIC - 12: Scope of SIC 12 SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers SIC-15 Operating Leases – Incentives SIC-25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease SIC-29 Service Concession Arrangements: Disclosures. SIC-31 Revenue - Barter Transactions Involving Advertising Services SIC-32 Intangible Assets - Web Site Costs Annual improvements to PFRSs 2009 – 2011 cycle Annual improvements to PFRSs 2010 – 2012 Cycle Annual improvements to PFRSs 2011 – 2013 Cycle Adopted Not Not Not Early Adopted Applicable Adopted
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