1. business and industrial

COVER SHEET
4 4 0 9
SEC Registration Number
A B O I T I Z
T R A N S P O R T
S Y S T E M
( A T S C )
C O R P O R A T I O N
(Company’s Full Name)
1 2 T H
U. N.
F L O O R
T I M E S
A V E.
C O R N E R
E R M I T A
M A N I L A
P L A Z A
T A F T
B U I L D I N G
A V E.
(Business Address: No. Street City/Town/Province)
1 2
ISMAEL R. CABONSE
02-5287516 / 02-5287630
(Contract Person)
(Company Telephone Number)
3 1
Month
Day
(Fiscal Year)
0 5
1 7 - A
(Form Type)
2 8
Month
Day
(Annual Meeting)
DECEMBER 31, 2009
(Secondary License Type, If Applicable)
Corporation Finance Department
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
2,147
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1.
For the fiscal year ended December 31, 2009
2.
SEC Identification Number 4409
4.
Exact name of issuer as specified in its charter Aboitiz Transport System (ATSC) Corporation
5.
3. BIR Tax Identification No. 000-313-401
Philippines
6.
Province, Country or other jurisdiction of incorporation
(SEC Use Only)
Industry Classification Code:
or organization
7.
12th Floor Times Plaza Bldg. United Nations Ave. corner Taft Ave., Ermita, Manila ______1000____
Address of principal office
8.
Postal Code
(02) 528-7516 and (02) 528-7630
.
Issuer's telephone number, including area code
9.
William Gothong and Aboitiz Inc., Serging Osmeña Blvd., North Reclamation Area, Cebu City
Former name, former address, and former fiscal year, if changed since last report.
10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA
Title of Each Class
Number of Shares of Common Stock Outstanding and
Amount of Debt Outstanding
Common stock, P 1 par value
Redeemable preferred stock, P 1 par value
2,446,136,400
4,560,417
11. Are any or all of these securities listed on a Stock Exchange.
Yes [X]
No [ ]
Philippine Stock Exchange - Common Stock and Redeemable Preferred Stock
12. Check whether the issuer:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17.1 thereunder or Section 11 of the RSA
and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the
preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports);
Yes [X]
No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [X]
No [ ]
13. Aggregate market value of the voting stock held by non-affiliates as of March 31, 2010:
P 181,180,571.26
2
TABLE OF CONTENTS
PAGE NO.
PART I – BUSINESS AND GENERAL INFORMATION
Item 1
Item 2
Item 3
Item 4
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
4
23
26
26
PART II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5
Item 6
Item 7
Item 8
Market for Registrant’s Common Equity and
Related Stockholder Matters
Management’s Discussion and Analysis of Financial Condition
& Results of Operations
Financial Statements
Information on Independent Accountant and Other Related
Matters
26
28
42
42
PART III – CONTROL AND COMPENSATION INFORMATION
Item 9
Item 10
Item 11
Item 12
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management
Certain Relationships and Related Transactions
PART IV – CORPORATE GOVERNANCE
43
50
51
54
54
PART V – EXHIBITS AND SCHEDULES
Item 13
a. Exhibits
b. Reports on SEC Form 17-C
70
70
SIGNATURES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
INDEX TO EXHIBITS
3
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION (“ATS”)
Business Development
The Company’s history dates back to May 26, 1949 with the establishment of William Lines,
Inc., a passenger and cargo shipping company headquartered in Cebu. Driven by the vision of
providing the nation with the best shipping services, the company consolidated its resources
and expertise with two other Cebu based companies namely Carlos A. Gothong Lines, Inc.
and Aboitiz Shipping Corporation last December 21, 1995. This marked the birth of William,
Gothong & Aboitiz, Inc. (WG&A).
In 2002, Aboitiz Equity Ventures, Inc. (AEV) acquired the combined holdings of the Chiongbian
and Gothong Group (C&G Group). The buyout by AEV of the shareholdings of C&G Group was
executed through an Escrow Agreement dated July 31, 2002.
In compliance with the
agreement, the Company amended its Article of Incorporation to change its registered
corporate name from William, Gothong & Aboitiz, Inc. (WG&A) to Aboitiz Transport System
(ATSC) Corporation (ATS) which the Securities and Exchange Commission (SEC) approved
last February 4, 2004.
Last October 24, 2005, the SEC authorized the issuance of 414,121,123 common shares in
exchange for the 100% of the outstanding capital stock of Aboitiz One, Inc. (AONE), 50% of the
outstanding capital stock of Jebsen Management (BVI) Limited (JMBVI) and 62.5% of the
outstanding capital stock of each of Aboitiz Jebsen Bulk Transport Corporation (ABOJEB),
Aboitiz Jebsen Manpower Solutions, Inc. (AJMSI) and Jebsen Maritime Inc (JMI). The major
shareholders of AONE, ABOJEB, AJMSI, JMI and JMBVI are Aboitiz & Company, Inc. (ACO)
and certain affiliates of ACO. The ownership percentage of ACO increased from .02% to
16.50% while AEV, although it remained the controlling stockholder of ATS, decreased its
percentage of ownership from 92.69% to 76.11%.
The said share swap transaction
consolidated the transport and logistics businesses of the Aboitiz Group and is envisioned to
maximize the synergy and efficiencies and streamline operations and backroom processes.
In August 2007, the company acquired from Accuria the Supercat Fast Ferry Corporation
(SFFC), a fast ferry domestic shipping business. Accuria, which owns 100% of SFFC, is an
affiliate of ATS. To further augment the Company’s share in the freight market, ATS
entered into a joint venture agreement with MCC Transport Singapore Pte. Ltd. and
Mercantile Ocean Maritime Co. (Filipinas) Inc. to form MCC Transport Philippines Inc.
(MCCP).
On June 18, 2008, AONE, a wholly owned subsidiary of ATS, purchased 100% of the issued
and outstanding capital stock of Scanasia Overseas, Inc. (SOI) from Mr. Carsten Pedersen
consisting of Three Million Nine Hundred Seventy Thousand (3,970,000) shares at P1 par
value for a purchase price of Three Hundred Seventy Three Million Eight Hundred Seventy
Thousand Pesos (P373,870,000).
4
Scanasia is engaged in the business of sales, marketing, warehousing and transportation of
temperature-controlled and ambient food products to its customers in the Philippines. The
said acquisition is in line with AONE's business strategy to provide total supply chain
solutions to clients and to further improve the effectiveness and efficiency of its delivery
services.
On August 2009, AONE formed a joint venture with Kerry Logistics Network Limited of Hong
Kong (KLN) for the international freight forwarding business. KLN is the leading Asia-based
provider of logistics services and supply chain solutions. It operates in over 300 cities
globally, 23 countries worldwide and serve over 127 cities throughout Mainland China.
The joint venture company, Kerry-Aboitiz Logistics, Inc. (KALI), aims to offer innovative, cost
effective and reliable services on international air and sea freight and cargo forwarding,
cargo consolidation, and as a breakbulk agent. With the global clout of KLN and the
domestic dominance of ATS, KALI is poised to provide better service to its clients.
Corporate Structure
100%
100%
Zoom In
Packages, Inc.
(Freight
Solutions)
100%
Aboitiz One,
Inc.
(Freight
Solutions)
62.5%
Aboitiz Jebsen
Bulk Transport
Corp.
(Shipmanagement
Services)
33%
SuperCat Fast
Ferry Corp.
(Passage
Solutions)
62.5%
Aboitiz Jebsen
Manpower
Solutions, Inc.
(Land based
Manpower
MCC Transport
Philippines, Inc.
(Freight Solutions)
62.5%
Jebsens
Maritime, Inc .
(Sea based
Manpower
Solutions)
50%
Jebsen
Management
(BVI) Ltd
(Int’l Ship
Chartering)
5
Brand Structure
Many companies work together to bring the brands of ATS to life. They enable us to deliver
on our brand promises. There are instances when two or more companies work together to
provide the products and service offered by a single brand, such as the case of 2GO, which
has evolved into a total supply chain solutions provider.
ATS
Aboitiz Transport System (‘ATS’ or the ‘Company’) is the only integrated transport solutions
provider in the country. Its principal business units are engaged in the movement of people
operating under brand names ‘SuperFerry’, ‘SuperCat’, and ‘Cebu Ferries’ and the
movement of cargos operating under the brand name ‘2GO’. ATS’ array of services geared
towards cargo movements includes containerization, RoRo services, logistics and supply
chain solutions. The Company also provides ship management and manpower solutions
worldwide under the Aboitiz-Jebsen group of companies.
It is majority-owned by Aboitiz Equity Ventures, one of the largest and most diversified
publicly listed corporations in the country with business interests spanning in various
industries such as power, banking, food production, property development, construction,
shipbuilding, and leisure/resort.
Vessel Fleet
As of December 31, 2009, ATS has a total fleet of 23 operating vessels, of which 19 are
company-owned ships. The fleet consists of 7 fast crafts under the brand name ‘SuperCat’,
10 RoRo/Pax vessels including 6 under the ‘SuperFerry’ brand, 4 vessels under ‘Cebu
Ferries’ brand, and 2 freighters under the ‘2GO’ brand. ATS vessel fleet has a combined
Gross Registered Tonnage of approximately 93,151 metric tons, total passenger capacity of
approximately 15,206 passengers and aggregate cargo capacity (including the chartered
freighters) of approximately 6,014 twenty-foot equivalent units (TEUs).
SuperFerry and Manila Ferry vessels are passenger/cargo vessels that call on Manila as
their homeport. SuperFerry vessels are generally larger than the rest of the fleet of ferries.
6
Cebu Ferries are standard passenger/cargo vessels calling on the Visayas and Mindanao
ports with Cebu as homeport. SuperCat vessels are the fast craft passenger vessels of the
Company that ply short distances.
Ports of call
ATS’ extensive presence throughout the country is carried out through its branch operations
and agency networks. These are located primarily in Bacolod, Batangas, Butuan, Cagayan de
Oro, Calapan, Cebu, Cotabato, Davao, Dumaguete, General Santos, Iligan, Iloilo, Manila,
Nasipit, Ormoc, Ozamis, Puerto Princesa, Surigao, Tagbilaran, and Zamboanga.
Market Share
As of December 31, 2009, ATS continues to dominate the Philippine Sea Travel with 49%
market share in the passage ferry service and 30% market share in the passenger fast craft
service specifically in ports that they serve. Freight market share is estimated at 34%.
Subsidiaries and Affiliate of ATS
ATS has 8 operating subsidiaries and affiliates, Aboitiz One, Inc. (AONE), Aboitiz Jebsen Bulk
Transport Corp. (Abojeb), Jebsen Maritime Inc. (JMI), Aboitiz Jebsen Manpower Solutions,
Inc. (AJMSI), Jebsen Management (BVI) Limited (JMBVI), Supercat Fast Ferry Corp. (SFFC),
Zoom In Packages, Inc. (ZIP) and MCC Transport Philippines, Inc (MCCP).
Product Lines and Markets
Briefly, the Company’s product lines and solutions are described as follows:
1. PASSAGE
ATS continues its course as a low-cost operator with unbundled price structure through its
SuperFerry, Cebu Ferries and SuperCat brands. These provide affordable, comfortable, safe
and reliable travel experience.
In order to drive passenger volume and sales, signature price promotions were offered,
including ‘Tripid Fares’, the year-round low price regular fare offering and ‘Todo Todo Sale
Sail’, a special promo with defined selling and sailing dates. In 2009 the ‘Todo Tawad Promo’
was introduced to targeted ports. Promotions were complemented by offering customers the
convenience and speed in dealing with us. Ticketing systems were enhanced to be able to
accept credit and ATM (automated teller machine) cards through mobile phone and internet.
Further, customers who buy their tickets early will be able to enjoy larger discounts on their
fares. A ticket to the Visayas can be bought for as low as P750, while a ticket to Mindanao
can be bought for as low as P1,150. SuperFerry is the first domestic passenger ship to price
its tickets based on availability of accommodations. The software driven pricing system is
similar to that of hotels and airlines - automatically adjusting prices based on customer
demand. Customers have the option of purchasing tickets with or without meals.
These steady efforts have successfully increased SuperFerry passenger load factors to 82%,
the highest since 2005 were vessels were only 53% utilized.
7
As of December 31, 2009, SuperFerry provided customers transportation to 16 ports of call,
namely: Manila, Bacolod, Cagayan de Oro, Cebu, Cotabato, Davao, Dumaguete, General
Santos, Iligan, Iloilo, Butuan, Ozamis, Puerto Princesa, Surigao, Tagbilaran, and Zamboanga.
Frequencies vary per destination. As of December 31, 2009, 6 vessels served these ports of
call: 5 SuperFerries and 1 Our Lady vessel. Customers had four (4) types of accommodations
to choose from, namely: stateroom, cabin, tourist, mega value, and super value. On the
average, sales of economy accommodations (i.e. mega value and super value) account for
about 85% of total revenue.
Foreign sales do not constitute a significant percentage of total SuperFerry sales.
SuperFerry has no overseas branches, outlets, or agents. Customers based overseas may
purchase a SuperFerry e-ticket through the SuperFerry website.
SuperFerry sells tickets using three distribution channels: (1) over 600 online outlets
nationwide composed of corporate, network agencies, direct outlets; (2) an in-house call
center; and (3) through the SuperFerry website.
No new products were introduced in the past three years. Shuttle services continue to serve
selected routes, depending on market demand.
Lastly, SuperFerry brand’s commitment to passenger comfort and safety remain on top of
ATS’ agenda.
On December 2009, the ISO 9001:2008 Quality Management System
certification for its passenger services team, passage terminal and vessel operations was
awarded to SuperFerry. Both Cebu Ferries and SuperCat has been ISO certified since 2004
and in October 2009, successfully passed the Surveillance Audit by SGS for their ISO
Certificate 9001:2008.
2. FREIGHT
2GO is the source of quality solutions that offer integrated services at a lower overall cost for
customers who need full supply chain solutions or any of its components. The brand was
formally launched in October 2004. In 2008, it refreshed its brand promise, with commitment
to flexibility: “A passion to provide flexible solutions to help your business grow”. With focus
on providing solutions to its customers, the redefined 2GO solutions architecture is
categorized into delivery and transport, special services, customer support, and supply chain
management solutions.
2GO offers integrated flexible solutions to customers as follows:
Delivery & Transport
2GO provides the flexibility to send anything from money to temperature-controlled goods
throughout the Philippines and beyond. 2GO handles a variety of cargo types from dry cargo
to liquids to temperature-sensitive products and can move full container (FCL) and loose
cargo (LCL), with the option for pick-up and delivery, from the factory or warehouse to the
designated delivery point.
ATS believes in being able to provide for the specific needs of its market. 2GO Freight further
provides various container types depending on the need of the customers. These containers
come in three (3) sizes: 10-footer, 20-footer and 40-footer. They also come in different
8
forms: dry closed container and special containers like flat racks (use to carry lumber), fruit
vans, hog vans, cattle vans and reefer vans.
2GO Freight also offers varied options designed to meet the customers’ needs and
requirements. Customers can choose among different delivery options -door-to-door, doorto-pier, pier-to-door, or pier-pier.
2GO Freight’s Roll-On Roll-Off (RoRo) service is a superior and yet simple, self-driven service
that gives the customer control over the movement of goods. They are given priority loading,
resulting in faster delivery lead-time and reduced costs.
Special Services
2GO special services solutions cover flexible warehousing and distribution, asset
maintenance including tank cleaning and container repairs and home and office relocation
for any industry.
Customer Support
2GO has established a customer service team with the objective of creating advocates of its
customers. While this goal is not limited to the customer service team, 2GO continues to find
ways to further enhance customer experience. The customer service team handles the
management of the call center and complaints.
Tools have been developed to help customers monitor and manage their own transactions. It
has incorporated an online track and trace facility through our website, e-trace via SMS, as
well as email and SMS push and pull facilities for reports and tracking needs.
2GO ensure availability, accessibility, and accuracy so that customers can continue to depend
on 2GO for advice and develop long-lasting partnerships. By listening and understanding
their business requirements and customizing solutions, 2GO aims to be the customer’s
consultant of choice.
The Customer Interaction Center of ATS is open from 6:00 a.m. to 10:30 p.m. seven days a
week. They are the frontliners who receive and manage the bookings from customers as
well as answering any queries on status of customers’ cargoes.
Supply Chain Solutions
Supply chain solutions cover industry solutions and supply chain management.
Competition
1. PASSAGE
The operating environment in 2009 for our passenger business was very challenging as we
faced a deflated market and stiff competition from the airlines. Our capacity was reduced
with the sale of Our Lady of Medjugorje vessel and the loss of SuperFerry 9. The temporary
suspension by MARINA and the devastating typhoons that hit the country further decreased
the number of voyages resulting in lost sales.
9
However, sea transport will continue to be one of the primary means of inter-island transport
in the Philippines especially for travellers who wish to bring many baggages. In recent years
also, the rise of consumer preference for RoRo or land transport has become more evident.
There is a growing passenger market segment that is shifting to this alternative means of
transportation because of its affordability, frequency of trips and convenience for people who
live in the outskirts.
SuperFerry ports of call are based in Central Visayas, Western Visayas, Northern Mindanao,
and Southern Mindanao.
SuperFerry competes with airlines and other domestic inter-island ferries principally in
terms of price. Cut throat competition is an effect of ‘fare diving’ to compensate for rising
costs especially fuel. There is no limit to competition in terms of pricing which can also be
readily copied by any player. In terms of service, the sea players compete by providing
reliable service to passengers in the form of safety and on-time departures and arrivals.
Customers also look for convenience in ticket purchases, frequency of schedules, improved
facilities on-board and entertainment.
In 2009, among the principal competitors of SuperFerry are Negros Navigation, Cebu Pacific,
Philippine Airlines, and various Bus Lines. Geographic areas of competition include Bacolod,
Iloilo, Puerto Princesa, Cagayan de Oro, Iligan, Ozamis, Cebu, Cotabato, Davao, General
Santos, Dumaguete, Surigao, Tagbilaran, Zamboanga, Butuan, Roxas and Panay area (for the
Bus Lines).
In order to attract passengers to travel by sea, SuperFerry maintains a suitable gap between
the price of SuperFerry and airline fares. On top that, customers continue to have the benefit
of a larger baggage allowance.
The SuperFerry strategy to combat competing alternatives is to conduct aggressive
marketing and promotional activities to promote the SuperFerry Tripid Fares.
In 2009, SuperFerry intensified its low fare campaign called Biyaheng Bayan which focuses
on the higher benefits of SuperFerry’s Tripod Fares. Aside from developing new broadcast
materials, a repeat of SuperFerry's Biyaheng Bayan Caravan toured key areas in the country
to talk about the low fare campaign, holding pocket events in barangays and free concerts in
key cities.
Despite the challenges, SuperFerry remains undaunted and focused to seek for better ways
to deliver our service consistently all the time and be a sought after alternative to move
around the islands. SuperFerry is committed to consistently provide a reliable, convenient
and affordable sea service with a passion to serve its entire customer.
2. FREIGHT
2GO is at the forefront of providing quality solutions and an integrated service offering to
customers who need full supply chain solutions or any of its components. It is the vision of
the brand to be the leader in the Supply Chain Management.
While growing and de-commoditizing the freight business of ATS, 2GO grows and bundles
more value added services to its existing and new customers. These value added services
include 3PL (Third Party Logistics), nationwide air, land and sea transport for lead time
10
sensitive cargo, cold chain management for temperature controlled goods, asset
maintenance, money remittance, domestic and international courier.
Further, 2GO is the logistics and transport enabler of ScanAsia, a wholly owned subsidiary of
AONE, which handles the nationwide distribution of several FMCG (Fast Moving Consumer
Goods) through various channels.
The SuperFerry 9 accident was a major highlight in 2009. The suspension of the ATS fleet
and subsequent voyage cancellations due to Lloyds Register’s vessel inspections, not only
resulted to huge revenue losses, but also operational service issues, especially for the lead
time sensitive cargo and supply chain customers.
The onslaught of Ondoy and Peping during the last quarter also resulted to revenue losses
due to a temporary shortage of consumer goods moving out of Manila. Factories were either
flooded or available stocks were being prioritized and distributed to affected areas in Luzon.
Fuel prices dropped at the beginning of the year, and increased during the second half of
2009. The increase in fuel prices and all other delivery related costs such as trucking and
transhipment, resulted to a further squeeze in margins.
However, despite of the above challenges, 2GO’s strategy of providing flexible capacity
through short-term charters of freighter vessels proved to be a good move. This allowed
ATS to continue serving customers especially on port links lost, as a result of SuperFerry
voyage cancellations. The short-term charters also allowed ATS to start building the market
in preparation for the deployment of 1,000 TEU freighters.
ATS has taken advantage of the low vessel prices and has purchased two (2) 1,000 TEU
freighters, which lowered the Company’s vessel slot cost. Both ships were fully operational
in December 2009. ATS target to have four (4) freighters running on a regular weekly run,
covering all major ports of the country.
During the past years, there has been a growth in the number of players in the domestic
shipping industry. Pricing is no longer regulated, thus allowing new entrants to compete
with the existing operators. Barge operators and chartered vessels are increasing in volume
shipments as companies – both small and large – continue to look for alternative shipping
lines.
Major competitors of 2GO in the domestic shipping industry specifically in major areas of
Visayas and Mindanao regions include Sulpicio Lines, Lorenzo Shipping, Negros Navigation,
CAGLI (Gothong Lines).
The company believes in providing the best in technology, service and people. By investing
heavily in modern systems, equipment, vessels and putting these in the hands of highly
trained, competent and efficient workforce, ATS Freight continues to elevate the service and
safety standards of the shipping in the country.
It has several systems running to support its complex business. It includes the Oracle and
SAP systems and several in-house developed systems that provide operational efficiency on
every aspect of 2GO business. Further, the Transport Management System from JDA
Software Inc. (JDA) enabled the company to plan more efficiently resulting to a higher truck
and container utilization. In 2009, 2GO was awarded as Best in Growth Market by JDA.
11
2GO remains committed to live up to the customer service goal of creating 2GO advocates by
ensuring availability, accessibility and accuracy, so that customers can continue to depend on
2GO for advise and long term partnership. ATS has the ships, all the necessary terminal
equipment, warehouse facilities, land transportation equipment, a nationwide network,
operating systems, and most of all a group of highly energized and passionate team who will
deliver 2GO’s brand promise of “Flexible Solutions”.
Safety, Security and Quality Standards
ATS, in partnership with its subsidiary, Aboitiz Jebsens Bulk Transport Corporation, an
international ship management company with ISO 9001:2000 accreditation and certified as
compliant to the International Safety Management Code (ISM) and International Ship and Port
Security Code (ISPS), maintains its fleet to international standards of quality, safety, security
and seaworthiness. The Company ensures each ship is manned with qualified, certified,
medically fit and suitably experienced seafarers and qualified and competent shore-based
staff to support the quality, safe, secure and efficient operation of vessels. Various in-house
and external training programs are instituted for all the onboard and landbased staff to
upgrade their skills and to keep them abreast with developments in international shipping
standards.
The Company and its entire fleet has to undergo a periodic ISM, ISPS and ISO external audits
conducted by American Bureau of Shipping to ensure continuous improvement of safety,
security and quality on board. The ISM and ISPS codes are IMO initiated mandatory
requirement for all companies that operate ships. The ISM’s objectives are to prevent
maritime accidents, provide competent crews, emergency preparedness, ensure a planned
maintenance system and protection of the environment while the ISPS Code ensures that
security threats are recognized and security breaches are prevented. The Philippine
Maritime Industry (MARINA) and Office for Transportation Security (OTS) under the
Department of Transportation and Communications (DOTC) has issued a memorandum
circular requiring all domestic passenger vessels to comply with the ISM and/or NSM
(National Safety Management) and the ISPS code.
In the strive to continually improve its Safety, Security and Quality Standards, the company in
2006, implemented new procedures such as the amendment and categorization of safety
inspection reports, standardized the drill evaluation format and servicing procedures of fire
extinguishers, fire suppression system, and checking of cargoes during the loading and
unloading operations, designated specific areas as “smoking areas” on board the vessel,
identified the restricted areas onboard, implemented K9 panelings and improved the tactical
response trainings of security personnel onboard with emphasis on customer satisfaction. In
the last quarter of 2009, Abojeb initiated a per vessel team enhancement of security situation
response exercises focusing on immediate action drills and movements to address the
identified threat of onboard security incident. The last 2 years had been observed as having a
drastic decrease in cargo pilferage onboard due to the implementation of strict security
access controls on the cargo decks and the requirement of appropriate padlocks for all RRTS
and rolling cargoes. In 2007, seminars for "Leadership & Management" and "Job Hazard
Analysis & Safety Awareness in the Workplace" were conducted onboard. The company also
developed safety and security procedures & requirements in accepting RoRo and motor
vehicles on RoRo/passenger ship. In 2009, the Company initiated seminars on vessel stability
12
and lashing procedures for 2GO personnel and ATI supervisors and was scheduled to include
the outports. In addition, frequent dialogues were conducted with involved parties especially
in the handling, carriage and unloading of approved fumigated cargoes. To prevent pollution
at sea, implemented procedures in handling Oily Water Separator (OWS) overboard discharge
and Emergency Bilge Suction valves.
In 2008, the Company has started to comply with ISO14001-Environmental Management
System (EMS) requirements onboard all managed vessels to further enhance its
commitment to the protection and preservation of the marine environment and had initiated
an internal audit based on the EMS standards with scheduled follow-ups. The Company
hopes to fully implement the EMS in about 6 months with international certification.
Customers
The Company has a wide customer base that includes manufacturers of consumer goods and
finished products, traders of commercial, industrial and agricultural goods as well as the
general public. The Company monitors its top 50 customers. No single customer accounts for
20% or more of the Company’s freight revenue.
Purchases of Materials, Parts and Supplies
Materials, parts and supplies are obtained mostly from local suppliers at competitive rates.
Fuel and lubes, the biggest operating expense of the Company is purchased from a major fuel
provider.
Selected Major Suppliers of the Registrant:
Items/Services Supplied
Major Supplier
 Fuel, diesel and lubricants
1.
2.
3.
4.
Pilipinas Shell Corp.
Petron Corp.
Chevron Phils., Inc.
J&P Asia Enterprises
 Vessel repair and drydocking
1. Tsuneishi Trading
2. Keppel Philippines Marine Inc.
 Stevedoring and Arrastre
1. Asian Terminal Inc.
 Insurance
1.
2.
3.
4.
5.
UCPB General Insurance Co. Inc.
Philam Insurance Co., Inc.
Pioneer Insurance and Surety Corp
British Marine Luxembourg
Steamship Mutual Underwriting
Contract for Distribution and Repair and General Services
ATS also contracts with more than 20 major trucking, forwarding and container repair
companies in the Philippines, including affiliated companies, to provide door to door, door to
pier, pier to door distribution services required by its customers, as well as stevedoring and
arrastre services. These contracts are conducted on an arms-length basis.
13
The Company’s passenger ticketing and cargo booking are principally conducted through its
network of branches and sales agents, most of which are situated at ports served by the
Company. In addition, independent agencies/outlets are also maintained in urbanized areas
such as Manila, Cebu, and Cagayan de Oro.
These Agencies and Outlets are covered by Agency Contracts renewable annually, subject to
certain conditions. Contracts with affiliated companies for agency and general services are
conducted on an arms-length basis.
General service contracts include contracts with engineering, repair and service companies,
independent concessionaires, and janitorial service providers.
Patents, Trademarks, Copyrights, Licenses, Franchises, Concessions and Royalty Agreement
held
ATS’ vessels are duly registered with MARINA and subjected to regular survey and ISM audit
to ascertain its adherence to vessel and manning safety standards. The company is the holder
of several Certificates of Public Convenience (CPC), Provisional Authority (PA) and Special
Permit (SP) issued by MARINA to service domestic ports of call.
Related Party Transactions
Related party transactions with both customers and suppliers are discussed in the Note 22 to
Consolidated Financial Statements.
Employees
ATS has a complement of 1,041 employees as of December 31, 2009, of which, 983 are
regular, 55 are probationary, and 3 are contractual.
The Company is not unionized. It has a Labor Management Council (LMC) that is a member of
the Philippine Association of Labor Management Council, wherein the labor and the
management work hand in hand to accomplish certain goals using mutually acceptable
means. With this council, labor and management representatives discuss and decide on
issues of equal concern to both parties. They are social partners sharing a common interest
in the success and growth of the enterprise and the economy. LMC aims to promote harmony
among all the ATS employees, the officers, staff and other employees of the Company and to
establish an equally beneficial relationship.
ATS’ LMC holds a regular yearly convention to bring all chairmen and representatives to a
forum with the principals and officers of the Company. The convention seeks to promulgate
resolutions most of which are economic demands from the Labor sector and management;
address all other concerns and issues; amend the charter; and to hold elections for the
officers of the national LMC.
The establishment of the LMC in September 23, 1986 has given rise to more benefits and
privileges to the employees. More significantly the merging of three of the most prominent
and well respected shipping lines in the country has seen a dramatic improvement in terms of
employee benefits and privileges far better than any other company in the industry offers. This
includes among others, medical allowances, group hospitalization plan, educational
14
assistance for qualified dependents, mortuary assistance and privilege pass for employees
and their immediate family members.
Government Regulations
The Maritime Industry Authority (MARINA) through Memorandum Circular No. 79 requires all
owners/operators of inter-island vessels engaged in Public Transport Service to secure a
certificate of accreditation of domestic shipping enterprise / entities from the Authority before
they can provide a water transport service.
The Circular is intended to foster standards for domestic shipping operations in order to
protect public interest and to generate vital information that will enable MARINA to effectively
supervise, regulate and rationalize the organizational movement, ownership and operation of
all inter-island water transport utilities, and consequently, to prevent the proliferation of
incompetent, inefficient, unreliable and fly-by-night operators.
Accreditation serves as a prerequisite to the granting of franchises for individual vessel
operations. ATS vessels have been issued Certificates of Public Convenience/Provisional
Authorities to operate in specified routes.
Research and Development Activities
Research and development (R&D) are the company’s activities to discover and create new
lines of services and/or make major improvements on the existing ones. During the year, the
Company allocated and spent reasonable amount on R&D activities. This is consistent with
the Company's strategy to focus its efforts on developing and maintaining its existing valueadded businesses where it believes much of its future will lie.
Costs and Effects of Compliance with Environmental Laws
With regard to environmental laws, ATS follows the regulations embodied in the International
Convention for the Prevention of Pollution from Ships, 1973, as modified by the protocol of
1978 (MARPOL 73/78). The said Convention includes regulations aimed at preventing and
minimizing pollution from ships - both accidental pollution and that from routine operations and currently includes, among others, Regulations for the Prevention of Pollution by Oil,
Prevention of Pollution by Harmful Substances Carried by Sea in Packaged Form, Prevention
of Pollution by Garbage from Ships to which the Company observes. During the year, the
Company incurred less than a million to comply with these rules and regulations.
The existing government regulations are intended to achieve the goal of the government to
develop the country’s water transport system. The goal is to provide adequate, safe, efficient,
economical and shipping services which are at par with the world’s best that will cater to the
transport requirements of a growing national economy and for regional development.
Major Risks Involved in the Business of ATS and its Subsidiaries
Major risks involved in the business of ATS and its subsidiaries are discussed under Part IVCorporate Governance in pages 54-69.
15
ABOITIZ ONE, INC. (“AONE”)
Business Development
AONE was incorporated on July 20, 1978. It is 100% owned by ATS. It is in the business of
offering supply chain solutions in accordance with customers’ needs. A-One’s operation is
supported by a logistical backbone which comprises 140 delivery vans, 45 motorcycles, 176
trucks and vans, 176 refrigerated trucks and vans, prime movers and trailers. The company
has more than 237 retail outlets and agents at various strategic locations nationwide,
providing customers easy access and convenience.
Through AONE’s subsidiaries, it offers a whole range of 2GO supply chain solutions. Supply
chain solutions include warehousing services, transport and logistics, sales and
merchandising and trade marketing.
AONE Subsidiaries
Hapag-Lloyd Philippines, Inc. (HLP)
HLP was incorporated on April 23, 1992. It is 85% owned by AONE.
It is in the business of acting as an agent of Hapag-Lloyd AG, a global shipping
container line engaged in global door-to-door container transport. Hapag-Lloyd AG
provides global shipping services to major trade lanes such as Europe, Asia, North
America, Canada, the Middle East and the South American East Coast.
Aboitiz Projects T.S. Corporation (APTSC)
APTSC was incorporated on August 5, 1996. It is 50% owned by AONE.
It is in the business of project cargo transportation and management, which involves
the haulage and transportation of heavy and bulk-sized equipment such as those used
in mining, power plants and telecommunication infrastructure.
It is a joint venture between AONE and Hansameyer Global Transport Pte. Ltd., a
transportation company headquartered in Germany specializing in project transport
logistics and engineering project management consultancy.
Reefer Van Specialist, Inc. (RVSI)
RVSI was incorporated on April 7, 1993, respectively. It is 100% owned by AONE.
The Company is in the business of offering refrigerated transportation services under
the ‘CRYO’ brand name for perishables food products such as processed meat,
poultry, fruits, vegetables, and non-food industries like electronics, flowers, and
chemicals.
Aboitiz One Distribution Inc. (AODI)
AODI was incorporated last January 15, 2007. It is 100% owned by AONE.
16
It is in business of providing complete supply chain management. It has two (2) stateof-the-art warehouses Edan warehouse –
6,500 pallet positions
Elisco warehouse – 24,148 pallet positions
By the end of 2010, the capacity of Edan warehouse will remain at 6,500 pallet
positions while for Elisco warehouse, it will increase into 30,148 pallet positions.
ScanAsia Overseas Inc. (SOI)
The 100%-purchase of ScanAsia Overseas, Inc., in June 2008 completes AONE’s
portfolio for a full supply chain solutions provider.
SOI was incorporated on September 13, 1985. It is in the business of sales,
marketing, warehousing and transportation of temperature-controlled and ambient
food products to its customers in the Philippines. It is the Philippines’ premier chilled
distributor carrying approximately 80% of the products in the chiller section in any
supermarket today. It currently represents 19 international principals carrying 46
brands and 4 domestic/local principals carrying 39 brands. SOI has nationwide
coverage for both retail and foodservice segments. SOI is considered as brand
builders vs. regular trading companies.
Kerry – Aboitiz Logistics Inc. (KALI)
KALI was incorporated in March 30, 2009. It is 51% owned by AONE.
It is in the business that aims to offer innovative, cost effective and reliable services
on international air and sea freight and cargo forwarding, cargo consolidation, as a
project cargo and break bulk agent, warehousing and distribution, trucking and doorto-door delivery. With the global clout of KLN and the domestic dominance of ATS,
KALI is poised to provide better service to its clients.
Participation in Bankruptcy, Receivership or Similar Proceedings
Neither AONE nor any of its subsidiaries has ever been the subject of any bankruptcy,
receivership or similar proceedings.
Merger or Purchase of Significant Amount of Assets Not in the Ordinary Course of Business
In December 2004, AONE acquired additional 12.59%, 15.55% and 9.50% ownership interest
in shares of stock of ALI, HLP and APTSC. Also, in October 2006, AONE acquired additional
809,782 common shares or 5.71% from Edelino Medina in ALI, thus resulting to a 100%
ownership of AONE.
In March 2007, the respective Boards of AONE and ALI approved the merging of the two
entities with AONE being the surviving entity. The actual merger was effected mid of 2007.
In July 2007, the AONE Board approved the acquisition of additional 50% of the outstanding
capital stock of each of RVSI and RTSI making AONE now 100% owner t of both companies.
17
In September 2008, RTSI was sold to Mr. Ed Medina.
In June 2008, the AONE Board approved the acquisition of SOI to complement its existing
services and provide a full range of supply chain solutions.
In August 2009, AONE formed a joint venture with Kerry Logistics Network Limited of Hong
Kong (KLN) for the international freight forwarding business. KLN is the leading Asia-based
provider of logistics services and supply chain solutions. It operates in over 300 cities
globally, 23 countries worldwide and serve over 127 cities throughout Mainland China.
Competition
As a full supply chain service provider, AONE does not have any competitor that can offer the
same breadth of services. However, AONE has different competitors on the various
components of its portfolio. And some of AONE’s competitors are also its customers.
Competitive Advantage
AONE’s main advantage is the Aboitiz heritage and its 2GO brand spikes, which differentiate
AONE from the rest: network control, relationships, applied technology and a passion to
deliver.
Relationships – A significant part of AONE’s success is attributed to its strong and extensive
relationship with customers, government and trade partners.
Network control – Having total control over various distribution channels and
enablers/carriers ensures consistency and reliability of service. AONE with its subsidiaries, is
the only transport company in the Philippines that is truly air, land and sea capable.
Applied technology – The best-of-class technology makes AONE confident in its ability to
deliver. AONE uses technology in able to provide visibility and transparency. AONE’s partners
include Oracle, SAP, and HP, to name a few.
Passion to deliver – The dynamic and truly Filipino culture drives AONE’s commitment to
deliver, through dedication and passion.
Principal Suppliers
AONE loads with SuperFerry vessels of ATS and with Cebu Pacific Air to transport cargoes by
sea and air respectively. Some of its major truckers include Northern Luzon Trucking &
Sungold Forwarders. Other suppliers include Shell, Petron, & Zenshin.
We manage a pool of suppliers, mainly small to medium entrepreneurs:
Truckers
• Operate-To-Own – a scheme we provide to entrepreneur aspirants, where both parties
undergo a contract that 2GO will provide the vehicle under certain terms and conditions and
the courier will own it after a defined period.
• Sub-Contracted Truckers – small to medium truckers are outsourced either on a lock-in
scheme or variable trip basis per day.
18
Agents
AONE’s retail outlets is also composed of agents who accept documents, cargo and money
for outbound transactions, and deliver the same for inbound transactions. They are paid on
commission scheme or fix fee per day depending on the type of product, volume handled, and
geographic location. Aside from commission, agents are supported through advertising &
promotional activities to direct customers to their outlets. Incentive schemes are also in
place to encourage sales and compliance to operating policies and procedures.
Outsourced Functions
Certain functions are outsourced to third parties and are being paid either per piece, per
head, per man-hour or fix fee depending on the type of activity. The objective is to focus on
business units core competencies.
Service level agreements are drawn for each supplier. Regular performance reviews or
evaluations are conducted in order to ensure compliance and adherence to the contract as
well as to all policies and procedures set.
We look at our suppliers as partners, with a joint commitment that as we grow our business,
we also grow theirs.
Customer
AONE and its subsidiaries’ primary customers are manufacturers of high-value, fast moving
consumer goods, electronics and telecommunication companies who recognize the need to
outsource parts of or their entire supply chain. They are open to integrate, collaborate, and
share information.
Currently, the industries that fall as our secondary customers are pharmaceuticals, branded
apparels, automobiles, retailers, distributors and financial institutions.
AONE thru its subsidiaries also offers on cold chain management solutions to deliver
temperature-controlled goods right to its destination maintaining its best quality and
freshness.
Transactions With and/or Dependence on Related Parties
Services to and from related parties consist mostly of cargo freight, handling and hauling,
and management services which are made at normal market price.
Effect of Existing or Probable Governmental Regulations
The passage of Republic Act 9337 last May 24, 2005 has abolished the franchise tax of AONE.
It is now subject to the corporate income tax.
19
Number of Employees
Present average number of employees for the group is 777.
Headcount
AONE
339
APTSC
19
HLP
38
AODI
77
RVSI
91
SOI
213
Total
777
JEBSEN MANAGEMENT (BVI) LIMITED (“JMBVI”)
Business Development
JMBVI (formerly JM Crewing Limited) was incorporated in the British Virgin Islands on
August 27, 1999 under the International Business Companies Ordinance with Certification of
Incorporation Number 340674.
Propelled by the unique synergy of its worldwide network of offices and a solid commitment
to excellence, JMBVI’s business activities has continuously expanded over the years and is
focused in its niche activities in the Pacific.
The following are the subsidiaries of JMBVI:
1.
2.
3.
4.
Jebsens Orient Shipping Services AS, founded on December 6, 1989 in Norway
Jebsens International (Australia) PTY Ltd., founded on March 31, 1989 in Australia
Jebsens International (Singapore) PTE Ltd., founded on September 15, 1989 in
Singapore
Jebsens Logistics Services PTY Ltd. (Former IML), founded on August 14, 2000 in
Australia
Ship Chartering and Vessel Operations are handled under the Pool Management of Jebsen
Orient Shipping Services A/S (JOSS). JOSS operates a fleet of modern, self-sustaining, and
geared vessels ranging from 15,000 tons dwat up to handymax sizes. The ships trade dry bulk
commodities mainly in the Australasian region, but our reach also spans from the Bay of
Bengal, the whole of the Far East, and across the Pacific Ocean.
Our key customers include, inter alia, PT Freeport Indonesia, Rio Tinto Alcan, Phosphate
Resources Limited, and San Miguel Brewery Inc.
JMBVI, through its subsidiaries, also provides complete third-party logistical services
specializing in road, rail and sea-based transport solutions. Its logistics operations are
primarily active in Australia with various customers being serviced in inter-modal transport,
bagging, distribution, and warehousing inclusive of support services.
20
Some of our key logistics customers include Interfert Pty Ltd, Impact Fertilizers, and
Industrial Energy Pty. Ltd.
Competition
There are a few competitors in the small handysize sector (under 18,000 tons dwat) and and
as such the ships cater to a niche market. Only a few owners have grab-fitted tonnage.
Competitors also possess contracts with the same customers.
In logistics, at the moment, competitors are the individual manufacturing companies
themselves. The major transport companies offer a total package (warehouse, trucking, etc.)
and a strong local presence required to develop business with Clients.
JMBVI believes it has the following strengths to effectively compete with other companies:













Possesses strategic Contracts of Affreightment
Strategically-placed Grabs / Grabbed tonnage (on period chartered vessels)
Self-sustained, fairly modern tonnage
Flexible, cost-effective and efficient shipping operations
Increased focus on customer relationship
Deep-rooted presence in the Australasian trade (strong broker network)
Period-vessels – longstanding relationship with Ship Owners
Expertise for diverse transport solutions (e.g., trucking, tug-barge, coal handling, etc.)
Strong relationship with specific customers across other areas of operations
(shipping – domestic and international, land transport)
Able to deliver a good low cost operation (i.e., variable labor costs)
Ability to grow through fertilizer industry rationalization
Employment of fertilizer industry people in key roles
Great flexibility in operating plants to handle a range of products for bagging
Major Risks and the Procedures or Strategies to Address the Risks – Shipping/Logistics

Business Integration
To vertically integrate and develop services across the supply chain through
leveraging on the existing client base in shipping & logistics, strengthening
customer service, and utilizing a variable labor component for cost efficiency.

Cargo Hedge / Minimizing Exposure
To expand activities by increasing and balancing our tonnage trading capacities
against our cargo commitments.

Quality of Fleet
To lock in modern tonnage on long term basis at low costs.

Adverse commodity price fluctuations (cargo commodity, bunkers)
Strengthen our research and business development systems.
21
Participation in Bankruptcy, Receivership or Similar Proceedings
None of JMBVI and its subsidiaries has ever been the subject of any bankruptcy, receivership
or similar proceedings. Neither did any of them undergo material reclassification, merger, or
consolidation.
Networks (Sales/Distribution)
JMBVI is being propelled by a network of offices strategically located in various places in the
world (i.e., Manila, Bergen, Singapore, Melbourne, Hong Kong, London, New Zealand and
New Jersey). Marketing trips and attendance in international maritime conventions are
vehicles to sell the business.
New Products/Services
JMBVI does not have any publicly announced new product or service to date.
Patents, Copyrights, Franchises
JMBVI does not own or possess patents, copyrights, franchises or other similar rights.
Research and Developmental Activities
JMBVI does not allocate specific amounts or fixed percentages for research and
development.
ZOOM IN PACKAGES, INC.
Business Development
Zoom In Packages, Inc. (ZIP) was registered with the SEC on June 6, 2002 primarily to engage
in, conduct and carry on the business of providing personalized point-to-point logistics,
including inventory and cost management solutions by customizing, streamlining and
interfacing processes through an e-commerce ready system, with information technology
support to domestic, import, and export-oriented enterprises, based on the just-in-time
concept.
The registered office address of the Company is 12th Floor, Times Plaza Building, United
Nations Avenue corner Taft Avenue, Ermita, Manila.
The Company provides integrated logistics services which include all cost-effective activities
from point of origin to point of destination for the purpose of meeting customer
requirements, including but not limited to door-to-door pick-up and delivery of goods,
warehousing and storage, distribution, supply chain management to loading and re-loading
into any carrier either by air, land and sea, whereby the location and status of goods may be
tracked electronically at any given time.
Products & Services
ZIP enables customers to efficiently plan their order-to-delivery schedules. The pioneer in
time-defined, time-priced service, ZIP has redefined the movement of loose cargo
22
nationwide. Simply put, ZIP stands for your choice to send your cargo in 3 days or 6 days. The
longer the leadtime, the lower the freight charges will be.
Rates are simplified and flexible especially on identified special commodities. ZIP offers
door-to-door service for all transport modes at reasonable prices.
ZIP revenue is composed of 75% Day 6 services and 25% Day 3 services. 50% of the total
revenue is contributed by corporate accounts and the other 50% from walk-in client.
Competition
ZIP specializes in time defined, loose container load (lcl) cargo movement and has no direct
competitor who offers the same kind of services.
Government Regulations
ZIP ensures compliance to all provisions and mandates of all governing departments,
agencies/bureaus and local municipalities such as SEC, Bureau of Internal Revenue,
Department of Trade and Industry, Bureau of Customs, Board of Investment (BOI) and
Bureau of Food and Drugs
ZIP is a BOI registered company.
Employees
Total manpower to carry on ZIP business operations is 102.
Major Risks Involved in the Business
ZIP acknowledges the presence of risk implications in its business operations. Risks are
considered as barriers in achieving the business objectives. ZIP has formulated the Risk
Identification Report, which reflects the issues/risks, causes and impact analysis.
Based on the Risk Identification report, ZIP has developed projects and process
improvements to mitigate the impact of the identified risks.
Item 2. Properties
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
Vessels
As of December 31, 2009, ATS has a total fleet of 23 operating vessels, of which 19 are
company-owned ships. The fleet consists of 7 fast crafts under the brand name ‘SuperCat’,
10 RoRo/Pax vessels including 6 under the ‘SuperFerry’ brand, 4 vessels under ‘Cebu
Ferries’ brand, and 2 freighters under the ‘2GO’ brand. ATS vessel fleet has a combined
Gross Registered Tonnage of approximately 93,151 metric tons, total passenger capacity of
approximately 15,206 passengers and aggregate cargo capacity (including the chartered
freighters) of approximately 6,014 twenty-foot equivalent units (TEUs).
23
Land, Buildings and Warehouses
The Company owns several pieces of land and a number of buildings and warehouses. These
are used in the normal course of business. For details of their location, please refer to
Schedule E.1 and E.2.
Insurance Coverage
The ATS vessels are appropriately supported by the top Marine Insurance players throughout
the world. The Hull and Machinery insurance, which insures physical damage to the ships is
being underwritten by reputable local and foreign insurers and is fronted by Pioneer
Insurance. Moreover, the War & Strikes cover which protects the vessels against war and
war-like operations is insured entirely by Pioneer Insurance.
The Protection and Indemnity (P&I) Insurance covering the legal liabilities of the shipowners
such as but not limited to pollution, wreck removal and damages to fixed and floating objects
is placed with Scottish Boatowners / British Marine Luxembourg Ltd. and The Steamship
Mutual Underwriting Association (Bermuda) Ltd.
The Marine Cargo insurance covering claims arising from losses and damages to cargoes is
placed with UCPB General Insurance Corp. whilst the insurance cover specifically tailored to
protect Bangko Sentral ng Pilipinas (BSP) shipments is fronted by Pioneer Insurance.
The Commercial General Liability of all the company's owned, affiliated and associated
offices are fully insured by Chartis (formerly Philam Insurance Co., Inc)
Furthermore, all passengers of the ATS vessels are secured against injuries and loss of life
with Pioneer Insurance. SFFC Tech Crew is insured with Chartis (formerly Philam Insurance
Co., Inc) and Hotel Crew with ACE Insurance Company of North America. The land-based
employees on the other hand are covered by Chartis (formerly Philam Insurance Co., Inc).
The rest of the Company's properties nationwide, including the containers vans & the
container handling equipment are likewise fully covered with insurance policies issued by
respectable insurance companies in the country.
Container Yard and Warehousing Facilities
The Company has one of the most extensive networks of container yards and warehousing
facilities nationwide.
Most of the Company’s container yards have been cemented, whether in whole or in part, to
achieve greater efficiency in terminal operations, allow for shorter turnaround time in port,
greater utilization in stacking of containers and lower repair and maintenance costs for the
operating equipment used at the container yards.
The Company also has sufficient warehouse space. Warehouse are either owned or leased by
the Company. The Company’s warehouse network consists of warehouses at Bacolod, Butuan,
Cebu, Davao, Dumaguete, General Santos, Iligan, Iloilo, Ozamis, Zamboanga and Manila.
24
Containers and Other Equipment
ATS owns and leases a variety of containers and other equipment of various types and sizes
for use in its cargo operations including forklift, top loaders, yard tractors and trailers or
chassis. Master lease agreements entitle the Company to use the containers in exchange for
a per diem rate for the duration of the lease. Lease purchase agreements allow the Company
to use the containers for a specified number of years while it continues to pay the lessor a
fixed per diem rate and gives the Company the option to acquire the containers at the end of
the lease. Installment purchase agreements allow the Company to pay the full purchase price
of the containers by installments in accordance to a fixed schedule.
Containers under capital leases as of December 31, 2009 are shown under the “Property and
Equipment” account in the consolidated balance sheets with details as follows (amounts in
P’000):
Cost
Less accumulated depreciation
Net book value
P
= 1,000,027
869,633
P
= 130,394
Liens and Encumbrances
In 2009, ATS has no long-term loan availment made.
ABOITIZ ONE, INC.
Property and Equipment (amounts in P ‘000):
Historical
Cost
Accumulated
Depreciation
Net Book
Value
Aircraft and flight equipment
Building and improvements
Furniture, fixtures and equipment
Transportation and delivery equipment
Equipment under Development
64,214
101,620
66,762
327,444
15,034
64,214
87,938
21,630
225,930
-
13,682
45,132
101,514
15,034
Land and improvements
9,763
584,838
81
262,705
9,682
185,045
Leases
Major leases of AONE include rental offices, outlets and warehouses nationwide. The lease
contracts for its outlets nationwide are renewable every year.
JEBSEN MANAGEMENT (BVI) LIMITED
The Company has no significant hard assets.
25
ZOOM PACKAGES, INC.
Property and Equipment (amounts in P‘000):
Historical
Cost
Furniture, Fixtures & Equipments
Transportation & Delivery Equipments
Land & Improvements
Accumulated
Depreciation
20,032
4,837
90,276
115,145
13,781
2,395
44,129
60,305
Net Book
Value
6,251
2,442
46,147
54,840
Leases
The Company entered into various lease agreements for its sales outlets, warehouses, and
administrative office locations. The contracts have terms ranging from 3 to 10 years and are
subject to escalation clauses.
Item 3. Legal Proceedings
There are certain legal cases filed against ATS and its subsidiaries in the normal course of
business. Management and its legal counsel believe that they have substantial legal and
factual bases for their position and are of the opinion that losses arising from these cases, if
any, will not have a material adverse impact on the consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
Nothing was submitted during the fourth quarter of the fiscal year covered by this report to a
vote of security holders, through the solicitation of proxies or otherwise.
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5.
A.
Market Price of and Dividends on Registrant’s Common Equity and Related
Stockholder Matter.
Market Information
The Common Stock of the Corporation is listed at the Philippine Stock Exchange. As of latest
market date, March 31, 2010, the market price of the Company’s common stock is P1.18 per
share.
26
Below is the range of high and low bid information for the Company’s common equity for
each quarter within the last two fiscal years and any subsequent interim period:
B.
High
Low
2010
First Quarter
P
= 1.18
P
= 1.02
2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
P
= 1.62
1.66
1.34
1.22
P
= 1.42
1.20
1.16
1.12
2008
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
P
= 1.30
1.16
1.90
1.66
P
= 1.14
1.00
1.00
1.42
Stockholders
The number of common shareholders of record as of March 31, 2010 was 2,145. The top 20
common stockholders as of March 31, 2010 are as follows:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Name
Aboitiz Equity Ventures Inc.
Aboitiz and Company, Inc.
PCD Nominee Corporation (Filipino)
PCD Nominee Corporation (Non-Filipino)
Francis C. Zosa, Jr.
China Banking Corporation
Miguel G. De Asis
Union Properties, Inc.
Josephine Te
Abacus Securities Corporation
Bauhinia Management, Inc.
Lekeitio & Company, Inc.
Santiago Tanchan III
Constantine Tanchan
Parraz Management and Development Corp.
Lilian P. Cariaso
Xavier Jose Aboitiz
Sabin M. Aboitiz
Montavo Management & Dev. Corp.
Harrison Abella Ong
No. of Shares Held
1,889,482,107
390,322,384
87,295,286
13,176,681
9,651,000
4,882,130
1,655,153
1,578,125
1,561,425
1,530,000
1,418,951
1,365,064
1,262,500
1,262,500
1,183,929
1,147,825
1,039,727
1,019,562
946,875
890,062
% to total
77.24
15.96
3.57
0.54
0.39
0.20
0.07
0.06
0.06
0.06
0.06
0.06
0.05
0.05
0.05
0.05
0.04
0.04
0.04
0.04
27
Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Fiscal Year 2009 versus 2008
Consolidated Income Statement
Aboitiz Transport System (ATS) ended the year 2009 with net income of P546 million, a 559%
improvement over just P83 million in 2008.
Consolidated revenues dropped P1 billion, largely from the drop in freight revenues, mainly
from international ship chartering business, brought about by a depressed market.
In September 2009, ATS lost a ship and the Maritime Industry Authority thereafter
temporarily suspended the remainder of its fleet. This greatly affected freight and passenger
business. All vessels ultimately passed the Maritime Industry Authority’s audit and
inspection and were cleared for sailing shortly after the suspension. All ATS vessels, their
cargo and passengers are fully insured to the extent mandated by law. The last quarter of
2009 was also plagued by devastating typhoons, affecting overall operations although ATS
responded with speed and resources.
Local freight business contributed P5 billon in 2009, an 8% or P414 million decrease from the
same period in 2008. Passenger business, inclusive of auxiliary revenues, reduced by P343
million to register at P2.2 billion revenues from P2.6 billion in 2008.
On the other hand, ATS’ overall value added business, inclusive of supply chain, jumped P1
billion to reach P3.2 billion in 2009. ATS continues to build on this business with bright
industry prospects.
Fuel costs and charter hire costs dropped in 2009 leading to a P2 billion decline in operating
expenses and 54% improvement in earnings before interest, taxes, depreciation and
amortization (EBITDA) to register at P1.5 billion in 2009.
Earnings Per Share
Earnings Per Share is computed by dividing Net Income Attributable to Equity Holders of the
Parent over weighted average number of common shares outstanding for the year. Earnings
per share for 2009 stood at P0.22/share. This is higher versus 2008 because of higher net
income.
Consolidated Balance Sheet and Cash Flow Statement
On April 30, 2009, the principal stockholders of ATS namely, Aboitiz Equity Ventures and
Aboitiz and Company, received a firm and final advice from KGLI-NM, that the proposed
acquisition of ATS shares will not come to fruition based on the terms agreed upon in the
Memorandum of Agreement signed on September 23, 2008. ATS and Negros Navigation
however, agreed to continue to explore service and process improvements for better margins
and cost benefits to both companies.
28
As of December 31, 2009, consolidated assets of ATS amounted to P10.6 billion, posting a
13% increase from December 31, 2008 of P9.4 billion.
Total current assets reflected a 15% increase from P4.2 billion to P4.8 billion as of December
31, 2009. The increase was mainly attributed to higher Non-trade receivables by P266.6
million directly related to the SuperFerry 9 incident and higher Inventories such as materials,
parts and supplies by P164.8 million.
ATS’ net Property and Equipment increased by P580.3 million. Assets of the company were
being refleeted and modernized to increase operating efficiencies. Slowly, ATS is increasing
its capacities after it sold vessels in the past to capitalize on high market rates. In 2009,
internally generated funds were used to purchase two freighters, two fast crafts, and one
roro-passenger vessel at very competitive rates. In addition to asset purchases, funds were
also use for the regular maintenance of its assets, including drydocking and vessel
improvements.
Total liabilities amounted to P5.5 billion, a 13% increase from 2008. Total interest bearing
debt was up by P100.1 million from P1.3 billion in 2008. ATS continued to be committed in
gearing towards a more solid financial position and delivering positive cash flows.
Trade and other payables showed a P177.5 million or 5% addition from 2008 mainly from the
increase in trade payables.
Stockholders’ Equity likewise increased by 12% to P5.2 billion from P4.6 billion as of
December 31, 2008 due to higher net income of December 31, 2009.
Cash generated from operations amounted to P1.1 billion. Total capital expenditures for the
period stood at P1.9 billion. Cash and cash equivalents at the end of the year was at P1.1
billion.
29
Material Changes (+/-5% or more) in the financial statement:
Income Statement
% to Total
Revenue
'09 vs '08
%
variance
7,569
(1,746)
-23%
49%
59%
2,581
(343)
-13%
19%
20%
1,478
1,014
464
46%
12%
8%
1,735
550
1,164
571
49%
15%
9%
10
2%
5%
4%
Dec-09
Dec-08
Freight - net
5,823
Passage - net
2,238
Service fees
Sale of Goods (AODI and SOI)
Others
2009
2008
REVENUE
11,824
541
12,869
(1,044)
-8%
100%
100%
COSTS AND EXPENSES
Operating
6,765
8,754
(1,989)
-23%
57%
68%
Terminal
1,006
1,297
(291)
-22%
9%
10%
Overhead
Cost of Sales (AODI and SOI)
2,096
1,461
1,895
201
11%
18%
15%
966
494
51%
12%
8%
(1,585)
-12%
96%
100%
(58)
(13)
23%
-1%
0%
11,327
12,912
OTHER INCOME (CHARGES)
Finance costs - net
Gain on disposal of property and equipment
(71)
27
88
(61)
-69%
0%
1%
Gain on disposal of investment
Foreign exchange gain – net
(12)
(15)
(10)
15
(2)
-100%
20%
0%
0%
0%
0%
Equity in net earnings (losses) of associates
Others - net
53
329
(8)
61
-799%
0%
0%
193
136
70%
3%
2%
326
190
136
71%
3%
1%
824
147
677
460%
7%
1%
83
118
95
(12)
-13%
1%
1%
(47)
166
-351%
1%
0%
201
48
153
322%
2%
0%
623
99
523
526%
5%
1%
546
77
83
17
463
559%
5%
1%
60
361%
1%
0%
623
99
523
526%
5%
1%
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM)
INCOME TAX
Current
Deferred
NET INCOME
ATTRIBUTABLE TO:
Equity holders of the parent
Minority interests
 8% lower total revenues due to:
o 23% lower freight revenues brought about by the decline in international charter
business and cancelled vessel voyages from loss of one ship and the temporary
suspension of vessels.
o 13% lower passage revenues due to cancelled voyages and much lower capacity
compared to 2008.
o 46% increase in service fees from higher warehousing revenue.
o 49% increase in sale of goods due to full year operation of Scanasia Overseas, Inc.,
(Scanasia) a supply chain company acquired by Aboitiz One, Inc. in June 2008.
 12% lower costs and expenses as a result of:
30
o
o
o
o
23% lower operating expense primarily due to 36% lower fuel price.
22% lower terminal costs due to lower transshipment fees.
11% higher overhead expense because of higher personnel cost.
51% higher cost of sales largely contributed by Scanasia.
 71% higher other income from insurance gain.
 322% higher income tax principally because of higher taxable income.
31
Balance Sheet
AS
RESTATED
Dec-09
Dec-08
% to Total
'09 vs
'08
%
variance
2009
2008
ASSETS
Current Assets
Cash and cash equivalents
Receivables - net
Inventories
Prepaid expenses and other current assets
Total Current Assets
Noncurrent Assets
Investments in associates
Available-for-sale investments
Property and equipment - net
Deferred income tax - net
Goodwill
Other noncurrent assets - net
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Loans payable
Accounts payable and other current liabilities
Current portion of obligations under finance lease
Income tax payable
Total Current Liabilities
1,096
2,348
571
785
4,800
4,800
1,093
1,986
376
707
4,162
4,162
3
362
195
79
638
638
74
43
4,818
256
256
375
5,822
10,622
17
37
4,237
357
256
343
5,247
9,409
1,392
3,983
6
13
5,394
Noncurrent Liabilities
Obligations under finance lease - net of current portion
Redeemable preferred shares
Pension liability
0%
18%
52%
11%
15%
15%
10%
22%
5%
7%
45%
45%
57
6
580
(101)
(0)
32
575
1,213
328%
17%
14%
-28%
0%
9%
11%
13%
1%
0%
45%
2%
2%
4%
55%
100%
12%
21%
4%
8%
44%
44%
0%
0%
0%
45%
4%
3%
4%
56%
100%
830
3,805
82
17
4,733
563
177
(75)
(4)
661
68%
5%
-92%
-21%
14%
25%
73%
0%
0%
99%
17%
79%
2%
0%
98%
25
20
31
18
(5)
2
-18%
13%
0%
0%
1%
0%
18
33
(14)
-44%
0%
1%
1
(17)
644
(0)
0
10
(4)
(0)
0
0
546
0
552
16
569
1,213
20%
-20%
13%
0%
1%
100%
0%
2%
100%
Other Noncurrent Liabilities
4
Total Noncurrent Liabilities
68
Equity Attributable to Equity Holders of the Parent
5,462
Common shares
2,485
Capital in excess of par value
911
Unrealized mark-to-market gain on available-for-sale investments
18
Cummulative Translation Adjustment
(2)
Share in Cumulative translation adjustments of an associate1
Excess of cost over net asset valuation
(12)
Acquisition of minority interests
6
Retained earnings
1,761
Treasury shares (38,516,500)
(59)
5,109
Equity Attributable to Minority Interests
51
Total Stockholders’ Equity
5,160
TOTAL LIABLITIES AND STOCKHOLDERS’ EQUITY
10,622
4
85
4,818
2,485
911
8
2
1
(12)
6
1,215
(59)
4,556
35
4,591
9,409
 13% higher total assets due to:
o 18% higher net receivable primarily due to increase in non-trade receivables.
32
o 52% increase of inventories because of higher merchandise inventory and higher
materials, parts and supplies of spareparts.
o 11% higher prepaid expenses
o 328% higher investment in associates from MCCP’s improved results of operations
and additional investment with Kerry-Aboitiz Logistics Inc. (KALI), the joint venture
with Kerry Logistics Network of Hong Kong or KLN.
o 14% higher property and equipment from additional vessels purchased.
 68% higher loans payable from additional bank borrowings.
 12% higher stockholders’ equity from higher retained earnings.
Fiscal Year 2008 versus 2007
Consolidated Income Statement
Aboitiz Transport System (ATS) ended the year 2008 with consolidated revenues of P12.9
billion, a 16% increase versus P11.1 billion in 2007.
Freight business contributed P7.6 billion in revenues in 2008, a 9% or P616.1 million increase
from P7.0 billion in 2007. The Company’s freight rates per twenty-equivalent unit (TEU) rose
16% as freight capacity is being filled up with its own supply chain and value added business.
ATS has been reducing its reliance on spot and market cargo which is more price driven. In
2008, capacity remained at the same level as last year with close to 250,000 TEUs, at 88%
utilization rate.
Passage business reduced by P41.1 million to register at P2.99 billion revenues (inclusive of
auxiliary income) from P3.03 billion in 2007. The average rate per passenger had gone down
by 5% as it continued to offer year-round promotional rates to drive up demand and face stiff
competition from the airlines. Similar to the freight business, ropax passage capacity
remained at the same level as the previous year with over 3.3 million passengers but with a
much higher utilization rate at 70%, the highest attained in 4 years.
For the year 2008, much of the Company’s efforts were geared towards developing its valueadded business where it believes much of its future will lie. Aboitiz One Distribution, Inc.’s
new warehouse with 22,000 pallet positions located in Taguig City has been operational since
the beginning of 2009. In addition, Aboitiz One, Inc. purchased in June of 2008, Scanasia
Overseas, Inc. (SOI), a company engaged in the business of sales, marketing, warehousing
and transportation of temperature-controlled and ambient food products to its customers in
the Philippines. These resulted in a 28% increase in service fees to P1.01 billion and 418%
increase in sale of goods to P1.2 billion in 2008.
Total costs and expenses jumped 14% with fuel, its single biggest expense, being the highest
contributor to the rise in costs. Average fuel price for the year jumped 43% from the previous
year. ATS directed its efforts in minimizing the impact of rising fuel costs by using less
expensive type of fuel, lowering volume consumption and increasing freight rates. Cost of
sales directly related to the supply chain business also registered an increase with the
acquisition of SOI.
33
ATS’ other income totaling P190.4 million is much lower than last year’s of P842.8 million. In
2007, ATS reflected a P748.9 million gain on disposal of property and equipment generated
mainly from the sale of three vessels.
Despite the rising costs, earnings before interest, taxes, depreciation and amortization
(EBITDA) increased to 4% or P36 million versus December 31, 2007.
ATS registered P99.4 million in net income from continuing operations. ATS ended the year
with net income attributable to equity holders of parent of P82.8 million. This is lower
compared to P420.0 million in 2007 since ATS registered after tax gain on disposal of three
vessels of P405.0 million.
Earnings Per Share
Earnings per share for 2008 stood at P0.03/share. This is lower versus 2007 because of
lower net income.
Consolidated Balance Sheet and Cash Flow
On December 19, 2008, the major shareholders of ATS namely, Aboitiz Equity Ventures, Inc.
(AEV) and Aboitiz & Company, Inc. (ACO) accepted the Terms Sheet offered by KGLI-NM for
the acquisition by KGLI-NM of 49% equity stake in ATS instead of the total buy-out proposed
in the Memorandum of Agreement signed by the parties in September 2008. KGLI-NM is a
domestic company, which is jointly owned by Negros Holdings and Management Corporation
and KGL Investment BV, which is beneficially owned by the KGL Investment Company, a
Kuwaiti company.
The 49% equity stake was to include the 7% equity stake of the public in ATS. Under said
modified agreement, which was expected to close on or before April 30, 2009, the purchase
price would have been based on a total equity value of ATS in the amount of P4.5 billion or
equivalent to P1.84 per share. The Agreement also provided for an option for KGLI-NM to
acquire the remaining 51% equity stake of AEV and ACO anytime between May 1, 2009 to
September 30, 2009 at the same price plus a premium of nine and a half percent (9.5%)
annualized price per share calculated from 30 April 2009 to 30 September 2009, or to date of
acquisition, as applicable. It was agreed that KGLI-NM would have to make a tender offer for
the ATS shares held by the public in accordance with the rules under the Securities
Regulation Code.
On March 31, 2009, AEV and ACO received a written notice that KGLI-NM will proceed with
the acquisition of US$ 30 million worth of ATS common shares owned by AEV and ACO. This
was estimated to involve approximately 655,382,609 common shares owned by AEV and
135,378,261 common shares owned by ACO computed at the prevailing dollar exchange rate,
or a total of approximately 32% of the outstanding common shares. The actual number of
shares to be acquired by KGLI-NM would have been determined based on the dollar
exchange rate on the expected closing date (i.e., April 30, 2009.) KGLI-NM’s intention to
proceed with the purchase of US$30 million worth of ATS shares from AEV and ACO was
without prejudice to KGLI-NM’s right under the Term Sheet to acquire the remaining ATS
shares of AEV and ACO.
34
The planned acquisition excludes the Aboitiz Jebsen Group. Consequently, ATS posted
P778.6 million of assets and P697.2 million of liabilities directly associated with asset of
disposal group classified as held for sale.
Consolidated assets as of December 31, 2008, amounted to P9.4 billion. Its receivables of
P2.0 billion increased by 6% as a result of higher trade receivables by P113.6 million from
last year. Property and equipment is maintained at P4.2 billion. During the period in review,
Goodwill of P256.5 million was reflected in the books from the purchase of SOI.
Total liabilities reached P4.8 billion, 17% higher compared to 2007. The increase was a result
of higher Interest bearing debt amounted to P1.3 billion in 2008 versus P570.2 million in 2007.
The funds were utilized for the expansion of its supply-chain business, the purchase of a
vessel under its Cebu Ferries brand and fuel-efficient fast craft vessels under its SuperCat
brand.
Stockholders’ Equity stood at P4.6 billion, a slight 2% increase over the previous year.
Cash generated from operations amounted to P1.1 billion. Total capital expenditures for the
period stood at P1.1 billion. The bulk of the capital expenditures were accounted for by the
purchase of a vessel under its Cebu Ferries brand and fuel-efficient fast craft vessels under
its SuperCat brand. Cash and cash equivalents at the end of the year was at P1.1 billion.
Material changes (+/- 5% or more) in the financial statements
Income Statement
• 9% increase in freight revenues is largely due to higher average freight rates and
increased revenues from its subsidiary companies Zoom in Packages and Aboitiz One,
Inc.
• 4% decrease in passage revenues is due to lower volume and average passenger rates
• 418% higher revenues from sale of goods generated by its value added businesses,
Scanasia Overseas, Inc., a company purchased by Aboitiz One, Inc. in June 2008 and
Aboitiz One Distribution, Inc.
• 28% higher service fees revenues from logistics, warehousing and sales merchandise.
• 37% increase in other revenues is due to overall higher passage auxiliary revenues.
• 25% increase in total revenues largely from the increase in freight revenues.
• 8% increase in operating expenses primarily due to 28% rise in fuel costs
• 20% increase in terminal expenses largely due to the 125% increase in transportation
and delivery costs which comprises the bulk of the company’s terminal expenses.
• 414% increase in cost of sales because of Scanasia Overseas, Inc., a company acquired
in June 2008.
• 88% reduction on gain on disposal of property and equipment primarily because of the
sale of three vessels in 2007.
• 654% reduction on gain on disposal of investment due to the disposal of its none core
business such as Cox Trucking and Refrigerated Transport Services, Inc.
• 18% lower net finance costs due to lower interest bearing debt for the year.
• 141% lower net foreign exchange gain is due to the weakening of the peso against the
dollar throughout the year.
• 1963% higher equity in net losses of associates is due to the Company’s share in MCC
Philippines’ net loss.
• 42% higher other income is largely attributable to management fee income rendered to
third party entities.
35
•
•
74% lower income tax principally because of lower taxable income.
80% lower net income attributable to equity holders of parent largely because of vessel
sales in 2007.
Balance Sheet
•
•
•
•
6% higher net receivables due to higher trade receivables
39% higher inventories because of higher materials, parts and supplies and higher fuel
inventory.
220% increase in loans payable mainly to finance the expansion of its supply-chain
business
5% higher accounts payable and other current liabilities largely due to higher trade
payables
All of these material changes were explained in detail in the management’s discussion and
analysis of financial condition and results of operations stated above.
Fiscal Year 2007 versus 2006
Consolidated Income Statement
ATS registered total consolidated revenues of P8.2 billion lower versus P8.8 billion in 2006.
Earnings before interest, taxes, depreciation and amortization (EBITDA) stood at P946.6
million and its net income attributable to equity holders of parent reached P420.0 million or
113% higher compared to the previous year 2006.
ATS continued to right-size its fleet. It operated at reduced capacity in 2007 as a result of the
sale of three vessels as well as having the majority of its fleet being dry-docked during the
year. As s a result, freight and passage revenues each decreased 11% and other revenues
decreased 34%. In increasing the earning capacity of its assets, unused passage capacity
was converted to freight to make room for increasing freight demand. Load factors were
higher by 10% and 13% in freight and passage respectively. Competition in the passage
business is fierce so initiatives such as offering passengers year-round promotional rates
are in place to continue to drive up passage demand.
In 2007, ATS entered into a joint venture with the A.P. Moller-Maersk Group to form MCC
Transport Philippines, Inc. This joint venture company operated a 600-teu container ship,
offering regular weekly sailings, servicing the ports of Manila, Cebu and Cagayan de Oro.
In line with its strategy of building its supply chain management services, ATS’ services fees
grew 100% and generated revenues from sale of goods P224.5 million. ATS continued to
collaborate with customers to provide value added services through integrated logistics
solutions. Early 2007, Aboitiz One, Inc., a 100% subsidiary of ATS, established Aboitiz One
Distribution, Inc. (AODI) to focus on supply chain management services. It also fully acquired
Refrigerated Transport Services, Inc. and Reefer Van Specialist, Inc. for its cold chain
solutions. ATS believes much of its future growth will be generated from these value added
services.
Despite challenges in rising fuel prices, overall fuel costs decreased by 22% as a result of
lower volume. This contributed to lower total costs by 5%.
36
For the year in review, three vessels were sold reflecting total gains of P405 million, net of
taxes. The proceeds of the vessel sales were utilized to pay down P1.8 billion of debt.
Consequently, net finance costs decreased 82%, from P334.7 million to just P61.5 million.
The reduction in gain on disposal of investment pertained to the sale of Davao Integrated Port
and Stevedoring Services Corporation (DIPPSCOR) which was reflected in 2006.
Net income from continuing operations reached P440.8 million and a net loss P2.1 million
was registered from the disposal group representing the Aboitiz Jebsen group.
ATS net income attributable to equity holders of the parent rose to P420 million from P197.3
million, mainly due to gain on sale of vessels. Without the gains, ATS registered P15 million
in net income, an improvement versus P117 million net loss in 2006.
Earnings Per Share
Earnings per share for 2007 stood at P0.17/share with earnings per share for continuing
operations at P0.18/share. This is higher versus 2006 because of higher net income.
Consolidated Balance Sheet and Cashflow Statement
As of December 31, 2007, consolidated assets of ATS amounted to P8.6 billion, posting a 16%
decrease from year-end 2006 of P10.3 billion.
Total current assets reflected a 19% decrease to P3.7 billion in 2007 from P4.6 billion as of
year-end 2006. The reduction was mainly attributed to the noncurrent asset Classified as
held for sale which represents the SuperFerry 17 vessel sold as per Memorandum of
Agreement dated November 13, 2006. This was delivered to the buyer on May 10, 2007.
Trade and other receivables decreased 11% with the receipt of the dividend and full proceeds
of the sale of DIPPSCOR. The DIPPSCOR sale was completed in December 2006. In contrast,
prepaid expenses and other current assets rose 37% mainly due to higher prepaid time
charter of the international chartering business as well as the accumulation of creditable
withholding taxes withheld by customers.
ATS’ net Property and Equipment reduced by P664 million largely due to the sale of vessels.
Total liabilities amounted to P4.1 billion, a 25% reduction from 2006. Total interest bearing
debt was down to P570.2 million from P2.4 billion in 2006. ATS continued to be committed in
gearing towards a more solid financial position and delivering positive cash flows.
Stockholders’ Equity likewise decreased 6% to P4.5 billion from P4.8 billion as of December
2006, after ATS paid P0.30/share dividend or P735 million to both common and preferred
shareholders.
Cash generated from operations amounted to P1.5 billion and proceeds from the sale of
assets generated P2.5 billion. The proceeds were partially utilized to pay loans and interests
amounting to P1.9 billion. It also funded P735 million in dividends declared. Total capital
expenditures for the period stood at P1.5 billion. Cash and Cash equivalents at the end of the
fiscal year 2007 was P820.9 million.
37
Material changes (+/- 5% or more) in the financial statements
Income Statement
• 11 % decrease in freight revenues is due to lower capacity from the sale of three
SuperFerry vessels
• 11 % decrease in passage revenues is due to lower capacity as excess passage
capacity was converted to freight capacity, in addition to the reduction in the number
of vessels.
• 100% increase in service fees generated primarily from the increase in Aboitiz One
Distribution, a new company that started operating in January of 2007.
• 9% decrease in operating expenses due to 24% lower fuel cost
• 82% decrease in finance costs due to lower average interest bearing debt
• 231% increase in gain on disposal of property and equipment generated from the sale
of three vessels
• 71% higher income tax primarily because of higher taxable income.
Balance Sheet
• 11 % decrease in trade and other receivables due to the receipt of dividend and full
proceeds of the sale of DIPPSCOR. The DIPPSCOR sale was completed in December
2006.
• 20% decrease in inventories is due to the reduction of fuel and lubricants by 53%
• 30% decrease in property and equipment is due to the sale of three vessels
Key Performance Indicators (KPI)
The following KPI’s are used to evaluate the financial performance of ATS and its
subsidiaries:
a. Revenues – ATS revenues are mainly composed of freight and passage revenues and they
are recognized when the related services are rendered. Total Revenue in 2009 is P11.8
billion compared to P12.9 billion in 2008..
b. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) - is calculated
by adding back interest expense, amortization and depreciation into income before
income tax, excluding extraordinary gains or losses. The Company’s EBITDA for 2009 is
P1.5 billion.
c. Income before income tax (IBT) – is the earnings of the company before income tax
expense. The Income Before Income Tax for 2009 is P823.8 million, 460% higher
compared to P147.1 million in 2008 mainly because of lower fuel costs brought by lower
prices. The average fuel price in 2009 is lower by 36% compared to 2008.
d. Debt-to-equity ratio – is determined by dividing total liabilities over stockholders’ equity.
ATS’ debt-to-equity ratio in 2009 is 1.06:1:00.
e. Current ratio – is measured by dividing total current assets by total current liabilities.
The Company’s current ratio in 2009 is 0.89:1:00.
38
The following table shows comparative figures of the Top Five key performance indicators
(KPI) for 2009, 2008, and 2007 (amounts in millions except for the financial ratios) based on
the consolidated financial statements of ATS as well as each of its subsidiaries:
Consolidated ATS and Subsidiaries
Revenues
EBITDA (a)
IBT (b)
Debt-to-Equity Ratio (c)
Current Ratio (d)
Dec. 31, 2009
Dec. 31, 2008 Dec. 31, 2007
11,824
12,869
11,056
1,531
992
956
824
147
603
1.1:1.00
1.1:1.00
0.9:1.00
0.9:1.00
0.9:1.00
0.9:1.00
Consolidated Aboitiz One, Inc and Subsidiaries
Dec. 31, 2009
Revenues
EBITDA (a)
IBT (b)
Debt-to-Equity Ratio (c)
Current Ratio (d)
3,876
210
191
4.0:1.0
0.9:1.0
Dec. 31, 2008
2,987
219
139
3.9:1.0
0.9:1.0
Dec. 31, 2007
1,701
142
67
2.6:1.0
1.1:1.0
Zoom-In-Packages, Inc
Revenues
EBITDA (a)
IBT (b)
Debt-to-Equity Ratio (c)
Current Ratio (d)
Dec. 31, 2009
Dec. 31, 2008 Dec. 31, 2007
1,089
1,208
924
33
211
177
17
189
157
1.9:1.0
1.0:1.0
0.8:1.0
0.9:1.0
1.7:1.0
1.9:1.0
Aboitiz Jebsen Bulk Transport Corporation
Dec. 31, 2009
Dec. 31, 2008 Dec. 31, 2007
Revenues
264
223
186
EBITDA (a)
50
53
47
IBT (b)
90
75
38
Debt-to-Equity Ratio (c)
4.8:1.0
4.7:1.0
2.4:1.0
Current Ratio (d)
1.1:1.0
1.1:1.0
1.2:1.0
Jebsens Maritime, Inc.
Revenues
EBITDA (a)
IBT (b)
Debt-to-Equity Ratio (c)
Current Ratio (d)
Dec. 31, 2009
Dec. 31, 2008 Dec. 31, 2007
131
174
154
43
27
21
20
11
12
17.4:1.0
34.9:1.0
39.6:1.0
0.9:1.0
1.0:1.0
1.0:1.0
39
Aboitiz Jebsen Manpower Solutions, Inc.
Dec. 31, 2009
Dec. 31, 2008 Dec. 31, 2007
Revenues
9
11
8
EBITDA (a)
(1)
6
5
IBT (b)
1
5
5
Debt-to-Equity Ratio (c)
5.1:1.0
3.9:1.0
1.3:1.0
Current Ratio (d)
1.1:1.0
1.1:1.0
1.5:1.0
Jebsen Management (BVI) Ltd.
Dec. 31, 2009
Revenues
EBITDA (a)
IBT (b)
Debt-to-Equity Ratio (c)
Current Ratio (d)
4
90
88
14.3:1.00
1.1:1.0
Dec. 31, 2008 Dec. 31, 2007
2,236
2,556
(10)
10
(15)
2
88.3:1.0
76.2:1.0
1.0:1.0
1.0:1.0
Supercat Fast Ferry Corporation
Revenues
EBITDA (a)
IBT (b)
Debt-to-Equity Ratio (c)
Current Ratio (d)
Dec. 31, 2009
Dec. 31, 2008 Dec. 31, 2007
443
377
375
147
42
45
79
(19)
30
4.9:1.0
11.7:1.0
3.9:1.0
0.1:1.0
0.1:1.0
0.4:1.0
MCC Transport Philippines, Inc.
Revenues
EBITDA (a)
IBT (b)
Debt-to-Equity Ratio (c)
Current Ratio (d)
Dec. 31, 2009
Dec. 31, 2008
966
863
197
(132)
195
(131)
6.3:1.0
-6.8:1.0
1.2:1.0
0.9:1.0
a) Earnings before interest, taxes, depreciation and amortization (calculated by adding back
interest expense and amortization and depreciation into income before income tax, excluding
extraordinary gains).
b) Income before income tax
c) Total liabilities / total stockholders’ equity
d) Total current assets / total current liabilities
40
Other Information
Other material events and uncertainties known to management that would address the past
and would have an impact on ATS’ future operations are discussed below.
i.
Total fuel/lubes expense is a major component of ATS’ total cost and expenses. ATS is
constantly looking for ways to reduce fuel consumption to lessen the impact of the
increasing fuel prices on the bottom line.
ii.
For 2010, ATS estimates over P2.5 billion in capital expenditures. The bulk of these
expenditures are earmarked for vessel purchase and maintenance. It is a policy of the
company for vessels to be drydocked every 30 months. ATS will also continue to
right-size and replace old tonnage. As of March 2010, it has committed to purchase 2
roro-passenger vessels. Other than this, ATS has not made any other material
commitments for capital expenditures outside of its usual business operations.
iii.
Except as disclosed in the management discussion and notes to the financial
statements, there are no other known events that will trigger direct or contingent
financial obligation that is material to ATS, including any default or acceleration of an
obligation. There are also no other known trends, events or uncertainties that have
had or that are reasonably expected to have a material favorable or unfavorable
impact on revenues or income from operations.
iv.
All significant elements of income or loss from continuing operations are already
discussed in the management discussion and notes to financial statements. Likewise
any significant elements of income or loss that did not arise from ATS’ continuing
operations are disclosed either in the management discussion or notes to financial
statements.
v.
There is no material off-balance sheet transaction, arrangement, obligation, and
other relationships of ATS with unconsolidated entities or other persons created
during the reporting period.
vi.
Seasonal aspects of the business are considered in ATS’ financial forecast.
vii.
ATS does not expect any liquidity or cash problem within the next twelve months.
Capital expenditures are funded through cash generated from operations and
additional borrowings.
viii. As markets contract, the business climate will become more competitive. These
factors may have an unfavorable impact on our financial performance.
41
Outlook
The strategies implemented have served the company well. Earning capacity of assets is
maximized, costs are lowered, and the value-added businesses are gaining market
acceptance. Balance sheet and cashflows remain strong as ATS demonstrates its resilience
and drive to excel even under the most trying conditions.
Most of 2010 will be focused on continuing to maximize assets. The Abojeb group continues
to expand its ship management and crewing business. Supercat has started calling new
ports like Bacolod-Iloilo. With more vessels in place, ATS can offer speed, frequency and
reliability to its customers, serving them better and better.
Item 7. Financial Statements
The consolidated financial statements and schedules listed in the accompanying Index to
Financial Statements and Supplementary Schedules are filed as part of this Form 17-A.
The management is not aware of any significant or material events or transactions not
included nor disclosed in the consolidated financial statements in compliance with the SRC
Rule 68.
Item 8. Information on Independent Accountant and other Related Matters
(1) External Audit Fees and Services
Estimates for
Year ended
December 31, 2010 December 31, 2009
Audit Fees
Audit-Related Fees
All Other Fees
TOTAL
P
1,000,000
P 1,000,000
P
1,000,000
P 1,000,000
Year ended
December 31, 2008
P 1,240,000
300,000
60,000
P 1,600,000
Audit Fees
This represents professional fees for financial assurance services rendered for the
Company’s Annual Financial Statements, review and opinion for SEC Annual Report.
Audit-Related Fees
This represents professional fees for technology and security risk services rendered by the
external auditor in connection with the Audit on Company’s Annual Financial Statements.
All Other Fees
This represents fees for services rendered in reviewing and issuing opinion with regards to
the Company’s annual reportorial requirement with Maritime Industry Authority (MARINA).
42
Audit services provided to the Company by external auditor, SGV & Co. have been preapproved by the Audit and Corporate Governance Committee. The Audit and Corporate
Governance Committee has reviewed the magnitude and nature of these services to ensure
that they are compatible with maintaining the independence of the external auditor.
(2) Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
There was no event in the past years where SGV and the Company had any disagreements
with regard to any matter relating to accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Registrant
The names, ages, citizenship, position and offices held or will hold, and brief description of
business experience during the past 5 years (except those years stated otherwise) and
other directorships held in reporting companies, including name of each company, of all
directors and executive officers are as follows:
DIRECTORS
Mr. Jon Ramon M. Aboitiz, 61 years old, Filipino, has served as Chairman of the Board
of ATS since September 2002 and Director since 1996. Mr. Aboitiz is also Chairman of the
Compensation/Remuneration and Nomination Committee, and the Strategy Committee. He is
also a member of the Audit and Corporate Governance Committee starting January 22, 2009,
Mr. Aboitiz’s other positions include Chairman of the Board of Directors of Aboitiz Equity
Ventures, Inc., Aboitiz and Company, Inc. and Aboitiz Jebsen Bulk Transport Corporation and,
Inc.; Vice Chairman of the Board of Directors of Union Bank of the Philippines and Aboitiz
Power Corporation; Director of Davao Light & Power Company, Inc., Cotabato Light & Power
Company, City Savings Bank, Therma Luzon, Inc., San Fernando Electric and Power Co., Inc.
and Cotabato Ice Plant, Inc.; President of Aboitiz Foundation, Inc. and Trustee of the Ramon
Aboitiz Foundation, Inc. He graduated with a degree of Bachelor of Science in Commerce
major in Management from the University of Santa Clara, California, U.S.A.
Mr. Bob D. Gothong, 54 years old, Filipino, has served as Vice Chairman of the Board
of ATS since September 2002. Mr. Gothong is also a Chairman of the Risk Management
Committee and member of the Company’s Audit and Corporate Governance Committee.
Chairman and Chief Executive Officer of One Wilson Place Holdings, Inc.; Director of
Philippine National Oil Co.; Ramon Aboitiz Foundation, Inc., and Vice Chairman of Carlos A.
Gothong Holdings, Inc. He graduated with a degree of Bachelor of Science in Commerce
Major in Transportation and Utilities and Minor in Finance from the University of British
Columbia, Vancouver, Canada.
Mr. Enrique M. Aboitiz, Jr., 56 years old, Filipino, has served as President and Chief
Executive Officer of ATS since May 1999 and Director since 1997. He is a member of the
Compensation/Remuneration and Nomination Committee, the Strategy Committee, and the
Risk Management Committee. He is also the Director and Senior Vice President of Aboitiz
and Company, Inc; Director and President of Aboitiz Jebsen Bulk Transport Corporation;
43
Director and Chairman of the Board of Aboitiz Power Corporation (AP), Aboitiz One, Inc.;
Director of Aboitiz Equity Ventures, Inc. (AEV), Amanpulo Resorts, MacroAsia Corporation, EMedia Foundation, Pilmico Foods Corporation and Aboitizland, Inc. He also sits as the
Chairman of AEV Board’s Risk Management Committee, Chairman of AP Board’s Strategy
Committee, and Member of AP Board’s Corporate Governance Committee. He graduated
with a degree of Bachelor of Science in Business Administration (Major in Economics) from
Gonzaga University, Spokane, Washington U.S.A.
Mr. Erramon I. Aboitiz, 52 years old, Filipino, has served as Director of ATS since
September 2002. He was an Audit Committee member until January 22, 2009. He is
concurrently President and Chief Executive Officer of Aboitiz Equity Ventures, Inc., Aboitiz
Power Corporation, Aboitiz and Company, Inc. and Philippine Hydropower Corporation;
Chairman of the Board of Directors of Davao Light and Power Company, Inc., City Savings
Bank, Subic EnerZone Corporation, San Fernando Electric Light and Power Company, Mactan
Enerzone Corporation, Subic Enerzone Corporation, Balamban Enerzone Corporation and
Pilmico Animal Nutrition Corporation (formerly Fil-Am Foods, Inc.); Chairman and Chief
Executive Officer of Hedcor, Inc. (formerly, Benguet Hydropower Corporation); Director and
Vice President of Pilmico Foods Corporation; Director of Aboitizland Inc., UnionBank of the
Philippines, Visayan Electric Company, Inc., Southern Philippine Power Corp., Aboitiz Energy
Solutions, Inc., and Cotabato Light and Power Company; and President and Trustee of Aboitiz
Foundation, Inc. He received a Bachelor of Science degree in Business Administration, major
in Accounting and Finance from Gonzaga University, Spokane, U.S.A.
Mr. Roberto E. Aboitiz, 60 years old, Filipino, has been a Director of ATS since
September 2002. He is a member of the Risk Management Committee He is concurrently a
Director and Senior Vice President of Aboitiz and Company, Inc.; Chairman and Chief
Executive Officer of Aboitiz Construction Group, Inc.; Chairman of the Board of Directors of
Cebu Industrial Park Developers, Inc. and Cebu Industrial Park Services, Inc.; Chairman and
President of AEV Aviation Inc.; Director of Aboitiz Equity Ventures, Inc., City Savings Bank,
Cotabato Light & Power Company, Davao Light & Power Company, Inc., Tsuneishi Heavy
Industries (Cebu), Inc., Metaphil International, Inc., Metaphil, Inc. and Visayan Electric
Company, Inc. and Trustee of Aboitiz Foundation, Inc. He graduated from Ateneo de Manila
University with a Bachelor of Arts degree in Behavioral Science.
Mr. Mikel A. Aboitiz, 55 years old, Filipino, nominated as Director of ATS for the
ensuing year (2010-2011). He is a Director, SVP-Chief Information Officer and Chief Strategy
Officer of Aboitiz Equity Ventures, Inc. He is also the SVP-Strategy of Aboitiz and Company,
Inc.; President and Chief Executive Officer of City Savings Bank; President and Chief
Operating Officer of Cleanergy, Inc.; and Director of Aboitiz Power Corporation, Aboitiz
Construction Group, Inc., Aboitiz Land, Inc., Cotabato Light & Power Company, Davao Light &
Power Company, Inc., Pilmico Foods Corporation, Pilmico Animal Nutrition Corporation,
Metaphil International, Inc., AEV Aviation, Inc., Propriedad Del Norte, Inc., Cebu Praedia
Development Corporation, Therma Marine, Inc., and Therma Power, Inc. He received his
Bachelor of Science degree in Business Administration from Gonzaga University, Spokane,
U.S.A.
Mr. Justo A. Ortiz, 52 years old, Filipino, has served as Director of ATS since
September 2002. He is also a Director of Aboitiz Equity Ventures, Inc. since 1994, Chairman
and Chief Executive Officer of Union Bank of the Philippines. He is a member of the Audit and
Corporate Governance Committee. He graduated Magna Cum Laude with a degree in
44
Economics from Ateneo de Manila University and completed his Masteral units in Business
Administration at the same university.
Mr. Sabin M. Aboitiz, 45 years old, Filipino, has been a Director of ATS since
September 2002. He is also a member of the Audit and Corporate Governance Committee
and AEV Group Mancom. He was the President and CEO of Aboitiz One, Inc. from December
1998 up to July 2009 before he was appointed as President and CEO of the Pilmico Food
Group in August 2009. His other positions include: Director of Aboitiz Jebsen Bulk Transport
Corporation, Manila Oslo Renewable Energy and SN Aboitiz Power. He graduated with a
degree of Bachelor of Science in Business Administration, Major in Finance at Gonzaga
University, Spokane, Washington U.S.A.
Mr. Washington Z. Sycip, 88 years old, American, has been an Independent Director of
ATS since 1996. He sits in the Board Committees of ATS as Chairman of Audit and Corporate
Governance Committee and as Member of Risk Management Committee. His other
significant positions include: Founder and Chairman for 50 years - Sycip, Gorres and Velayo
Group; Chairman Emeritus of the Board of Trustees and the Board of Governors of Asian
Institute of Management; Chairman of the Board of Cityland Development Corp., Lufthansa
Technik Philippines Inc., MacroAsia Corporation, and Steag State Power Inc.; Independent
Director of Belle Corporation, Benpres Holdings Corporation, Commonwealth Foods, Inc.,
First Philippine Holdings Inc., Global Business Holdings, Inc., Highlands Prime Inc.,
Philippine Hotelier Inc., Philamlife Inc., The PHINMA Group, and Stateland, Inc; He is also a
Director of Philippine Airlines Inc. and Philippine National Bank. He graduated with a degree
of Bachelor of Science in Commerce and Master of Science in Commerce from the University
of Santo Tomas and further completed his Master of Science in Commerce from University of
Columbia, New York, U.S.A.
Emily A. Abrera, 62 years old, Filipino, has been an Independent Director of ATS since
2008. She is a member of the Compensation/Remuneration Committee and Nomination
Committee, and the Strategy Committee. Ms. Abrera is concurrently the Chairman of the
Cultural Center of the Philippines, and of CCI-Asia, the content-production company behind
Living Asia Channel and Isla advocacy programs. She is the President of the Foundation for
Communication Initiatives; a Trustee of Children’s Hour Inc., Philippine Board on Books for
Young People and Philippine Eagle Foundation; a Board Member of the Ramon Magsaysay
Award Foundation. She is a founding member of the Women’s Business Council. She has
been a consultant and Chairman-Emeritus at McCann Manila since 2004 and non-executive
Chairman of McCann World Group in the Asia-Pacific Region since 2008. She took up Mass
Communication at Maryknoll College and Journalism at the University of the Philippines.
Atty. Helen G. Tiu, 49 years old, Filipino, has served as Corporate Secretary of ATS
since September 2002. She is treasurer, corporate secretary and one of the managing
directors of Lazaro, Bernardo, Tiu and Associates, Inc., a consultancy firm and practices law
at H. G. Tiu Law Offices. Under H. G. Tiu Law Offices, she acts as corporate counsel,
director, and/or corporate secretary of various clients. She is a certified public accountant
and a member of the Philippine Bar. She received her Bachelor of Science in Business
Administration and Accountancy (cum laude; 1981) and Bachelor of Laws (1987) from the
University of the Philippines. In 1991, she obtained a Masters of Laws degree from Harvard
University. In 2006, Atty. Tiu was one of the Distinguished Alumni Awardees of the College of
Business Administration, University of the Philippines.
45
Atty. Catherine R. Atay, 31 years old, Filipino, has served as Assistant Corporate
Secretary of ATS since 2008. She also acts as the Corporate Secretary of various
corporations of the Aboitiz group including Pilmico Animal Nutrition Corporation, Davao Light
and Power Corporation, Cotabato Light and Power Corporation, Aboitiz Construction Group,
Metaphil International and Abovant Holdings, Inc. Prior to joining the Aboitiz Group, Atty.
Atay was with Landicho and Associates Law Offices. She received her Bachelor of Science in
Accountancy (cum laude; 1999) and Bachelor of Laws (2004) from the University of San
Carlos.
EXECUTIVE OFFICERS
Ms. Lilian P. Cariaso, 50 years old, Filipino, Treasurer, Executive Vice President Chief Finance Officer, Corporate Information Officer since June 2004 and Chief Resources
Officer effective August 2009. She has been with the Aboitiz group since 1979. She is a
Director of SuperCat Fast Ferry Corporation, Aboitiz Jebsen Bulk Transport Corporation,
Aboitiz One, Inc., and SQL Wizard. She graduated with a degree in Bachelor of Science in
Commerce, Major in Accounting (Summa Cum Laude) at the University of San Carlos and
earned her Masters degree in Business Management at the University of the Philippines.
Ms. Susan V. Valdez, 49 years old, Filipino, Executive Vice President - Chief Executive
Officer of the 2GO Freight Division since January 2004, and President & CEO for the Aboitiz
One Inc. Group effective August 2009. She has been with the Aboitiz group since 1981.
Previous positions in ATS include: Treasurer, Executive Vice President - Chief Finance
Officer, Corporate Information Officer. She graduated with a degree in Bachelor of Science in
Commerce, Major in Accounting (Cum Laude) at St. Theresa’s College and earned her
Masters degree in Management, Major in Business Management at the University of
Philippines. She also completed the Program for Management Development at Harvard
Business School, Boston, U.S.A.
Ms. Evelyn L. Engel, 57 years old, Filipino, Executive Vice President - Chief Executive
Officer of the Passage Division since June 2004 and President and Chief Executive Officer of
Scanasia Overseas Inc. effective August 2009. Her other positions include Director of Catena
Services, Inc. and SQL Wizard, Inc. She has extensive experience in the Aboitiz Transport
Group Sales and Marketing, Human Resource and Information Technology. She was a
Director of Interferry, an international organization of Ferry Operators in Europe, Asia and
Americas. She graduated with B.A. in Economics at St. Paul University.
Rafael L. Sanvictores, 52 years old, Filipino, Senior Vice President of Passenger
Services since May 2006. He has been with the Aboitiz group since 1980. He graduated with a
degree in Bachelor of Arts in Economics at San Beda College.
Mr. Ramon G. Villordon, Jr., 57 years old, Filipino, President and Chief Executive
Officer of SuperCat Fast Ferry Corporation and Cebu Ferries Corp. since March 2002. He has
been with the Aboitiz group since 1974. Previous positions in ATS include President of
Philippine Fast Ferry Corporation. He is currently Director of United Southdockhandlers, Inc.
and is one of the Commissioner of Cebu Ports Authority (private sector representative). He
graduated with a degree in Bachelor of Science in Business Management at University of San
Carlos.
Mr. Wilmer Jose A. Alfonso, 57 years old, Filipino, Vice President of Ports Services
since May 2006. He has been with the Aboitiz group since 1971. Other positions in 2009
46
include: Chairman of the Board of Catena Services, Inc.; Chief Operating Officer of North
Harbor Tugs Corporation; President of United South Dockhandlers, Inc. He is also the
Chairman of the Board of Attina Security Services, Inc. and President of Supersail Services,
Inc. Previous positions in ATS include: Vice President and Chief Operating Officer of Passage
Services Group; Vice President and Chief Operating Officer, President and Chief Operating
Officer of WG&A SuperCommerce, Inc., President of Pilotage Integrated Services
Corporation. Mr. Alfonso is a Certified Public Accountant. He graduated with a degree in
Bachelor of Science in Commerce Major in Accounting at University of San Carlos.
Ms. Magdalena A. Anoos, 53 years old, Filipino, Vice President of Materials
Management since January 2003. She has been with the Aboitiz Group since 1977. Previous
positions in ATS include: Finance Vice-President of Strategic Support Center, Aboitiz One,
Inc. She graduated with a degree in Bachelor of Science in Commerce Major in Accounting
(Cum Laude) at University of San Carlos. She also completed the Senior Executive Program
at Columbia Business School, New York, USA. She received the "Division Governor of the
Year" award from Philippine Toastmasters District 75 in 2005 and Advanced Toastmaster
Gold award by Toastmasters International in 2006.
Ms. Charity Joyce S.D. Marohombsar, 43 years old, Filipino. Currently Vice President
for the Customer Management Group of 2GO Scanasia. Other positions held in ATS. Vice
President of Customer Interaction Center COO since May 2003 and VP for 2Go Freight and
RORO. She has been with ATS since 2003. Previous positions include: General Manager of
Source One Asia an International BPO. She graduated with a degree in Bachelor of Arts at
Ateneo de Naga.
Ms. Norissa L. Ridgwell, 54 years old, Filipino, Senior Vice President and Chief
Operating Officer of 2GO Freight Operations starting August 2009. She has been with the
Aboitiz group since 1994. Previous positions include: COO, Hapag Lloyd Philippines, Vice
President for Sales & Marketing, WG&A, Vice President for Liner, Aboitiz Jebsen, Human
Resource Director of ATS and Vice President for Operations of ATS. She graduated with a
degree in Bachelor of Science in Commerce Major in Management at Silliman University.
Ms. Shelley U. Rapes, 51 years old, Filipino, Vice President and Chief Information
Officer of ATS starting August 2009. She has been with the Aboitiz group since 1981.
Previous positions include:
Assistant Vice President–Information Technology and
Information Services Manager of ATS. She graduated with a degree in Bachelor of Science in
Mathematics (Cum Laude) from the University of San Carlos, and finished the 3-month
Management Development Program of the Asian Institute of Management.
Ms. Annacel A. Natividad, 40 years old, Filipino, Vice President and Chief Finance
Officer of the Passage Division since June 2005. She is also concurrently handling Risk
Management Department since June 2007. She was also appointed as Chief Finance Officer
of Scanasia Overseas, Inc. last February 2010, in addition to her existing functions. She has
been with the Aboitiz group since January 1998. Previous positions in ATS include: Assistant
Vice President for Investor Relations, Corporate Finance, and the Finance Division of Passage
Travel and Leisure. She finished her Masters in Business Administration from De La Salle
University - Graduate School of Business and she graduated with a degree in Commerce
major in Accounting from the University of Santo Tomas.
Mr. Oscar Y. Go, 57 years old, Filipino, Vice President of Sales-Special Accounts since
May 2002. He has been with Aboitiz Transport System Corporation since May 2002. Prior to
47
joining the company, he was Vice President of Lorenzo Shipping Corporation. He graduated
with a degree in Business Management at Collegio de San Juan de Letran.
Mr. Joel Jesus M. Supan, 52 years old, Filipino, Vice President of Security, Safety and
Compliance since October 2004 which is also the year he joined ATS. He is a Founder and
Proprietor of Stonewall Security Concepts; Director and President of Ethics Call System Inc.,
and Founder of Balikatan ng Mga Tanod Ng Ari-arian at Yaman (BANTAY). Previous positions
include: Vice President and General Manager of Security Solutions of Solutions and
Innovations Inc.; Estates Management Division Head of Moldex Group; Vice President for
Training and Education of Independent Insights Inc., Naval Officer, Philippine Navy. He
graduated with a degree in Bachelor of Science from the Philippine Military Academy in 1981.
Ms. Ellen F. Bolus, 40 years old, Filipino, Vice President of Sales and Marketing of
2GO Freight Operations effective August 2009. She has been with ATS since 1995. Previous
positions in ATS include: Assistant Vice President of Sales 2GO Freight, Assistant Vice
President and Chief Operating Officer of Hapag Lloyd Phils. Inc., OIC-Chief Operating Officer
of AONE Network Brokerage Inc., and Chief Operating Officer of Hapag Lloyd Phils. Inc. She
graduated with a degree in Bachelor of Science in Tourism from the University of the
Philippines and earned her MBA (Gold Medalist) from the Ateneo Graduate School of
Business in 2003.
Ms. Noemi G. Sebastian, 48 years old, Filipino, Vice President of Human Resources and
Quest Consulting Group since August 2009. She is concurrently handling Corporate
Communications effective March 16, 2010. She has been with ATS since 2003. She graduated
with a degree in Bachelor of Science in Business Administration (Cum Laude) from the
University of the Philippines.
Nomination Committee and Nominees for Election as Members of the Board of Directors
The incumbent directors except for Mr. Roberto E. Aboitiz will be nominated as members of
the Board of Directors for the ensuing year (2010-2011). To fill in the position vacated by Mr.
Roberto E. Aboitiz in the ATS Board, Mr. Mikel A. Aboitiz is nominated as one of the Board of
Directors.
In compliance with SEC Guidelines on the Nomination and Election of Independent
Directors under SRC Rule 38, the Company Board created on February 26, 2003 a
Nomination Committee (which was consolidated with the Compensation/Remuneration
Committee in August, 2009.) The current Compensation/Remuneration and Nomination
Committee is composed of the following directors: (1) Mr. Jon Ramon M. Aboitiz as
chairman, (2) Mr. Enrique M. Aboitiz, Jr. as member and (3) Ms. Emily A. Abrera, an
independent director, as member.
The Compensation/Remuneration and Nomination
Committee had promulgated the guidelines which govern the conduct of the nomination of
the members of the Company Board. It had pre-screened and short listed all candidates
and came up with the following individuals as nominees for independent directors for the
ensuing year (2010-2011):
(1) Mr. Washington Z. Sycip as nominated by Mr. Jon Ramon M. Aboitiz
(2) Ms. Emily A. Abrera as nominated by Mr. Enrique M. Aboitiz Jr.
The nominating persons are not related to the nominees within the fourth degree of
consanguinity.
48
Further, the Committee approved on July 20, 2005 the Company’s Amended By-Laws
incorporating the procedures for the nomination and election of Independent Directors under
Rule 38 of the Securities Regulation Code, as the same may be amended from time to time.
Period in Which Directors and Executive Officers Should Serve
The directors and executive officers should serve for a period of one (1) year and until the
election and qualification of their successors.
Terms of Office of a Director
The nine (9) directors shall be stockholders and shall be elected annually by the stockholders
owning a majority of the outstanding common shares of the Registrant for a term of one (1)
year and shall serve until the election and qualification of their successors.
Any vacancy in the board of directors other than removal or expiration of term may be filled by
a majority vote of the remaining members thereof at a meeting called for that purpose if they
still constitute a quorum, and the director or directors so chosen shall serve for the unexpired
term.
Significant Employees
The Corporation considers the contribution of every employee important to the fulfillment of
its goals.
Family Relationships
Messrs. Jon Ramon Aboitiz and Roberto E. Aboitiz are brothers and are, thus, related to each
other within the fourth degree of consanguinity.
Messrs. Erramon Aboitiz, Enrique M. Aboitiz, Jr. and Sabin M. Aboitiz are brothers and are,
thus, also related to each other within the fourth degree of consanguinity. They are cousins
to Messrs. Jon Ramon Aboitiz and Roberto E. Aboitiz and are therefore related within the
fourth degree of consanguinity.
Other than the ones that are disclosed above, there are no other family relationships within
the fourth degree of consanguinity known to the Registrant.
Involvement in Certain Legal Proceedings
To the knowledge and/or information of ATS, none of its nominees for election as directors,
the present members of its Board of Directors or its executive officers, is presently or during
the last five (5) years been involved in any legal proceeding in any court or government agency
on the Philippines or elsewhere which would put to question their ability and integrity to serve
ATS and its stockholders.
With respect to its nominees for election as directors, the present members of its Board of
Directors and its executive officers, the Company is not aware that during the past five (5)
years up to even date of: (a) 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
49
within two years prior to that time; (b) any conviction by final judgment of such person in a
criminal proceeding, excluding traffic violations and other minor offenses; (c) such person
being subject to any order, judgment, or decree, not subsequently reversed, suspended or
vacated, by any court of competent jurisdiction, domestic or foreign, permanently or
temporarily enjoining, barring, suspending or otherwise limiting such person’s involvement in
any type of business, securities, commodities or banking activities; and (d) such person 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.
Resignation or Refusal to Stand for Re-election by Members of the Board of Directors
No Director has resigned or declined to stand for re-election to the board of directors since
the date of the last annual meeting of the Registrant because of a disagreement with the
Registrant on matters relating to the Registrant operations, policies and practices.
Item 10. Executive Compensation
The following table summarizes certain information regarding compensation paid or
accrued during the last three fiscal years and to be paid in the ensuing fiscal year to the
Registrant Chief Executive Officer and each of the Registrant four other most highly
compensated executive officers:
SUMMARY OF COMPENSATION TABLE
BONUS
Amounts in Thousands of Pesos (‘000s)
SALARY
(13 th and 14 th
Months Pay)
OTHER COMPENSATION
TOP FIVE HIGHLY COMPENSATED EXECUTIVES:
ENRIQUE M. ABOITIZ JR. – CHIEF EXECUTIVE OFFICER
EVELYN L. ENGEL – CHIEF EXECUTIVE OFFICER –
PASSAGE AND PRESIDENT-CEO
SCANASIA, INC.
SUSAN V. VALDEZ – CHIEF EXECUTIVE OFFICER –
FREIGHT AND PRESIDENT-CEO OF
ABOITIZ ONE INC. GROUP
LILIAN P. CARIASO – CHIEF FINANCE OFFICER,
CORPORATE INFORMATION OFFICER
AND CHIEF RESOURCE OFFICER
MIGUEL A. CAMAHORT – SVP–COO 2GO SOLUTIONS
(2008-2009)
NORISSA L. RIDGWELL – SVP-COO 2GO FREIGHT
(2010 ONLY)
All above named officers as a group
All officers and directors as group unnamed
2008
2009
Projected
2010
2008
2009
Projected
2010
19,728
22,372
29,117
3,288
3,729
4,853
-
21,648
23,911
2,214
2,545
-
27,258
4,543
-
The Company has no significant or special arrangements of any kind as regard to the
compensation of all officers and directors other than the funded, noncontributory taxqualified retirement plans covering all regular employees.
50
Each director receives a monthly allowance of P80,000 except for the Chairman of the Board
who receives P120,000 a month. Further, a per diem of P30,000 is given to each Director and
P45,000 for the Chairman for every Board meeting attended.
Except for the regular company retirement plan, which by its very nature will be received by
the officers concerned only upon retirement from the Company, the above-mentioned
directors and officers do not receive any profit sharing nor any other compensation in the
form of warrants, options, bonuses, etc.
Likewise, there are no standard arrangements that compensate directors directly or
indirectly, for any services provided to the Company either as director or as committee
member or both or for any other special assignments.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Security ownership of certain record and beneficial owners of five per centum (5%) or more of
the outstanding capital stock of the Registrant as of March 31, 2010:
Title of
Class
Common
Name and Address of Record
Owner and Relationship with ATS
Name of Beneficial Owner and
Relationship with Record Owner
1. Aboitiz Equity Ventures Inc.
Aboitiz Equity Ventures Inc.
Aboitiz Corporate Center
Gov. Manuel A. Cuenco Avenue
Kasambagan, Cebu City 6000
(PARENT COMPANY)
Citizenship
No. of Shares
Held
Percent of
Class
Filipino
1,889,482,107
77.24%
Filipino
390,322,384
15.96%
Filipino
2,905,251
63.71%
PROXY:
Authorized to vote on
behalf of AEV are any of the
following:
Jon Ramon Aboitiz
Chairman of the Board
Roberto E. Aboitiz
Director
Erramon I. Aboitiz
President & CEO
Enrique M. Aboitiz Jr.
Director
Common
3. Aboitiz and Company, Inc.
Gov. Manuel A. Cuenco Avenue,
Kasambagan, Cebu City 6000
(PRINCIPAL STOCKHOLDER)
Aboitiz and Company, Inc.
PROXY:
Authorized to vote on
behalf of ACO are any of the
following:
Jon Ramon Aboitiz
Chairman
Erramon I. Aboitiz
President & CEO
Roberto E. Aboitiz
SVP
Enrique M. Aboitiz, Jr.
SVP
Preferred
4. PCD Nominee Corporation
(Filipino)
Various Clients
37/f Enterprise Building
Ayala Avenue, Makati City
(STOCKHOLDER)
Aboitiz Equity Ventures, Inc. (“AEV”) is a publicly listed company and as of February 28, 2010,
Aboitiz and Company, Inc. (“ACO”) owns 48.18% of AEV. ACO is a corporation wholly owned
51
by the Aboitiz family. No single stockholder, natural or juridical, owns five per centum (5%)
or more of the shareholdings of ACO.
Security Ownership of Management – Record and Beneficial Owners as of February 28, 2010:
Title of
Class
Common
Name of Beneficial Owner and
Position
Jon Ramon Aboitiz
Citizenship
Filipino
Chairman of the Board
Amount and nature of ownership
(Indicate record and/or beneficial)
Percent
of Class
21 – “direct”
1,365,064 – “indirect”
Record Owner: Lekeitio & Company. Inc.
95,877 - “indirect”
Record Owner: JIA Management Corp.
0.07%
95,877 - “indirect”
Record Owner: SOFO Management Inc.
95,877 - “indirect”
Record Owner: EAA Management Corp.
Common
Bob D. Gothong
Filipino
Vice Chairman of the Board
148 – “direct”
328,750 – “indirect”
Record Owner: One Wilson Place Holdings
0.08%
1,561,425 – “indirect”
Record Owner: Josephine Te, wife
Common
Enrique M. Aboitiz, Jr.
Filipino
102,010 – “direct”
Filipino
188,287 – “direct”
1,418,951 – “indirect”
President and CEO
Common
Erramon I. Aboitiz
Director
0.00%
0.07%
Record Owner: Bauhinia Management, Inc.
Common
Roberto E. Aboitiz
Filipino
Director
170,281 – “direct”
636,078 - “indirect”
0.03%
Record Owner: Amayana Mgt. & Dev.
Common
Justo A. Ortiz
Filipino
1,250 – “direct”
Filipino
1,086,474 – “direct”
Director
Common
Sabin M. Aboitiz
Director
Common
Washington Z. SyCip
American
12 – “direct”
Independent Director
Common
Emily A. Abrera
Lilian P. Cariaso
0.04%
0.00%
Filipino
1,000 – “direct”
Filipino
1,147,825 – “direct”
0.05%
Filipino
575,679 – “direct”
0.02%
Filipino
575,679 – “direct”
0.02%
Filipino
144,118 – “direct”
0.01%
Filipino
383,786 – “direct”
0.02%
238 – “indirect”
0.00%
Independent Director
Common
0.00%
0.00%
Treasurer, EVP-CFO and CIO
Common
Susan V. Valdez
EVP-CEO Freight
Common
Evelyn L. Engel
EVP-CEO Passage and CRO
Common
Shelley U. Rapes
VP-Information Technology
Common
Magdalena A. Anoos
VP-Materials Management Division
Common
Norissa L. Ridgwell
Filipino
Record Owner: PCD Nominee Corporation
(Filipino)
VP-Freight Operations
Preferred
TOTAL
Sabin M. Aboitiz
Filipino
4,376,570”direct”; 5,598,137“indirect”b”
2,650 – “direct”
Director
TOTAL
0.00%
2,650 – “direct”
Security Ownership of the Directors and Officers in the Registrant as a Group: Common is
9,974,707 shares; Preferred – 2,650 shares.
Voting trust holders of 5% or More
No person holds more than five per centum (5%) of a class under a voting trust agreement or
similar arrangement.
52
Changes in Control
In September 2008, the major shareholders of ATS, AEV and ACO, accepted the unsolicited
offer of KGLI-NM Holdings, Inc. (KGLI-NM) to purchase all of the shareholdings of AEV and
ACO in ATS on a per share purchase price to be computed based on an ATS equity value of P5
billion or equivalent to P2.044 per share. AEV owns 1,889,489,607 common shares of ATS
while ACO owns 390,322,384 common shares of ATS, representing 77.24% and 15.96 %
respectively of the total outstanding ATS capital stock. This planned acquisition will include
all of the shipping and logistics businesses of ATS except the Aboitiz Jebsen Group.
ACO is the private holding company of the Aboitiz family and is AEV’s largest shareholder.
KGLI-NM is a domestic company, which is jointly owned by Negros Holdings and
Management Corporation (NHMC) and KGL Investment BV (KGLIBV), which is beneficially
owned by the KGL Investment Company, a Kuwaiti company.
On December 19, 2008, AEV and ACO, accepted the Term Sheet offered by KGLI-NM for the
acquisition by KGLI-NM of 49% equity stake in ATS instead of the total buy-out proposed in
the Memorandum of Agreement signed by the parties in September 2008. The 49% equity
stake was to include the 7% equity stake of the public in ATS. Under said modified
agreement, which was expected to close on or before April 30, 2009, the purchase price
would have been based on a total equity value of ATS in the amount of P4.5 billion or
equivalent to P1.84 per share, the adjusted value after KGLI-NM conducted a due diligence
examination. The Agreement also provided for an option for KGLI-NM to acquire the
remaining 51% equity stake of AEV and ACO anytime between May 1, 2009 to September 30,
2009 at the same price plus a premium of nine and a half percent (9.5%) annualized price per
share calculated from 30 April 2009 to 30 September 2009 or to date of acquisition, as
applicable.
On March 31, 2009, AEV and ACO received notice from KGLI-NM that it will exercise its option
to acquire at least US$ 30 million worth of common shares of ATS owned by AEV and ACO.
Based on the Term Sheet, the sale was estimated to involve approximately 655,382,609
common shares of ATS owned by AEV and 135,378,261 common shares of ATS owned by ACO
computed at the prevailing dollar exchange rate, or a total of approximately 32% of the
outstanding common shares of ATS. However, the actual number of shares to be acquired by
KGLI-NM would have been determined based on the dollar exchange rate on the expected
closing date (i.e., April 30, 2009.)
KGLI-NM was going to be entitled to such number of board seats as would have been
proportionate to the number of shares that they would have eventually acquired in ATS in
accordance with the regulations of the Securities and Exchange Commission and the
Philippine Stock Exchange.
However on April 30, 2009 ATS received a written advice from AEV and ACO that KGLI-NM
will not proceed with the purchase. KGLI-NM cited the then constraints in the debt markets
as the reason for its decision not to push through with its planned purchase of the ATS
shares owned by AEV and ACO.
In view of KGLI-NM’s decision not to close pursuant to the Term Sheet and to its notice dated
March 31, 2009, the Term Sheet dated December 19, 2008 as well as the Memorandum of
Agreement dated September 23, 2008 between AEV and ACO, on one hand, and KGLI-NM, on
the other hand, were deemed terminated. Likewise, the P100 million option money paid by
53
KGLI-NM to AEV and ACO (P82.88 million for AEV and P17.12 million for ACO) was forfeited in
accordance with the terms of the Term Sheet.
Item 12. Certain Relationships and Related Transactions
In the ordinary course of business, the Registrant has transactions with fellow subsidiaries,
associates, and other related companies consisting of shipmanagement services, charter hire,
management services, courier services, purchases of steward supplies, availment of
stevedoring, arrastre, trucking, rental and repair services. The Registrant needs these
services to complement its services to the freight and passage customers.
The identification of the related parties transacting business with the Registrant and how the
transaction prices were determined by the parties are discussed in the Note 22 of the
consolidated financial statements. The Registrant will continue to engage the services of
these related parties as long as it is economically beneficial to both parties.
The Corporation has no transaction during the last two years or proposed transaction to
which it was or is to be a party in which any of its directors, officers, or nominees for election
as directors or any member of the immediate family of any of the said persons had or is to
have a direct or indirect material interest.
Moreover, ATS and its subsidiaries do not have existing or proposed transactions with parties
that are considered outside of the definition of "related parties" but have the influence of
negotiating the terms of material transactions that may not be available to other, more
clearly independent parties on an arm's length basis.
PART IV – CORPORATE GOVERNANCE
Corporate governance is all about doing business by living the principles of fairness,
transparency, accountability and ethics. Today, business and economic forces have included
business ethics as strategically important. It has been said that real corporate governance
happens when doing the right thing has become the only way of doing business. But while
corporate governance principles are necessary, they are not sufficient to ensure business
success. The key driver for success is not just mere compliance to the principles but on selfgovernance and doing one’s works ethically and with integrity.
The Board of Directors, management, officers and staff of the Aboitiz Transport System and
its subsidiaries commit themselves to the principles and best practices of Corporate
Governance—individually and as a team.
Governance Framework
The ATS corporate governance framework has four (4) major components: the Board, the
Management, the organization of the information system within the company, and the
independent audit mechanisms.
54
The Board characterized by independence, objectivity, and effectiveness sets the tone at the
top. The Board plays a key role in harmonizing the competing interests of the various
stakeholders of the company. The Board appoints the members of senior management and
regularly monitors company performance.
Management reports to and is accountable to the Board. They are responsible for the
execution and monitoring of the effectiveness and efficiency of day-to-day operations,
strategy setting and planning, implementation of internal control systems, management of
risks as well as operational and financial reporting.
Internal control covers both organizational and procedural controls effected within the
company. Through the oversight role of the Board Audit and Corporate Governance
Committee, audit mechanisms are put in place to provide reasonable assurance to
management and the Board on the effectiveness of the control environment that includes
reliability of financial information; compliance with policies, laws and regulations;
safeguarding of company assets; and efficacy and validity of its risk management programs.
Corporate Governance Manual
The 2003 ATS Corporate Governance Manual was approved for amendment during the
September 24, 2009 ATS Board Meeting in accordance with the Revised Code on Corporate
Governance issued by the Securities and Exchange Commission (SEC) under its Circular No.
6, Series of 2009 dated June 22, 2009. It was duly submitted to SEC on October 5, 2009. The
2009 ATS Revised Corporate Governance Manual took effect in October 1, 2009. It is
applicable not only to ATS but also to all the subsidiaries of ATS.
The SEC Code has specified the accountabilities of the Board and has set higher qualification
and ethical standards for board directors and the board committees. The Corporate
Governance Manual is used for reference purposes only to guide the company on the best
and most ethical way to attain its corporate goals and strategies. It does not constitute any
legal requirement on the company, its officers, directors and auditors but compliance must
be ensured with the provisions of applicable laws and regulations.
55
Board Structure and Composition
Compliance to the principles of good governance starts at the top. The director’s position is
one built on trust and integrity. The Board has the fiduciary responsibility to ensure the
company’s prosperity by collectively directing the company’s affairs, while meeting the
appropriate interests of all its stakeholders.
The ATS Board is a team of nine (9) highly respectable individuals—eight (8) non-executive
directors which includes the Chairman and only one (1) executive director. Of the nine (9),
there are two (2) independent directors who are experts in their respective fields.
Chairman
Members
: Jon Ramon M. Aboitiz
: Bob D. Gothong
Enrique M. Aboitiz, Jr.
Erramon I. Abotiz
Roberto E. Aboitiz
Justo A. Ortiz
Sabin M. Aboitiz
Washington Z. Sycip, Independent Director
Emily A. Abrera, Independent Director
Splitting up the role of the Chairman and the Chief Executive Officer (CEO) was brought into
focus when shortcomings in corporate governance were observed in companies where the
two roles are combined. Thus, to foster an appropriate balance of power, increased
transparency, accountability and control over company operations, the elected Chairman of
the Board, a non-executive director is separate and distinct from the appointed CEO of ATS.
Role of Directors
In governance, the fulfilment of the stewardship responsibilities is entrusted primarily to the
Board of Directors. The directors represent the shareholders of the company and are
expected to preserve and enhance the shareholder value of the corporation they represent.
Their focus is geared towards the strategic objectives of the company responsive to the
needs of all the stakeholders.
The board is also responsible in ensuring that systems and procedures are in place that
allows them to monitor compliance to company policies, regulatory and statutory rules and
regulations, as well as to the principles of good governance.
Directors can enhance their effectiveness if they are legally empowered, have the requisite
qualifications for the board committees they sit in, devote sufficient time to understand
company operations and given directorship training where needed, allot time commitment
for board meetings, and are provided with appropriate information needed for them to
properly perform their oversight function.
Non-Executive Directors
Legally, there is no distinction between an executive and a non-executive director.
directors are expected to see company and business issues from a broad perspective.
All
56
However by definition, a non-executive director is a director who is not a head of a
department nor performs any work related to its operations. In ATS, eight (8) of the nine (9)
directors are non-executive directors, two (2) of which are independent directors.
Essentially, the roles of a non-executive director are to provide creative and informed
contribution in the area of strategic direction; to monitor executive performance; and
communication and networking between the board and potentially useful people and
organizations.
Non-executive directors in ATS bring in independent judgment on issues of corporate
strategies, performance and resources including key appointments and standards of
conduct. They are appointed to bring to the board independence, impartiality, breadth of
experience, special knowledge, of appropriate calibre and personal qualities. They provide
general counsel and a different perspective on matters of concern. As an outsider, they
supply objective criticism during board discussion.
Board Meetings
Dynamic. That is the most fitting word to describe the ATS Board at work. The Board takes
its roles and responsibilities seriously. There is active participation in the discussion of
matters pertaining to strategy, present and future opportunities, threats and risks in the
external environment and current and future strengths, weaknesses and risks relating to the
company. The Board, by promoting goodwill and support, exercise accountability to the ATS
shareholders and are highly responsible to relevant stakeholders.
The main function of a board member is to actively participate in Board meetings and the
primary reason for holding meetings is to allow the Board to make decisions on corporate
matters requiring immediate action/resolution. The Board held eleven (11) meetings in 2009.
Below is the summary of the attendance of the Directors:
Director
Jon Ramon M. Aboitiz
Bob D. Gothong
Enrique M. Aboitiz, Jr.
Erramon I. Aboitiz
Roberto E. Aboitiz
Justo A. Ortiz
Sabin M. Aboitiz
Washington Z. Sycip
(Independent Director)
Emily A. Abrera
(Independent Director)
Jan
22
P
P
P
P
P
P
P
A
Feb
18
A
P
P
P
A
P
P
P
Mar
26
P
P
P
P
P
P
P
A
Apr
23
P
P
P
P
P
P
P
P
A
A
P
P
Meetings Held in 2009
May Jul Aug
Sep
28
23
27
24
P
P
P
P
P
P
P
P
P
P
P
P
A
P
P
P
A
P
P
P
P
P
P
P
P
P
A
P
A
P
A
P
P
P
P
P
Oct
22
P
P
P
P
P
P
P
P
Nov
26
P
A
P
P
P
P
A
A
Dec
17
P
P
P
P
P
A
P
P
P/M
10/11
10/11
11/11
10/11
9/11
10/11
9/11
6/11
P
P
A
8/11
Board Committees
The Board delegates work to sub-committees to more efficiently make use of the directors’
time and to more effectively deal with complex or specialized issues needing priority
attention. The committees give recommendations for action to the full Board, who retain
collective responsibility for decision-making.
These committees are independent of
management.
57
Committee involvement allows directors to have a deeper understanding of and active
involvement in the workings of the organization. The existence of committees also serves a
signal to investors that the Board is taking its responsibilities and addressing particular
issues seriously.
In 2009, there was a restructuring of the ATS Board Committees. From three (3) committees,
it has now grown to four (4). The Nomination Committee was consolidated with the
Compensation and Remuneration Committee. Corporate Governance has been incorporated
with the Audit Committee. Two new committees were created to ensure that focus is given to
both Strategy and Risk Management. The composition of each Board Committee was
approved and disclosed to the Philippine Stock Exchange (PSE) in a letter dated August 27,
2009.
Compensation, Remuneration and Nomination Committee. The quality of leadership is a key
success factor to any corporation. The Compensation, Remuneration and Nomination
Committee promotes the selection of directors and a CEO of the highest calibre. It is likewise
responsible in ensuring that a succession plan is in place and recommendations are made
for the appropriate compensation structure particularly for the CEO and other key senior
leadership positions such as the Chief Finance Officer, the Chief Strategy Officer, and the
Chief Resource Officer. The Committee is there to assist the Board and not to pre-empt any
board responsibility in making the final decision on nomination and compensation matters.
The Committee does not have decision making authority except on matters explicitly
delegated by the Board.
Effective August 2009, the Compensation, Remuneration and Nomination Committee is
composed of at least three (3) board members, one (1) of which is an independent director
and at least one (1) ex-officio member.
Currently, said committee is composed of five (5) members (one of whom is an independent
director) and two (2) ex-officio members. To wit:
Chairman
Members
: Jon Ramon M. Aboitiz
: Enrique M. Abotiz, Jr.
Emily. A. Abrera, Independent Director
Xavier Jose Aboitiz, Ex-Officio member
Lilian P. Cariaso, Ex-Officio member
Mr. Xavier Jose Aboitiz is the Senior Vice President for Human Resources of Aboitiz Equity
Ventures, Inc. (AEV). Ms. Lilian P. Cariaso is the Executive Vice President, Chief Financial
Officer and Chief Resource Officer of ATS.
Audit and Corporate Governance Committee. The Audit Committee is guided by the Board
Audit Charter. The committee plays a vital role in ensuring the Company's integrity and
public reputation. Its four (4) major critical functions with decision made by the full board
include: (1) engaging, communicating with, and providing oversight of external auditors; (2)
ensuring the adequacy and effectiveness of a system of risk management and internal
controls; (3) ensuring that there is proper disclosure of the accounts giving a true and fair
view, and favoring substance over form; and (4) communicating with internal auditors.
An effective audit committee meets with appropriate frequency, reviews the internal audit
master plan for the year, provides a direct channel of communication between internal and
58
external auditors, reviews annually the performance of external auditors and the extent of
their non-audit services, and value for money obtained from auditors fees, reviews annually
the auditors’ independence, ensures that there are no conflict of interests that may hamper
the auditors performance of his job, and reviews management’s monitoring of compliance to
the company’s Code of Conduct.
Effective August 2009, the Audit and Corporate Governance Committee is composed of at
least three (3) board members (one (1) of whom is an independent director) and at least one
(1) ex-officio member.
Currently, the Committee is composed of five (5) members (one (1) of whom is an
independent director and also chairs the Committee) and two (2) ex-officio members. To wit:
Chairman
Members
: Washington Z. Sycip, Independent Director
: Justo A. Ortiz
Sabin M. Aboitiz
Stephen G. Paradies, Ex-Officio member
Lilian P. Cariaso, Ex-Officio member
Mr. Stephen G. Paradies is the Senior Vice President and Chief Financial Officer of AEV.
With the explicit incorporation of Corporate Governance to the function of the Audit
Committee, there is a need to revisit the scope of the existing Board Audit Charter to ensure
that governance principles are clearly defined and documented.
Meanwhile, the Committee is clear on its additional function to take the lead in promulgating
the principles of and shaping corporate governance in the company.
A separate and more detailed Audit Committee report is provided in the succeeding section.
Strategy Committee. The Board Strategy Committee was formed in 2009 following the
results of the Board Evaluation Survey where majority of the directors raised the need for the
Board to give extra focus on discussions about corporate strategies.
The formulation of a Strategy Committee offers the company a mechanism to utilize the
wealth of talent offered by the directors of the ATS board at the same time enabling the board
to play a larger role in overseeing and enhancing strategic direction as well as focusing on
critical areas of business risk appropriate for board involvement including key matters that
will impact on company reputation and standing in the business community.
Effective August 2009, the Strategy Committee is composed of at least three (3) board
members (one (1) of which is an independent director) and at least one (1) ex-officio member.
59
Currently, the newly formed Strategy Committee is composed of eight (8) members (one of
whom is an independent director) and three (3) ex-officio members. To wit:
Chairman
Members
: Jon Ramon M. Aboitiz
: Enrique M. Aboitiz, Jr.
Bob D. Gothong
Erramon I. Aboitiz
Emily A. Abrera, Independent Director
Susan V. Valdez, Ex-Officio member
Evelyn L. Engel, Ex-Officio member
Lilian P. Cariaso, Ex-Officio member
Both Ms. Susan V. Valdez and Ms. Evelyn L. Engel are Executive Vice Presidents and CEOs of
ATS.
Having a Strategy Committee allows the Board to have a more direct voice in the Company’s
planning process and have greater influence on the overall direction that ATS will take.
Risk Management Committee. In previous years, risk management was subsumed in the
function of the Audit Committee. However, as business risk management activities continue
to gain ground, the need to carry out additional functions, policies and procedures has
become paramount in the light of changing business, legislative, regulatory, legal or other
conditions that a separate board committee had to be formed to focus on this.
The main purpose of the Risk Management Committee is to provide assistance to the Board
in (1) assessing and providing oversight function to management relating to the identification
and evaluation of major strategic, operational, regulatory, and external risks inherent to the
business; (2) overseeing risk management compliance and control; and (3) overseeing legal
and regulatory compliance and control of operational systems and the conduct of company
business.
Effective August 2009, the Risk Management Committee is composed of at least three (3)
board members (one (1) of whom is an independent director) and at least one (1) ex-officio
member.
Currently, the newly formed Committee is composed of seven (7) members (one of which is
an independent director) and three (3) ex-officio members. To wit:
Chairman
Members
: Bob D. Gothong
: Enrique M. Aboitiz, Jr.
Roberto E. Aboitiz
Washington Z. Sycip, Independent Director
Rolando C. Cabrera, Ex-Officio member
Lilian P. Cariaso, Ex-Officio member
Annacel A. Natividad, Ex-Officio member
Mr. Rolando C. Cabrera is First Vice President and Chief Risk Management Officer of AEV.
Ms. Annacel A. Natividad is Vice President and Risk Management Officer for ATS.
60
The Risk Management Committee, in fulfilling its role, will ensure a constructive and
collaborative relationship with ATS senior leaders, particularly the CEO and the Chief Risk
Officer, as well as the key officers of the each of the major business units in ATS.
Remuneration Policy
ATS espouses the philosophy that each individual should be rewarded based on his/her
performance to execute assigned duties and responsibilities. The board and key senior
officers of the Company ensures that the Company offers competitive remuneration.
Further, the Board determines a reasonable compensation payable to each member of the
board within a limit specified in Section 11 of the ATS By-Laws which states that “every
member of the Board shall receive such amount, not to exceed ten percent (10%), of the net
income before income tax of the corporation during the preceding year, as may be
determined by the Board of Directors, as compensation, subject to the approval by the
stockholders.
Compensation of Directors and Senior Management
In 2009, each Director received a monthly allowance of P80,000 except for the Chairman of
the Board who received P120,000 a month. Further, a per diem of P30,000 is given to each
Director and P45,000 for the Chairman for every Board meeting attended.
Total compensation paid/accrued for services in all capacities provided by the Directors and
ATS Senior Management during the year ended December 31, 2009 amounted to P52.6M.
Said amount covers basic salary, the statutory 13th month pay and the performance bonus.
Board Evaluation
Providing opportunities for board members to rate their job performance is a fundamental
part of the overall board evaluation system and integral to best governance practices.
Performance evaluations of individual board members have been established as a good
governance practice for public, private and non-profit boards. The self-evaluation process
reinforces to the directors their accountability to the organization, the greater community
served by the organization, and the resources consumed.
ATS conducted its first Board Self-Evaluation Survey in July 2009. Two (2) surveys were
conducted—the Individual Assessment and the Group Assessment.
The Individual
Assessment is a Director’s self-assessment of his/her performance as a member of the ATS
Board. The Group Assessment, on the other hand, is a director’s assessment of the overall
performance of the ATS Board as a group. Overall, the results of both assessments showed
that all directors perform their duties and functions and act in the best interest of ATS and its
stakeholders in a manner characterized by transparency, accountability and fairness. There
was a consensus that the performance of the Board can be improved during the next couple
years by focusing on long-term goals and strategies.
CEO Evaluation
With new emphasis on transparency, embraced as one of the key principles of corporate
governance, governing boards need to ensure that the right metrics, targets, and processes
are in place to support effective decision making. One proactive approach that maximizes the
impact for the Company and its most critical leader is to have a formal process to evaluate
61
CEO performance. ATS has completed its CEO Evaluation Survey form this year, to be
accomplished for the first time in 2010. The survey intends to also cover the performance of
all officers of ATS and of its subsidiaries functioning in the capacity of a CEO.
Results Presentation and Analysts Meetings
All annual results presentations as well as quarterly analyst meetings are announced in
advance on the ATS website (www.atsc.com.ph) and through a regulatory release.
Discussions in such meetings are limited to information already available to the public.
Further, the Annual Financial Report, Quarterly Analysts Briefing, other SEC filings and PSE
disclosures are uploaded in the ATS website to ensure that all stakeholders, both internal
and external, will have equal opportunity and access to information available.
Other than the website, the presentation of the Financial Report and the approval of Financial
Statements for the preceding year are included in the regular Order of Business during the
Annual General Stockholders Meeting held every 4th Thursday of May of each year. In 2009,
the ATS Annual General Stockholders Meeting was held last on May 28 at the Mandarin
Oriental Hotel in Makati City.
Code of Business Conduct
The ATS Code of Business Conduct summarizes ethical principles and policies that deal with
issues involving conflict of interest, confidential information, insider trading, bribery or
gratuity, equal employment opportunity, safety and health, and the environment. It serves as
a reminder to employees that everyone has a common obligation to uphold the ATS corporate
values, responsibilities and obligations. The Code sets the benchmark for ATS' commitment
to always work within ethical and legal standards.
Whistleblowing
The key driver for compliance is not a set of rules, laws or regulations. It is founded on selfgovernance. Corporate ethics, values and integrity are only as good as the ethics, values and
integrity of each individual playing a role in the governance structure.
ATS provides avenues for employees or internal whistleblowers to anonymously raise issues
and concerns about wrongdoings occurring in the organization. The revealed misconduct
may take the form of a violation of a policy, proper office decorum, or the general principles
of good governance. The ATS Corporate Intranet serves as the window to voice out
compliance, ethics, and bureaucracy concerns. On the other hand, incident reports and
observations that may involve irregular transactions, anomalous and criminal acts, health
and safety violations as well as any observation that may pose a threat to the security of an
employee or to the business may be reported through the Security, Safety and Compliance
Office (SSCO) Incident Report System also found in the ATS Intranet.
There is also an avenue available for clients/customers or external whistleblowers. The ATS
Customer Interaction Center has a Complaints Management System. All complaints, issues
and concerns received from various sources such as through the telephone, the website,
through e-mail, short messaging system (SMS) and written communication are logged and
monitored until resolved.
62
It is no less that members of senior management who take the lead in addressing and
monitoring the progress of all issues raised whether internal or external.
ATS Scorecard
The SEC in partnership with the Institute of Corporate Directors (ICD) has implemented the
Corporate Governance Scorecard for publicly listed companies. The scorecard measures a
company’s level of compliance to corporate governance principles and standards.
Over the years, ATS has improved its rating from 70% in 2007 to 86% in 2008.
Philippine Score
ATS Score
ATS Rank
2007
65%
70%
Second Quartile
2008
72%
86%
First Quartile
This is proof that shows that ATS is committed to raise the standards by which it does its
business and consequently enhances the long-term value of the Company by practicing good
corporate governance and social responsibility.
Outlook
Corporate governance is not just a set of written rules and principles. It is a way of doing
good business. And doing good business means each person in the organization must
demonstrate conduct consistent with corporate governance principles.
The overriding commitment to a culture of governance starts from the top. In ATS, all
aspects of Board and management are one in this commitment. Good corporate governance
is effecting appropriate changes to existing practices to better meet the collective interests
of all stakeholders. Rules must be designed in accordance with the governance principles
they are designed to maintain. We continue aiming to align, as much as possible, the
interests of individuals, of the Company and of society.
Further Information
The following are available on www.atsc.com.ph/IR/governance
 ATS Corporate Governance
 ATS Articles of Incorporation
 ATS Code of Business Conduct
 ATS By-Laws
 ATS Anti-Money Laundering Statement of Policies and Procedures
INFORMATION TECHNOLOGY GOVERNANCE
The use of Information Technology continues to play a strategic role in the different
businesses of ATS. In 2009, new system capabilities were rolled out both the passage and
freight business to help maximize vessel capacity and improve pricing and promotion. A new
ticketing channel was also launched for outlets and partners, allowing them to do book-andbuy and other services via the Internet. For the value-added business, Radio Frequency
scanning was implemented to facilitate cargo tracking and a Disaster Recovery facility for the
63
SAP system was established. The latter is to boost the confidence level of ATS customers
and principals that business will continue in case of any untoward incident.
Focus was also given to standardize the backroom support processes and systems. All
business units using the Oracle Financial and Human Resource Management modules are
now standardized on the 11i version. Additional Human Resource self-service facilities were
also deployed that make services to employees more efficient and reduce the use of paper
forms. This simplifies and improves the backroom management and support and at the
same time contributes to the ‘Green Initiatives’ of ATS.
As changes in technology are constant, ATS adapts to these changes based on the needs of
the organization. Substantial efforts were invested to upgrade the IT infrastructures, which
include network, data center and databases. This is to ensure the high availability of all ATS
business applications as well as to address technology obsolescence.
IT Governance remains a strategic focus area of the organization. Improvements done on the
IT Planning Process, one of the identified priority improvement areas of IT Governance,
resulted in a more meaningful output in 2009. Six (6) high level IT Goals and supporting
objectives were outlined in the 2009 Strategic IT Plan that showed alignment to the corporate
strategies. More IT process improvements are underway that will further benefit the
business. This includes the areas of IT Service Delivery, Information Security, Software
Quality Assurance, IT Continuity Management and Innovations that will create new revenue
channels for the business.
To further strengthen the governance structure, the newly formed Strategy Committee will
serve as a venue to discuss the effective use of technology and major IT investments. This
will ensure that all future IT initiatives and directions are consistently aligned to the business
and, thus, deliver their maximum value to the organization.
ENTERPRISE WIDE RISK MANAGEMENT PROGRAM
To be able to carry on contributing to a resilient ATS, management and employees need a
deeper understanding of precisely what the key threats are to our stability.
We carry on to raise risk awareness in ATS through the cascade of Enterprise Risk
Management (ERM) program and concepts, across the company from the vessel officers and
crew down to the boarding officers and container yard personnel. ERM is also part of the
training program and corporate orientation for the new employees to make sure that risk
management is embedded into the culture of ATS.
In 2009, we continued to focus on addressing operational risks.
following as the Top 20 Risks of ATS:
1.
2.
3.
4.
5.
6.
7.
We have identified the
Crew Shortage
Improper handling of dangerous goods
Economic downturn
New competition and capacity influx
Business loss or interruption
Loss of network and IT systems
Sabotage
64
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Theft of sensitive information
Loss of key equipment
Loss of key facilities
Workplace safety
Fire
Health epidemic
Delay during drydocking
Hijacking
Terrorist activities
Lack of security culture
Passenger safety
Vessel Engine Breakdown
Misdeclaration of Cargoes
Risk awareness is not enough unless it results in tangible action. In 2009, Risk response and
mitigation programs were implemented focusing on the top 20 risks.
Preparedness also means business must have the right systems and processes in place. We
continue to focus on improving our Emergency Response and Disaster Recovery Plans that
we have implemented in passage and freight business units. In 2010, we will embark on
Business Continuity Management.
Putting in place effective business continuity management will help ATS get back to business
following disruptions that are beyond our control. At present, we have a contingency plan in
place to cover interruption that could hit bottom line profits.
The ATS ERM approach focuses on approaching risk as an opportunity. It is all about seizing
the opportunity to grow, develop and maintain our foothold in the industry by being prepared
for most uncertainties. Whether it is to Avoid, Mitigate, Transfer, Hedge, Retain or Share in
risks.
ATS maintains its direction that ERM is a firm wide responsibility with all employees expected
to contribute their share thereby creating a "risk culture" in ATS. All employees are expected
to have high levels of risk awareness ensuring that everyone is proactive in identifying and
managing risks within their responsibilities as well as those affecting the department and
corporate objectives. Using this approach, ATS embeds into the ATS culture that Risk
Management is not just the responsibility of Top Management or specialist but it is a shared
responsibility of every ATS employee.
In 2009, the ERM program has already put into place Policies, Procedures and Projects to
mitigate risks bringing the program closer to the Established Phase of the ERM Model. The
approved and implemented Risk Management Policy Statement now covers:
1. Policy on who is responsible for managing risks and support available
2. Strategic Business Unit (SBU) Accountabilities and Responsibilities
3. Employees Training
4. Risk Management as part of CBS / KRA / KPI (employee performance assessment tools)
5. Risk Communication
6. Risk Reporting
7. Guidelines on what maybe considered as Acceptable Risks
65
8. Guidelines in closure of Risks
9. Risk Analysis
10. Review of Contracts
Risk Management is also incorporated as part of the Competency Based System of ATS
employees. We have implemented the guidelines as to the level of competency required for
each employee level and corresponding trainings and activities said employee should attend
and focus on.
We have also launched the Risk Management Portal as part of the company’s Intranet
system.
The next phase for 2010 shall focus on monitoring and addressing the identified Top 20 risks.
Each Business Unit will continue to monitor their own respective risks and the corresponding
programs and projects identified as Risk Response. The Risk Management Committee on the
other hand will monitor the ATS-wide ultra risks with each SBU providing quarterly updates.
Implementation of the ERM program will also be implemented across the Transport Group.
Thus by end of 2010, it is expected that ERM be fully established.
The ERM program has provided ATS with the necessary tools to be more resilient in the face
of a very difficult 2009. Though unfortunate, past events have opened the eyes of the
Company to possible risks and uncertainties in the future and the ERM program shall be one
of the guides that will empower ATS to full recovery.
Continued focus and attention on raising risk awareness, encouraging tangible risk
management action and engaging through greater risk partnership by embedding risk
management into the culture of the Company will make ATS more resilient and more
confident about facing the future.
66
AUDIT COMMITTEE REPORT
The Board Audit and Corporate Governance Committee is an integral part of the corporate
governance framework of ATS. It plays an important role in achieving and maintaining the
expected standards in the Company’s governance and ethical arrangements. Its key
responsibilities are to assist the Board of Directors in carrying out its responsibilities as they
relate to the oversight of the internal controls and financial reporting process; and to ensure
compliance with applicable external legal and regulatory requirements, the ATS Code of
Business Conduct, and the ATS Code of Corporate Governance.
Its work the last year has ensured that ATS activities have been subject to independent
scrutiny and challenge and that high standards of governance are maintained. The
Committee is guided by the objectives and authorities outlined in the Audit Committee
Charter duly approved by the Board.
Membership
The Audit and Corporate Governance Committee is composed of three (3) directors (one of
whom is an independent director who chairs the Committee) and has extensive accounting
and finance background. The other members complement this with their broad knowledge
and experience in company operations and knowledge on regulatory issues that affect the
business.
The ATS Board, in its meeting dated August 27, 2009 revised and further enhanced the
membership of the Audit and Corporate Governance Committee by having two (2) additional
ex-officio members:
Chairman
Member
Member
Ex-Officio
Ex-Officio
From
Washington Z. Sycip
Bob D. Gothong
Jon Ramon M. Aboitiz
not applicable
not applicable
To
No change
Justo A. Ortiz
Sabin M. Aboitiz
Stephen G. Paradies
Lilian P. Cariaso
The change is brought about by the creation of additional board committees and the
consolidation of existing committees to ensure better compliance with standards set forth by
regulatory agencies.
Meetings
In 2009, the Audit Committee held three (3) meetings:
Committee Member
Washington Z. Sycip
Bob D. Gothong
Jon Ramon Aboitiz
Justo A. Ortiz
Sabin M. Aboitiz
Feb 18
July 2
Oct 22





x
x
x
x
x
x
n/a
n/a


67
Also in attendance during said meetings were the Head of ATS Internal Audit, the CFO of ATS
and the CFO of Aboitiz Equity Ventures. It is worth noting that both CFOs were duly appointed
as ex-officio members of the Committee effective August 27, 2009.
Depending on the agenda, other members of ATS management were invited to attend and
were present during the Board Audit Committee meetings.
Risk Assessment and Internal Control
ATS espouses the risk-based approach in the prioritization of its audit engagements. Risk
exposure of each auditable unit is assessed, discussed and reviewed with the operating
leaders. Inputs from the Risk Management team that includes action plans to mitigate,
eliminate, avoid, transfer, diversify, exploit or accept identified risks are likewise
incorporated in the assessment.
With the limited resources of the internal audit team, efforts are primarily focused on the
“Very High” and “High” risk areas. The general assessment in terms of efficiency and
effectiveness of the system of internal controls is reviewed and discussed with the
Committee, with management and with the operating units to ensure that appropriate action
plans are effected to resolve issues raised by the auditors.
Financial Results
The Committee reviewed, discussed and endorsed for Board approval the annual audited
financial statements prepared and presented by the Company’s external auditors during the
February 25, 2010 meeting of the Board Audit and Corporate Governance Committee.
Prior to finalization of the annual report, the Committee likewise assessed the
comprehensiveness of the audit scope as well as the appropriateness of the audit procedures
to be implemented.
Recommendations and resolutions to audit findings that warrant immediate attention were
prioritized.
Above activities were performed by the Committee on the basis that the key deliverables of
external auditors are (1) to express an opinion on the statutory financial statements of the
company; and (2) to issue a management letter that provides recommendations regarding
internal controls and opportunities for improvement or efficiency, based on observations
made during the course of the audit.
External Audit
Sycip, Gorres and Velayo (SGV) was appointed external auditor to ATS for 2009. Ladislao Z.
Avila, Jr. is serving his fourth year term as the signing partner assigned by SGV to the
Company since 2006.
The 2009 Financial Statement Audit Plan for Aboitiz Transport System Corporation and its
subsidiaries was presented by SGV and duly approved by the Committee at its meeting dated
October 22, 2009. Included in the presentation made by SGV are the accounting and auditing
developments for 2009 that may impact on the Company’s financial reporting process such
as Amendments to PAS 1 – Presentation of Financial Statements; PFRS 8 – Operating
68
Segments; and Amendments to PFRS 7 – Financial Instruments: Disclosures.
presented key risk areas and audit issues for 2009.
SGV also
Total audit and other related services fees paid to SGV in 2009 amounted to P1 million.
Internal Audit
The Committee, with its oversight function over internal audit activities, monitors the
adequacy of both financial and people resources including their qualifications, expertise,
independence and objectivity. Annual assessment of auditor’s competencies is done in
conjunction with the Performance Management System of the Company.
In the review and discussion of results of internal audit engagements, the Committee
ensures that key risks are covered in the scope of audit.
The performance and effectiveness of internal audit is assessed every year.
Approval
This report was approved by the ATS Board Audit Committee and signed on its behalf by:
Mr. Washington Z. Sycip
Chairman, ATS Board Audit Committee
69
PART V - EXHIBITS AND SCHEDULES
Item 13. Exhibits and Reports on SEC Form 17-C
a) Exhibits - See accompanying Index to Exhibits
The exhibits, as indicated in the Index to Exhibits are either not applicable to the Company
or require no answer.
b) Reports on SEC Form 17-C
During the last six months of CY 2009, the Company filed the SEC 17-C report. The list of the
reports submitted to the Commission is as follows:
Date of
Report
Jul 23
Aug 10
Aug 11
Aug 28
Sep 08
Title of Report
Item
No.
Sep 22
Oct 02
Movement and Appointment of ATS Officers
ATS 2nd Quarter 2009 Financial Performance
Kerry Logistics and Aboitiz One, Inc. Joint Venture
Changes in Board Committees
ATS SuperFerry 9 – 1st Official Advisory
ATS SuperFerry 9 Official Advisory as of 07 Sep 09
Lifting of MARINA Suspension
Resignation of Officer
9
9
9
9
9
9
9
4
Oct 09
Transfer of Officer to Aboitiz Food Group
4
Nov 3
ATS 3rd Quarter 2009 Financial Performance
9
Item Title
Other events
Other events
Other events
Other events
Other events
Other events
Other events
Resignation, Removal
or Election of
Registrant’s Director
of Officer
Resignation, Removal
or Election of
Registrant’s Director
of Officer
Other events
70
71
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
FORM 17 - A, Item 7
Consolidated Financial Statements
Statement of Management’s Responsibility for Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 2008 and 2007
Consolidated Statements of Income for the years ended December
31, 2008, 2007 and 2006
Consolidated Statements of Changes in Stockholders’ Equity for the
years ended December 31, 2008, 2007 and 2006
Consolidated Statements of Cash Flows for the years ended
December 31, 2008, 2007 and 2006
Notes to Consolidated Financial Statements
Supplementary Schedules
Report of Independent Public Accountants on Supplementary
Schedules
A.
Marketable Securities - (Current Marketable Equity Securities
and Other Short-Term Cash Investments)
B. Amounts Receivable from Directors, Officers, Employees,
Related Parties and Principal Stockholders (Other than Affiliates)
C. Non-Current Marketable Equity Securities, Other Long-Term
Investments, and Other Investments
D. Indebtedness to Unconsolidated Subsidiaries and Affiliates
E. Property, Plant and Equipment – at cost
E.1. Land
E.2. Buildings & Warehouses
F. Accumulated Depreciation – at cost
G. Other Noncurrent Assets
H. Long - Term Debt
I. Indebtedness to Affiliates and Related Parties (Long - Term
Loans from Related Companies)
J. Guarantees of Securities of Other Issuers
K. Capital Stock
L. Dividendable Retained Earnings as of December 31, 2009

*
*
*
These schedules, which are required by Part IV(e) of SRC Rule 68, have been omitted because
they are either not required, not applicable or the information required to be presented is
included in the Company’s consolidated financial statements or the notes to consolidated
financial statements.
1
72
EXHIBIT 18. SUBSIDIARY OF THE REGISTRANT
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION has consolidated subsidiaries that are
wholly-owned namely:
Name
Jurisdiction
Aboitiz One, Inc.
(Incorporated on January 28, 1988)
Philippines
Aboitiz Jebsen Bulk Transport Corporation
(Incorporated on May 12, 1966)
Philippines
Jebsens Maritime, Inc.
(Incorporated on January 02, 1970)
Philippines
Aboitiz Jebsens Manpower Solutions, Inc.
(Incorporated on May 31, 1994)
Philippines
Jebsen Management (BVI) Limited
(Incorporated on August 27, 1999)
British Virgin Islands
Supercat Fast Ferry Corporation
(Incorporated on June 20, 2001)
Philippines
Zoom In Packages, Inc.
(Incorporated on June 06, 2002)
Philippines
73
74
SyCip Go rres Velayo & C o.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone: (632) 891 0307
Fax:
(632) 819 0872
www.sgv.com.ph
BOA/PRC R eg. N o. 0001
SEC Accreditation No. 0012-FR-2
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
Aboitiz Transport System (ATSC) Corporation
12th Floor, Times Plaza Building
United Nations Avenue corner Taft Avenue
Ermita, Manila
We have audited the accompanying financial statements of Aboitiz Transport System (ATSC) Corporation and
Subsidiaries, which comprise the consolidated balance sheets as at
December 31, 2009 and 2008, and the consolidated statements of income, consolidated statements of
comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows
for each of the three years in the period ended December 31, 2009, and a summary of significant accounting
policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation of financial statements that are free
from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting
policies; and making accounting estimates that are reasonable
in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our
audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the
risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of
the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
75
A member firm of Ernst & Young Global Limited
-2-
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of Aboitiz Transport System (ATSC) Corporation and Subsidiaries as at
December 31, 2009 and 2008, and their financial performance and their cash flows for each of the three years in
the period ended December 31, 2009 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Ladislao Z. Avila, Jr.
Partner
CPA Certificate No. 69099
SEC Accreditation No. 0111-AR-2
Tax Identification No. 109-247-891
PTR No. 2087361, January 4, 2010, Makati City
February 25, 2010
76
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
December 31
2009
2008
P
= 1,095,711
2,347,627
571,179
785,366
4,799,883
–
4,799,883
P
= 860,254
1,620,675
344,665
627,949
3,453,543
778,635
4,232,178
4,817,558
43,323
74,208
255,531
256,463
112,127
262,903
5,822,113
4,194,497
27,634
12,358
344,742
256,463
188,210
152,938
5,176,842
P
= 10,621,996
P
= 9,409,020
P
= 1,392,390
3,982,707
P
= 551,000
3,406,193
6,222
12,974
5,394,293
81,692
6,249
4,045,134
–
5,394,293
697,172
4,742,306
ASSETS
Current Assets
Cash and cash equivalents (Note 7)
Trade and other receivables - net (Notes 8 and 22)
Inventories - net (Note 9)
Other current assets - net (Note 10)
Assets of disposal group classified as held for sale (Note 32)
Total Current Assets
Noncurrent Assets
Property and equipment - net (Notes 14 and 19)
Available-for-sale (AFS) investments (Note 13)
Investments in associates (Note 11)
Deferred income tax assets - net (Note 31)
Goodwill (Notes 5 and 6)
Software development costs - net (Note 15)
Other noncurrent assets - net (Note 16)
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities
Loans payable (Note 17)
Trade and other payables (Notes 18 and 22)
Current portion of obligations under finance lease
(Notes 14 and 19)
Income tax payable
Liabilities directly associated with disposal group
classified as held for sale (Note 32)
Total Current Liabilities
(Forward)
77
-2-
December 31
Noncurrent Liabilities
Obligations under finance lease - net of
current portion (Notes 14 and 19)
Pension liability (Note 30)
Redeemable preferred shares (Notes 20 and 21)
Other noncurrent liabilities
Total Noncurrent Liabilities
Equity Attributable to Equity Holders of the Parent
Common shares (Note 21)
Capital in excess of par value
Unrealized mark-to-market gain on AFS
investments (Note 13)
Cumulative translation adjustments
Excess of cost over net asset value of an investment
(Note 36)
Acquisitions of minority interests (Note 36)
Reserves of disposal group classified as held for sale
(Note 32)
Retained earnings (Note 21)
Treasury shares (Note 21)
Minority Interests
Total Equity
TOTAL LIABILITIES AND EQUITY
2009
2008
P
= 25,346
18,115
20,176
4,494
68,131
P
= 30,832
23,570
17,790
3,736
75,928
2,484,653
910,901
2,484,653
910,901
18,312
(1,513)
5,621
685
(11,700)
5,940
(11,700)
5,940
–
1,760,853
(58,715)
5,108,731
4,185
1,214,711
(58,715)
4,556,281
50,841
5,159,572
34,505
4,590,786
P
= 10,621,996
P
= 9,409,020
See accompanying Notes to Consolidated Financial Statements.
78
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Earnings Per Share Amounts)
2009
Freight - net (Note 22)
Passage - net
Sale of goods
Service fees (Notes 22 and 36)
Others
COSTS AND EXPENSES
Operating (Note 23)
Overhead (Notes 14 and 25)
Cost of sales (Note 9)
Terminal (Note 24)
Years Ended December 31
2008
2007
(as re-presented,
(as re-presented,
see Note 32)
see Note 32)
P
= 5,823,034
2,237,812
1,735,155
1,477,966
550,464
11,824,431
P
= 7,569,220
2,580,572
1,163,859
1,014,255
540,612
12,868,518
P
= 6,953,164
2,690,677
–
1,016,722
395,405
11,055,968
6,764,671
2,095,737
1,460,875
1,005,767
11,327,050
8,753,900
1,894,809
966,463
1,296,623
12,911,795
8,312,462
1,888,639
–
1,076,792
11,277,893
OTHER INCOME (CHARGES)
Equity in net earnings (losses) of associates (Note 11)
Gain (loss) on disposal of:
Investments in AFS, subsidiary and
associates (Note 5)
Property and equipment (Note 14)
Interest income (Note 37)
Foreign exchange gains (losses) - net
Finance costs (Notes 28 and 37)
Others (Notes 14 and 29)
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM)
INCOME TAX (Notes 31 and 35)
Current
Deferred
NET INCOME
ATTRIBUTABLE TO:
Equity holders of the parent
Minority interests
EARNINGS PER COMMON SHARE (Note 34)
Basic and diluted, for net income attributable
to ordinary equity holders of the parent
53,434
(7,639)
410
52,500
26,807
28,530
(12,194)
(99,110)
276,425
326,392
(15,125)
87,732
19,405
(10,142)
(76,985)
193,126
190,372
2,732
748,858
32,704
24,980
(102,586)
135,751
842,849
823,773
147,095
620,924
82,609
118,447
201,056
94,828
(47,157)
47,671
66,708
115,435
182,143
P
= 622,717
P
= 99,424
P
= 438,781
P
= 546,142
76,575
P
= 622,717
P
= 82,815
16,609
P
= 99,424
P
= 419,970
18,811
P
= 438,781
P
= 0.22
P
= 0.03
P
= 0.17
See accompanying Notes to Consolidated Financial Statements.
79
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Years Ended December 31
2008
2007
(as re-presented, (as re-presented,
2009
Note 32)
Note 32)
NET INCOME
OTHER COMPREHENSIVE INCOME
(LOSS)
Unrealized gains (losses) on AFS investments
(Note 13)
Realized valuation gains on AFS investments
(Note 13)
Changes in cumulative translation
adjustments
Income tax relating to the components of
other comprehensive income
OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX, FOR THE YEAR
TOTAL COMPREHENSIVE INCOME,
NET OF TAX, FOR THE YEAR
ATTRIBUTABLE TO:
Equity holders of the parent
Minority interests
P
= 622,717
P
= 99,424
P
= 438,781
11,219
(5,040)
(5,374)
–
–
(3,465)
24,752
(14,915)
–
–
–
3,276
19,712
(23,754)
P
= 625,993
P
= 119,136
P
= 415,027
P
= 552,450
73,543
P
= 625,993
P
= 90,912
28,224
P
= 119,136
P
= 408,187
6,840
P
= 415,027
(7,943)
See accompanying Notes to Consolidated Financial Statements.
80
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Amounts in Thousands)
Common
Shares
(Note 21)
Balances at January 1, 2009
Attributable to Equity Holders of the Parent
Unrealized
Mark-toExcess of Cost
Market Gain
Over Net Asset Acquisition
Capital in
on AFS Cumulative
Value of an of Minority
Disposal
Excess of Investments Translation
Investment
Interests
Group
Par Value
(Note 32)
(Note 13) Adjustments
(Note 36) (Note 36)
Retained
Earnings
(Note 21)
Treasury
Shares
(Note 21)
Total
Minority
Interests Total Equity
P
= 2,484,653
P
= 910,901
P
= 5,621
P
= 685
(P
=11,700)
P
= 5,940
P
= 4,185
P
= 1,214,711
(P
=58,715)
P
= 4,556,281
P
= 34,505
P
= 4,590,786
–
–
2,315
1,870
–
–
(4,185)
–
–
–
–
–
2,484,653
910,901
7,936
2,555
(11,700)
5,940
–
1,214,711
(58,715)
4,556,281
34,505
4,590,786
Net income for the year
–
–
–
–
–
–
–
546,142
–
546,142
76,575
622,717
Other comprehensive income
for the year
–
–
10,376
(4,068)
–
–
–
–
–
6,308
Total comprehensive income
for the year
–
–
10,376
(4,068)
–
–
–
546,142
–
552,450
Dividend distribution to minority
interest (see Note 21)
–
–
–
–
–
–
–
–
–
–
Net changes in minority interest
–
–
–
–
–
–
–
–
–
–
198
198
P
= 2,484,653
P
= 910,901
P
= 18,312
(P
= 1,513)
(P
= 11,700)
P
= 5,940
(P
= 58,715) P
= 5,108,731
P
= 50,841
P
= 5,159,572
Re-presentation of comprehensive
income (Note 32)
Balances at January 1, 2009, as
re-presented (Note 32)
Balances at December 31, 2009
See accompanying Notes to Consolidated Financial Statements.
P
=–
P
= 1,760,853
(3,032)
3,276
73,543
625,993
(57,405)
(57,405)
-2-
Attributable to Equity Holders of the Parent
Unrealized
Mark-toExcess of Cost
Market Gain
Over Net Asset Acquisition
Common
Capital in
on AFS Cumulative
Value of an of Minority
Disposal
Shares
Excess Investments Translation
Group
Investment
Interests
(Note 21) of Par Value
(Note 13) Adjustments
(Note 36)
(Note 32)
(Note 36)
Balances at January 1, 2008
Retained
Earnings
(Note 21)
Treasury
Shares
(Note 21)
Total
Minority
Interests Total Equity
P
= 2,484,653
P
= 910,901
P
= 12,563
(P
= 10,169)
(P
= 11,700)
P
= 5,940
P
=–
P
= 1,120,608
(P
= 58,715)
P
= 4,454,081
P
= 49,559
P
= 4,503,640
Net income for the year
–
–
–
–
–
–
–
82,815
–
82,815
16,609
99,424
Other comprehensive income
for the year
–
–
(6,942)
10,854
–
–
4,185
–
–
8,097
11,615
19,712
Total comprehensive income
for the year
–
–
(6,942)
10,854
–
–
4,185
82,815
–
90,912
28,224
119,136
Minority interest of disposed
subsidiaries
–
–
–
–
–
–
–
–
–
–
(7,570)
(7,570)
Net changes in minority interest
–
–
–
–
–
–
–
11,288
–
11,288
(35,708)
(24,420)
P
= 2,484,653
P
= 910,901
P
= 5,621
P
= 685
(P
= 11,700)
P
= 5,940
P
= 4,185
P
= 1,214,711
(P
= 58,715)
P
= 4,556,281
P
= 34,505
P
= 4,590,786
Balances at December 31, 2008
-3-
Common
Shares
(Note 21)
Balances at January 1, 2007
Capital in
Excess
of Par Value
Attributable to Equity Holders of the Parent
Unrealized
Mark-toExcess of Cost
Market Gain
Over Net Asset Acquisition of
on AFS Cumulative
Value of an
Minority
Investments Translation
Investment
Interests
(Note 13) Adjustments
(Note 36)
(Note 36)
Retained
Earnings
(Note 21)
Treasury
Shares
(Note 21)
Total
Minority
Interests Total Equity
P
= 23,789 P
= 4,815,652
P
= 2,484,653
P
= 910,901
P
= 19,600
(P
= 5,423)
P
=–
P
= 5,000
P
= 1,435,847
(P
=58,715)
P
= 4,791,863
Net income for the year
–
–
–
–
–
–
419,970
–
419,970
18,811
438,781
Other comprehensive income
for the year
–
–
(7,037)
(4,746)
–
–
–
–
(11,783)
(11,971)
(23,754)
Total comprehensive income
for the year
–
–
(7,037)
(4,746)
–
–
419,970
–
408,187
6,840
415,027
Cash dividends at P
= 0.30 per
share
–
–
–
–
–
–
(735,209)
–
(735,209)
–
(735,209)
Excess of cost over net asset
value (Note 36)
–
–
–
–
(11,700)
–
–
–
(11,700)
–
(11,700)
Acquisition of minority interest
(Note 36)
–
–
–
–
–
940
–
–
940
(940)
–
Issuance of shares to minority
interest
–
–
–
–
–
–
–
–
–
750
750
Net changes in minority interest
–
–
–
–
–
–
–
–
–
19,120
19,120
Subtotal
–
–
–
–
(11,700)
940
(735,209)
–
(745,969)
18,930
(727,039)
P
= 2,484,653
P
= 910,901
P
= 12,563
(P
= 10,169)
(P
= 11,700)
P
= 5,940
P
= 1,120,608
(P
=58,715)
P
= 4,454,081
Balances at December 31, 2007
P
= 49,559 P
= 4,503,640
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
2009
CASH FLOWS FROM OPERATING
ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Note 26)
Interest expense (Note 28)
Provisions for:
Impairment loss on receivables
Probable cargo losses and damages
Inventory losses
Unrealized foreign exchange loss (gain)
Recovery of provision for probable losses
Dividend income
Interest income
Equity in net loss (earnings) of associates
(Note 11)
Recovery of impairment of receivable
Gain on insurance claims
Loss (gain) on disposal of:
Property and equipment
Investment in subsidiary (see Note 5)
Investment in associates
Impairment of assets
AFS investments
Operating income before working capital
changes
Decrease (increase) in:
Trade and other receivables
Inventories
Pension asset
Other current assets
Increase (decrease) in:
Trade and other payables
Pension liability
Other noncurrent liabilities
Net cash generated from operations
Interest received
Income taxes paid
Net cash flows from operating activities
(Forward)
Years Ended December 31
2008
2007
(as re-presented, (as re-presented,
Note 32)
Note 32)
P
= 823,773
P
= 147,095
P
= 620,924
1,033,545
99,110
1,035,731
76,985
1,178,343
102,586
30,129
16,064
–
4,260
–
(6,743)
(28,530)
8,504
15,104
23,062
18,347
(5,002)
(11,272)
(19,405)
(53,434)
(60,884)
(79,484)
7,639
–
–
(26,807)
(52,500)
–
–
–
(87,732)
–
15,051
15,188
74
1,698,499
1,239,369
11,906
1,698
1,215
(25,560)
–
(460)
(32,705)
(410)
–
–
(748,858)
–
–
6,171
(2,732)
1,112,118
(308,065)
(210,907)
(28,088)
(78,580)
(112,762)
(124,570)
11,280
52,069
220,279
(15,442)
(12,926)
(261,982)
115,495
(14,442)
(16,499)
1,157,413
39,836
(86,138)
1,111,111
55,570
10,214
2,186
1,133,356
10,088
(78,483)
1,064,961
387,879
12,453
1,550
1,443,929
33,353
(38,505)
1,438,777
-2-
Years Ended December 31
2008
2007
(as re-presented, (as re-presented,
2009
Note 32)
Note 32)
CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to:
Property and equipment (Note 13)
Software development cost
Acquisition of:
A subsidiary net of cash acquired (Note 5)
An associate
Proceeds from:
Insurance claims
Disposal of property and equipment
Disposal of investments in a subsidiary
Sale of AFS investments
Sale of investment in an associate
Decrease (increase) in:
AFS investments
Investments in associates
Other noncurrent assets
Dividends received
Net cash flows from (used in) investing
activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from availments of loans payable
Payments of:
Loans payable
Interest
Obligations under finance lease
Long-term debt
Dividends paid
Net changes in minority interests
Net cash flows from (used in) financing
activities
(P
= 1,940,756)
(6,264)
(P
= 1,113,177)
(29,710)
(4,800)
(3,600)
(225,624)
–
300,452
180,534
57,300
–
–
–
187,647
46,274
1,462
400
1,200
–
(77,457)
6,743
–
–
(45,070)
11,272
(1,486,648)
(1,166,526)
1,042,720
623,168
(P
= 1,543,101)
(38,530)
3,901
–
–
2,529,660
–
6,588
–
4,106
(12,514)
87,884
460
1,038,454
149,268
(480,209)
(99,270)
(57,659)
–
(27,375)
198
(52,369)
(76,812)
(50,303)
(55,083)
–
(15,054)
(254,908)
(117,486)
(463,722)
(1,219,954)
(735,209)
(6,959)
378,405
373,547
(2,648,970)
2,868
271,982
(171,739)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
1,092,843
820,861
992,600
CASH AND CASH EQUIVALENTS AT
END OF YEAR (Note 7)
P
= 1,095,711
P
= 1,092,843
P
= 820,861
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
See accompanying Notes to Consolidated Financial Statements .
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Exchange Rate Data and When Otherwise Indicated)
1.
Corporate Information
Aboitiz Transport System (ATSC) Corporation (the Parent Company) was incorporated in the Philippines on
May 26, 1949. The Parent Company’s shares of stocks are listed in the Philippine Stock Exchange. The
Parent Company and its Subsidiaries (collectively referred to as “the Group”) are primarily engaged in the
business of operating steamships, motorboats and other kinds of watercrafts; operating flight equipment and
trucks; and acting as agent for domestic and foreign shipping companies for purposes of transportation of
cargoes and passengers by air, land and sea within the waters and territorial jurisdiction of the Philippines.
The Parent Company’s registered office address is 12th Floor, Times Plaza Building, United Nations Avenue
corner Taft Avenue, Ermita, Manila.
The Company’s parent is Aboitiz Equity Ventures, Inc. (AEV), a publicly-listed company incorporated in the
Philippines, and the ultimate parent company is Aboitiz & Company, Inc. (ACO), also incorporated in the
Philippines.
On September 23, 2008, AEV together with ACO entered into a Memorandum of Agreement (MOA) with KGLINM Holdings Inc. (KGLI-NM). The MOA states that KGLI-NM will purchase all of the shareholdings of AEV
and ACO in the Parent Company on a per share purchase price to be computed based on the Group’s equity
value of P
= 5 billion or equivalent to
P
= 2.044 per share. The final terms of the sale will be subject to the due diligence audit and the execution of a
definitive share purchase agreement between the parties. AEV owns 1,889,482,107 common shares of the
Parent Company while ACO owns 390,322,384 common shares of the Parent Company, representing 77.24%
and 15.96 %, respectively, of the Parent Company’s total outstanding capital stock.
The MOA also provides that should KGLI-NM decide to proceed with the purchase, it shall also undertake a
tender offer of the shares owned by the minority shareholders at the same terms offered to ACO and AEV in
accordance with the requirements of the Securities Regulation Code. KGLI-NM further undertakes to pay in
cash for the Parent Company shares acquired under the tender offer.
The planned acquisition would include all the shipping and logistics businesses of the Group except for the
following subsidiaries: Aboitiz Jebsen Bulk Transport Corporation (AJBTC) and Subsidiaries, Jebsen
Maritime, Inc. (JMI), Aboitiz Jebsen Manpower Solutions, Inc. (AJMSI) and Jebsen Management Limited
(JMBVI) and Subsidiaries (collectively called “Aboitiz Jebsen Group”).
On December 19, 2008, the Parent Company received written advice that AEV, together with ACO, accepted
the Term Sheet offered by KGLI-NM for the acquisition by KGLI-NM of 49% equity stake in the Parent
Company instead of the total buy-out proposed in the MOA. The 49% equity stake shall include the 7% equity
stake of the public in the Parent Company. Under the agreement, which was expected to close on or before
April 30, 2009, the purchase price will be based on a total equity value of the Group in the amount of P
= 4.5
billion or equivalent to P
= 1.84 per share. Accordingly, the Aboitiz Jebsen Group will be acquired by AEV and
ACO on or before April 30, 2009. The agreement also gives KGLI-NM an option to acquire the remaining 51%
2
equity stake of AEV and ACO anytime from May 1, 2009 to September 30, 2009 at the same price of P
= 1.84 per
share plus a premium of 9.5% annualized price per share calculated from April 30, 2009 to September 30,
2009 or to date of acquisition.
On April 30, 2009, the Parent Company received written advice from AEV and ACO that
KGLI-NM will not proceed with the purchase of US$30 million worth of the Parent Company’s common
shares owned by the former. KGLI-NM cited the current constraints in the debt markets as the reason for
its decision not to push through with its planned purchase of the Parent Company shares owned by AEV and
ACO. KGLI-NM had previously informed AEV and ACO on March 31, 2009 that the former is exercising its
option under Section 5 (c) (i) of the Term Sheet dated December 19, 2008 to purchase US$30 million worth of
the Parent Company’s shares from AEV and ACO. In view of KGLI-NM’s decision not to close pursuant to the
Term Sheet and its notice dated March 31, 2009, the Term Sheet dated December 19, 2008 as well as the
Memorandum of Agreement dated September 23, 2008 between AEV and ACO, on one hand, and KGLI-NM,
on the other hand, have been deemed terminated.
The consolidated financial statements as at December 31, 2009 and 2008 and for each of the three years in
the period ended December 31, 2009, were authorized for issue by the Board of Directors (BOD) on February
25, 2010.
2.
Summary of Significant Accounting Policies
Basis of Preparation
The consolidated financial statements have been prepared on a historical cost basis, except for AFS
investments which have been measured at fair value. The financial statements are presented in Philippine
pesos, and all values are rounded to the nearest thousand (P
= 000), except when otherwise indicated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in accordance with Philippine
Financial Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Parent Company and its
subsidiaries as at December 31 of each year. The following are the subsidiaries:
Subsidiaries
Nature of Business
W G & A Supercommerce, Inc. (WSI)1
Ships’ hotel
management
Transportation/
logistics
Transportation/
logistics
Transportation
Distribution
Distribution
Transportation/
logistics
Transportation
Transportation
Zoom In Packages, Inc. (ZIP)
Aboitiz One, Inc. (AOI) and Subsidiaries:
Reefer Van Specialist Inc. (RVSI)
Aboitiz One Distribution, Inc.(AODI)
Scanasia Overseas Inc. (SOI)4
Hapag-Lloyd Philippines, Inc.(HLP)
Reefer Truck Specialists Inc. (RTSI) 5
Cox Trucking Corporation (COX)4
(Forward)
2009
Direct
Indirect
100.0
–
Percentage of Ownership
2008
Direct
Indirect
100.0
–
2007
Direct
Indirect
100.0
–
100.0
–
100.0
–
100.0
–
100.0
–
100.0
–
100.0
–
–
–
–
–
100.0
100.0
100.0
94.0
–
–
–
–
100.0
100.0
100.0
94.0
–
–
–
–
100.0
100.0
–
85.0
–
–
–
–
–
–
–
–
–
–
100.0
80.0
3
Subsidiaries
Nature of Business
Supercat Fast Ferry Corp. (SFFC)2
Aboitiz Jebsen Bulk Transport Corporation
(AJBTC) and Subsidiaries: 6
Filscan Shipping, Inc. (FILSCAN)
Shipping
Ship management
General Charterer, Inc (GCI)
NOR-PHIL Ocean Shipping, Inc.
(NOR-PHIL)
Overseas Bulk Transport, Inc.
(OVERSEAS)
Viking International Carriers, Inc.
(VIKING)
Joss Asian Feeders, Inc. (JOSSAF)
Harbor Training Center, Inc. (HTC)
EMS Crew Management Philippines,Inc.
(EMS)
Aboitiz Jebsen Manpower Solutions, Inc.
AJMSI) 6
Jebsen Maritime, Inc. (JMI) 6
Jebsen Management (JMBVI) Limited
and Subsidiaries: 3 and 6
Jebsens International (Australia)
Pty. Ltd.
Jebsen Orient Shipping Services AS
Jebsens International (Singapore)
Pte. Ltd
Jebsens Logistics Services
Cebu Ferries Corporation5
Manning and crew
management services
Manning and crew
management services
Manning and crew
management services
Manning and crew
management services
Manning and crew
management services
Shipping
Training
Manning and crew
management services
Manpower services
Manpower services
Shipping
Chartering
and Shipping
Chartering
and Shipping
Chartering
and Shipping
Fertilizer Bagging
Shipping
2009
Direct
Indirect
100.0
–
62.5
–
Percentage of Ownership
2008
Direct
Indirect
100.0
–
62.5
–
2007
Direct
Indirect
100.0
–
62.5
–
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
62.5
–
–
–
62.5
62.5
46.9
–
–
–
62.5
62.5
46.9
–
–
–
62.5
62.5
46.9
62.5
–
62.5
–
62.5
–
62.5
50.0
–
–
62.5
50.0
–
–
62.5
50.0
–
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
50.0
–
–
50.0
–
–
–
50.0
–
–
100
50.0
–
1
Ceased operations in February 2006
Acquired from Accuria, Inc., an affiliate under common control, on August 30, 2007.
3
Parent Company exercises power to govern the financial and operating policies.
4
Acquired SOI in July 2008, and disposed COX and RTSI in August and September 2008, respectively
5
Liquidated in May 2008.
6
Classified as disposal group held for sale in December 2008
2
Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be
consolidated from the date on which control is transferred out of the Group. Consolidated financial
statements are prepared using uniform accounting policies for like transactions and other events in similar
circumstances. All significant intra-group balances, income and expenses, and unrealized profits and losses
resulting from intra-group transactions are eliminated in the consolidation.
Minority interests represent the portion of profit or loss and net assets in the subsidiaries not held by the
Group and are presented separately in the consolidated statement of income and within equity in the
consolidated balance sheet, separately from the equity attributable to equity holders of the parent.
Acquisitions of minority interests are accounted for using the entity concept method, whereby, the difference
between the consideration paid or payable and the book value of the share of the net assets acquired is
recognized as an equity transaction.
Merger
On July 2, 2007, the SEC approved the merger of ALI and AOI, with the latter as the surviving entity, effective
July 2, 2007. ALI is a wholly owned subsidiary of the AOI. Consequently, by operation of law, the separate
corporate existence of ALI ceased as provided under the Corporation Code. Thus, upon the implementation
of the merger, all outstanding shares of capital stock of ALI were cancelled.
4
Changes in Accounting Policies and Disclosures
The Group has adopted the following new, revised and amended standards and interpretations that have
been issued and are effective as of January 1, 2009. Except as otherwise indicated, adoption of these new
standards and interpretations did not have significant impact on the Group’s consolidated financial
statements.
PAS 1, Presentation of Financial Statements
The revised standard separates owner and non-owner changes in equity. The statement of changes in equity
includes only details of transactions with owners, with non-owner changes in equity presented in a
reconciliation of each component of equity. In addition, the standard introduces the statement of
comprehensive income: it presents all items of recognized income and expense, either in one single
statement, or in two linked statements. The Group has elected to present two linked statements.
PAS 23, Borrowing Costs (Revised)
The revised PAS 23 requires capitalization of borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset.
PFRS 8, Operating Segments
PFRS 8 replaced PAS 14, Segment Reporting, upon its effective date. The Group concluded that the operating
segments determined in accordance with PFRS 8 are the same as the business segments previously
identified under PAS 14.
Philippine Interpretation IFRIC-13, Customer Loyalty Programmes
Philippine Interpretation IFRIC-13 requires customer loyalty credits to be accounted for as a separate
component of the sales transaction in which they are granted. A portion of the fair value of the consideration
received is allocated to the award credits and deferred. This is then recognized as revenue over the period
that the award credits are redeemed. This interpretation did not have any impact in the Group’s financial
statements as it does not have any loyalty programs with customers.
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation
This Interpretation is to be applied prospectively. Philippine Interpretation IFRIC-16 provides guidance on the
accounting for a hedge of a net investment. As such it provides guidance on identifying the foreign currency
risks that qualify for hedge accounting in the hedge of a net investment, where within the group the hedging
instruments can be held in the hedge of a net investment and how an entity should determine the amount of
foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled
on disposal of the net investment. This interpretation did not have any impact on the Group’s financial
statements.
Philippine Interpretation IFRIC 18, Transfers of Assets from Customers
This Interpretation is to be applied prospectively to transfers of assets from customers received on or after
July 1, 2009. The Interpretation provides guidance on how to account for items of property, plant and
equipment received from customers or cash that is received and used to acquire or construct assets that are
used to connect the customer to a network or to provide ongoing access to a supply of goods or services or
both. When the transferred item meets the definition of an asset, the asset is measured at fair value on
initial recognition as part of an exchange transaction. The service(s) delivered are identified and the
consideration received (the fair value of the asset) allocated to each identifiable service. Revenue is
recognized as each service is delivered by the entity. This interpretation did not have any impact on the
Group’s financial statements.
5
Amendments to Standards
PAS 32 and PAS 1 Amendments - Puttable Financial Instruments and Obligations Arising on
Liquidation
The standards have been amended to allow a limited scope exception for puttable financial instruments to be
classified as equity if they fulfill a number of specified criteria. The adoption of these amendments did not
have any impact on the financial position or the performance of the Group.
PFRS 1 and PAS 27 Amendments - Cost of an Investment in a Subsidiary, Jointly Controlled
Entity or Associate
The amendments to PFRS 1, First-time Adoption of Philippine Financial Reporting Standards, allowed an
entity to determine the ‘cost’ of investments in subsidiaries, jointly controlled entities or associates in its
opening PFRS financial statements in accordance with PAS 27, Consolidated and Separate Financial
Statements, or using a deemed cost method. The amendment to PAS 27 required all dividends from a
subsidiary, jointly controlled entity or associate to be recognized in the income statement in the separate
financial statement. The revision to PAS 27 did not have an impact in the financial position or performance of
the Group since the investments in subsidiaries and associates were already accounted for using the cost
method.
PFRS 2, Amendment - Vesting Conditions and Cancellations
The amendment to PFRS 2, Share-based Payments, clarifies the definition of vesting conditions and
prescribes the treatment for an award that is cancelled. It did not have an impact on the financial position or
performance of the Group.
PFRS 7 Amendments - Improving Disclosures about Financial Instruments
The amendments to PFRS 7, Financial Instruments: Disclosures, require additional disclosures about fair
value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are
to be disclosed by source of inputs using a three level fair value hierarchy, by class, for all financial
instruments recognized at fair value. In addition, a reconciliation between the beginning and ending balance
for level 3 fair value measurements is now required, as well as significant transfers between levels in the fair
value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to
derivative transactions and financial assets used for liquidity management. The fair value measurement
disclosures are presented in Note 38. The liquidity risk disclosures are not significantly impacted by the
amendments and are presented in Note 37.
Philippine Interpretation IFRIC 9 and PAS 39 Amendments - Embedded Derivatives
This amendment to Philippine Interpretation IFRIC-9, Reassessment of Embedded Derivatives, requires an
entity to assess whether an embedded derivative must be separated from a host contract when the entity
reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is
to be made based on circumstances that existed on the later of the date the entity first became a party to the
contract and the date of any contract amendments that significantly change the cash flows of the contract.
PAS 39, Financial Instruments: Recognition and Measurement, now states that if an embedded derivative
cannot be reliably measured, the entire hybrid instrument must remain classified as at fair value through
profit or loss.
6
Improvements to PFRS 2008
The omnibus amendments to PFRS issued in 2008 (and 2009) were issued primarily with a view to removing
inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The
adoption of the following amendments resulted in changes in accounting policies but did not have any impact
on the financial position or performance of the Group.
PAS 18, Revenue:
The amendment adds guidance (which accompanies the standard) to determine whether an entity is acting as
a principal or as an agent. The features to consider are whether the entity:




has primary responsibility for providing the goods or service;
has inventory risk;
has discretion in establishing prices; and
bears the credit risk.
The Group has assessed its revenue arrangements against these criteria and concluded that it is acting as
principal in all arrangements. The revenue recognition policy has been updated accordingly.
New Accounting Standards, Interpretations, and Amendments to Existing Standards Effective Subsequent to
December 31, 2009
The Group will adopt the following standards and interpretations enumerated below when these become
effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended
PFRS and Philippine Interpretations to have significant impact on its financial statements.
PFRS 3, Business Combinations (Revised) and PAS 27, Consolidated and Separate Financial
Statements (Amended)
The revised standards are effective for annual periods beginning on or after July 1, 2009.
PFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after
this date. Changes affect the valuation of minority interest, the accounting for transaction costs, the initial
recognition and subsequent measurement of a contingent consideration and business combinations achieved
in stages. These changes will impact the amount of goodwill recognized, the reported results in the period
that an acquisition occurs and future reported results. PAS 27 (Amended) requires that a change in the
ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in
their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise
to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the
subsidiary as well as the loss of control of a subsidiary. The changes in PFRS 3 (Revised) and PAS 27
(Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with minority
interests. PFRS 3 (Revised) will be applied prospectively while
PAS 27 (Amended) will be applied retrospectively with a few exceptions.
Philippine Interpretation IFRIC 17, Distributions of Non-Cash Assets to Owners
This interpretation is effective for annual periods beginning on or after July 1, 2009 with early application
permitted. It provides guidance on how to account for non-cash distributions to owners. The interpretation
clarifies when to recognize a liability, how to measure it and the associated assets, and when to derecognize
the asset and liability. The Group does not expect the Interpretation to have an impact on the consolidated
financial statements as the Group has not made non-cash distributions to shareholders in the past.
7
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate
This interpretation, effective for annual periods beginning on or after January 1, 2012, covers accounting for
revenue and associated expenses by entities that undertake the construction of real estate directly or
through subcontractors. The Interpretation requires that revenue on construction of real estate be
recognized only upon completion, except when such contract qualifies as construction contract to be
accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue
is recognized based on stage of completion. Contracts involving provision of services with the construction
materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis
will also be accounted for based on stage of completion.
Amendments to Standards
PAS 39 Amendment - Eligible Hedged Items
The amendment to PAS 39, Financial Instruments: Recognition and Measurement, effective for annual
periods beginning on or after July 1, 2009, clarifies that an entity is permitted to designate a portion of the
fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the
designation of inflation as a hedged risk or portion in particular situations. The Group has concluded that the
amendment will have no impact on the financial position or performance of the Group, as the Group has not
entered into any such hedges.
PFRS 2 Amendments - Group Cash-settled Share-based Payment Transactions
The amendments to PFRS 2, Share-based Payments, effective for annual periods beginning on or after
January 1, 2010, clarify the scope and the accounting for group cash-settled share-based payment
transactions. The Group has concluded that the amendment will have no impact on the financial position or
performance of the Group as the Group has not entered into any such share-based payment transactions.
Improvement to PFRS 2009
The omnibus amendments to PFRS issued in 2009 were issued primarily with a view to removing
inconsistencies and clarifying wording. The amendments are effective for annual periods financial years
January 1, 2010 except otherwise stated. The Group has not yet adopted the following amendments and
anticipates that these changes will have no material effect on the financial statements.

PFRS 2, Share-based Payment: clarifies that the contribution of a business on formation of a joint
venture and combinations under common control are not within the scope of PFRS 2 even though they
are out of scope of PFRS 3, Business Combinations (Revised). The amendment is effective for financial
years on or after July 1, 2009.

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations: clarifies that the disclosures
required in respect of non-current assets and disposal groups classified as held for sale or discontinued
operations are only those set out in PFRS 5. The disclosure requirements of other PFRSs only apply if
specifically required for such non-current assets or discontinued operations.

PFRS 8, Operating Segment Information: clarifies that segment assets and liabilities need only be
reported when those assets and liabilities are included in measures that are used by the chief operating
decision maker.
8

PAS 1, Presentation of Financial Statements: clarifies that the terms of a liability that could result, at
anytime, in its settlement by the issuance of equity instruments at the option of the counterparty do not
affect its classification.

PAS 7, Statement of Cash Flows: explicitly states that only expenditure that results in a recognized asset
can be classified as a cash flow from investing activities.

PAS 17, Leases: removes the specific guidance on classifying land as a lease. Prior to the amendment,
leases of land were classified as operating leases. The amendment now requires that leases of land are
classified as either ‘finance’ or ‘operating’ in accordance with the general principles of PAS 17. The
amendments will be applied retrospectively.

PAS 36, Impairment of Assets: clarifies that the largest unit permitted for allocating goodwill, acquired in
a business combination, is the operating segment as defined in PFRS 8 before aggregation for reporting
purposes.

PAS 38, Intangible Assets: clarifies that if an intangible asset acquired in a business combination is
identifiable only with another intangible asset, the acquirer may recognize the group of intangible assets
as a single asset provided the individual assets have similar useful lives. Also clarifies that the valuation
techniques presented for determining the fair value of intangible assets acquired in a business
combination that are not traded in active markets are only examples and are not restrictive on the
methods that can be used.

PAS 39, Financial Instruments: Recognition and Measurement: clarifies the following:
­ that a prepayment option is considered closely related to the host contract when the exercise
price of a prepayment option reimburses the lender up to the approximate present value of lost
interest for the remaining term of the host contract.
­ that the scope exemption for contracts between an acquirer and a vendor in a business
combination to buy or sell an acquiree at a future date applies only to binding forward contracts,
and not derivative contracts where further actions by either party are still to be taken.
­ that gains or losses on cash flow hedges of a forecast transaction that subsequently results in
the recognition of a financial instrument or on cash flow hedges of recognized financial
instruments should be reclassified in the period that the hedged forecast cash flows affect
profit or loss.

Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives: clarifies that it does not apply
to possible reassessment at the date of acquisition, to embedded derivatives in contracts acquired in a
business combination between entities or businesses under common control or the formation of joint
venture.
 Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation: states that, in a
hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any
entity or entities within the group, including the foreign operation itself, as long as the designation,
documentation and effectiveness requirements of PAS 39 that relate to a net investment hedge are
satisfied.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash, with original maturities of three months or less, and are
subject to an insignificant risk of change in value.
9
Inventories
Inventories are valued at the lower of cost or net realizable value (NRV). Cost is determined using the moving
average method for materials, parts and supplies, flight equipment expendable parts and supplies and the
first-in, first-out method for trading goods, truck and trailer expendable parts, fuel, lubricants and spare
parts. NRV is the estimated selling price in the ordinary course of business, less estimated costs necessary
to make the sale.
Business Combinations and Goodwill
Business combinations are accounted for using the purchase method. The cost of an acquisition is measured
as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date
of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at fair values at the date of
acquisition, irrespective of the extent of any minority interest.
Goodwill is initially measured at cost being the excess of the cost of business combination over the Group’s
share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. If the cost
of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is
recognized directly in the consolidated statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the Group’s cash generating units that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where the goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed
of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation
when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is
measured based on the relative values of the operation disposed of and the portion of the cash-generating
unit retained.
When the Group acquires a business, embedded derivatives separated from the host contract by the acquiree
are not reassessed on acquisition unless the business combination results in a change in the terms of the
contract that significantly modifies the cash flows that would otherwise be required under the contract.
Business combination of entities under common control is accounted for using a method similar to pooling of
interest. Under the pooling of interest method, any excess of acquisition cost over the net asset value of the
acquired entity is recorded in equity.
When subsidiaries are sold, the difference between the selling and the net assets plus cumulative translation
differences and unamortized goodwill is recognized in the consolidated statement of income.
Investments in Associates
The Group’s investments in associates are accounted for under the equity method. An associate is an entity
in which the Group has significant influence and which is neither a subsidiary nor a joint venture.
10
Under the equity method, the investments in associates are carried in the consolidated balance sheet at cost
plus post acquisition changes in the Group’s share in the net assets of associates. Goodwill relating to an
associate is included in the carrying amount of the investment and is not amortized or separately tested for
impairment.
The consolidated statement of income reflects the share in the results of operations of the associates.
Where there has been a change recognized directly in the consolidated statement of changes in equity of the
associate, the Group recognizes its share of any changes and discloses it, when applicable, in the
consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions
between the Group and the associates are eliminated to the extent of the interest in the associate.
The share of profit of associates is shown on the face of the consolidated statement of income. This is the
profit attributable to equity holders of the associate and therefore is profit after tax and minority interest in
the subsidiaries of the associates.
The financial statements of the associate are prepared for the same reporting period as the parent company
and the associates’ accounting policies conform to those used by the Group for like transactions and events
in similar circumstances.
After the application of the equity method, the Group determines whether it is necessary to recognize an
additional impairment loss on the Group’s investment in its associates. The Group determines at each
balance sheet date whether there is any objective evidence that the investment in the associate is impaired.
If this is the case the Group calculates the amount of impairment as the difference between the recoverable
amount of the associate and its carrying value and recognizes the amount in the consolidated statement of
income.
Interest in a Joint Venture
The Group has an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a
contractual arrangement that establishes joint control over the economic activities of the entity. The Group
recognizes its interest in the joint venture using the proportionate consolidation method. The Group
combines its proportionate share of each of the assets, liabilities, income and expenses of the joint venture
with similar items, line by line, in its consolidated financial statements. The financial statements of the joint
venture are prepared for the same reporting period as the parent company. Adjustments are made where
necessary to bring the accounting policies in line with those of the Group.
Adjustments are made in the Group’s consolidated financial statements to eliminate the Group’s share of
intragroup balances, income and expenses and unrealized gains and losses on transactions between the
Group and its jointly controlled entity. Losses on transactions are recognized immediately if the loss
provides evidence of a reduction in the net realizable value of current assets or an impairment loss. The joint
venture is proportionately consolidated until the date on which the Group ceases to have joint control over
the joint venture.
Upon loss of joint control and provided the former joint control entity does not become a subsidiary or
associate, the Group measures and recognizes its remaining investment at its fair value. Any difference
between the carrying amount of the former joint controlled entity upon loss of joint control and the fair value
of the remaining investment and proceeds from disposal is recognized in the consolidated statement of
income. When the remaining investment constitutes significant influence, it is accounted for as investment
in an associate.
11
Property and Equipment
Property and equipment other than land are stated at cost, less accumulated depreciation and accumulated
impairment losses, if any. Such cost includes the cost of replacing part of the property and equipment and
borrowing costs for long-term construction projects if the recognition criteria are met. When significant
parts of property and equipment are required to be replaced in intervals, the Group recognizes such parts as
individual assets with specific useful lives and depreciation, respectively. Repairs and maintenance costs are
recognized in the consolidated statement of income as incurred. Land is carried at cost less accumulated
impairment losses.
Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the
property and equipment as follows:
Number of Years
Ships in operation, excluding drydocking costs and
vessel equipment and improvements
Drydocking costs
Vessel equipment and improvements
Containers
Handling equipment
Furniture and equipment
Land improvements
Buildings and warehouses
Transportation equipment
Leasehold improvements
15-30 years
2 ½-5 years
3-5 years
5-7 years
5-7 years
3-5 years
5-10 years
5-20 years
5-10 years
5-12 years
Leasehold improvements are amortized over their estimated useful lives or the term of the lease, whichever
is shorter.
Flight equipment is depreciated based on the estimated number of flying hours.
Drydocking costs, consisting mainly of replacement of steel plate of the ships’ hull and related expenditures,
are capitalized as a component of “Ships in operation”. Steel components are depreciated over five (5) years
or the remaining life of the vessel whichever is shorter. Other components are depreciated over two and
one-half (2 ½) years. When drydocking costs occur prior to the end of this period, the remaining unamortized
balance of the previous drydocking cost is derecognized in consolidated statement of income.
Ships under refurbishment include the acquisition cost of the ships, the cost of ongoing refurbishments and
other direct costs. Construction in progress represents structures under construction and is stated at cost.
This includes cost of construction and other direct costs. Borrowing costs that are directly attributable to the
refurbishment of ships and construction of property and equipment are capitalized during the refurbishment
and construction period. Ships under refurbishment and construction in progress are not depreciated until
such time the relevant assets are complete and available for use.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the asset) is included in the
consolidated statement of income in the year the asset is derecognized.
12
The asset’s residual values, useful lives and depreciation methods are reviewed at each financial year end,
and adjusted prospectively if appropriate. Fully depreciated assets are retained in the accounts until these
are no longer in use. When property and equipment are sold or retired, their cost and accumulated
depreciation and any allowance for impairment in value are eliminated from the accounts and any gain or
loss resulting from their disposal is included in the consolidated statement of income.
Noncurrent Assets Classified as Held for Sale
Noncurrent assets and disposal groups classified as held for sale are measured at the lower of carrying
amount and fair value less cost to sell. Noncurrent assets and disposal groups are classified as held for sale
if their carrying amount will be recovered principally through a sale transaction rather than through
continuing use. This condition is regarded as met only when the sale is highly probable and the asset or
disposal group is available for immediate sale in its present condition. Management must be committed to
the sale, which should be expected to qualify for recognition as a completed sale within one year from the
date of classification. Liabilities associated with these assets are presented separately in the consolidated
balance sheet.
In the consolidated statement of income of the reporting period and the comparable period of the previous
year, income and expenses from discontinued operations are reported separate from normal income and
expenses down to the level of profit after taxes, even when the Group retains a minority interest in the
subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the consolidated
statement of income.
Property and equipment and intangible assets once classified as held for sale are not depreciated or
amortized.
If there are changes to a plan of sale, and the criteria for the asset or disposal group to be classified as held
for sale are no longer met, the Group ceases to classify the asset or disposal group as held for sale and it
shall be measured at the lower of:
a) its carrying amount before the asset was classified as held for sale adjusted for any depreciation,
amortization or revaluations that would have been recognized had the asset not been classified as
held for sale, and
b) its recoverable amount at the date of the subsequent decision not to sell.
The Group includes any required adjustment to the carrying amount of a noncurrent asset or disposal group
that ceases to be classified as held for sale in the consolidated statement of income from continuing
operations in the period in which the criteria for the asset or disposal group to be classified as held for sale
are no longer met. The Group presents that adjustment in the same caption in the consolidated statement of
comprehensive income used to present a gain or loss recognized, if any.
If the Group ceases to classify a component of an entity as held for sale, the results of operations of the
component previously presented in discontinued operations shall be reclassified and included in income
from continuing operations for all periods presented. The amounts for prior periods shall be described as
having been re-presented.
13
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible
assets acquired in a business combination is fair value as at the date of the acquisition. Following initial
recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated
impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not
capitalized and expenditure is reflected in the consolidated statement of income in the year in which the
expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Software development costs
Software development costs are initially recognized at cost. Following initial recognition, the software
development costs are carried at cost less accumulated amortization and any accumulated impairment in
value.
The software development costs is amortized on a straight-line basis over its estimated useful economic life
of three to five years and assessed for impairment whenever there is an indication that the intangible asset
may be impaired. The amortization commences when the software development costs is available for use.
The amortization period and the amortization method for the software development costs are reviewed at
each financial year end. Changes in the estimated useful life is accounted for by changing the amortization
period or method, as appropriate, and treated as changes in accounting estimates. The amortization
expense is recognized in the consolidated statement of income in the expense category consistent with the
function of the software development costs.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually either
individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to
determine whether the indefinite life continues to be supportable. If not, the change in useful life from
indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the
net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement
of income when the asset is derecognized.
Impairment of Nonfinancial Assets
The Group assesses at each balance sheet date whether there is an indication that nonfinancial asset may be
impaired. If any such indication exists, or when annual impairment testing for nonfinancial asset is required,
the Group makes an estimate of the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less
costs to sell and its value in use (VIU) and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets. Where
the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount. In assessing VIU, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an
appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted
share prices for publicly traded subsidiaries or other available fair value indicators.
Impairment losses of continuing operations are recognized in the consolidated statement of income in those
expense categories consistent with the function of the impaired asset.
14
For nonfinancial assets excluding goodwill, an assessment is made at each balance sheet date as to whether
there is any indication that previously recognized impairment losses may no longer exist or may have
decreased. If such indication exists, the Group makes an estimate of the asset’s or CGU’s recoverable
amount. A previously recognized impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset’s recoverable amount since the last impairment loss was
recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been determined, net of depreciation,
had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the
consolidated statement of income unless the asset is carried at revalued amount, in which case the reversal
is treated as a revaluation increase. After such a reversal, the depreciation expense is adjusted in future
periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its
remaining useful life.
Goodwill
Goodwill is tested for impairment on December 31 of each year and when circumstances indicate that the
carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or
group of cash-generating units) to which the goodwill relates. Where the recoverable amount of each cashgenerating unit is less than their carrying amount an impairment loss is recognized. Impairment losses
relating to goodwill cannot be reversed in future periods.
Treasury Shares
The Group’s own equity instruments which are reacquired (treasury shares) are recognized at cost and
deducted from equity. No gain or loss is recognized in the consolidated statement of income on the
purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the
carrying amount and the consideration is recognized in other capital reserves.
Financial Instruments
Financial assets
Initial recognition
Financial assets within the scope of PAS 39 are classified as financial assets at fair value through profit
or loss (FVPL), loans and receivables, held-to-maturity (HTM) investments, AFS investments, or as
derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group
determines the classification of its financial assets at initial recognition and, where allowed and
appropriate, re-evaluates such designation at every balance sheet date.
Financial assets are recognized initially at fair value plus, in the case of investments not at FVPL,
directly attributable transaction costs.
Purchases or sales of financial assets that require delivery of assets within a time frame established by
regulation or convention in the marketplace (regular way purchases) are recognized on the trade date
i.e., the date that the Group commits to purchase or sell the asset.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
15
Financial assets at FVPL
Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial
recognition as FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of
selling in the near term. Derivatives, including separated embedded derivatives are also classified as held
for trading unless they are designated as effective hedging instruments. Financial assets at FVPL are carried
in the consolidated balance sheet at fair value with gains and losses recognized in the consolidated
statement of income.
Financial assets may be designated at initial recognition as at FVPL if the following criteria are met: (i) the
designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from
measuring the assets or recognizing the gains or losses on them on a different basis; or (ii) the assets are
part of a group of financial assets which are managed and their performance evaluated on fair value basis, in
accordance with a documented risk management strategy; or (iii) the financial asset contains an embedded
derivative that would need to be separately recorded.
As at December 31, 2009 and 2008 the Group does not have any financial asset as at FVPL.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market, they are not entered into with the intention of immediate or short-term
resale and are not designated as AFS financial assets or financial assets at FVPL. Loans and
receivables are carried at amortized cost using the effective interest method, less allowance for
impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition
and fees that are integral part of the effective interest rate. Gains and losses are recognized in the
consolidated statement of income when the loans and receivables are derecognized or impaired, as well
as through the amortization process. Loans and receivables are included in current assets if maturity is
within 12 months from the balance sheet date.
As at December 31, 2009 and 2008, financial assets included under this classification are the Group’s cash in
bank and cash equivalents, trade and other receivables and refundable deposits (presented as part of “Other
current assets” in the consolidated balance sheet).
HTM investments
HTM investments are quoted non-derivative financial assets which carry fixed or determinable payments and
fixed maturities and which the Group has the positive intention and ability to hold to maturity. After initial
measurement, HTM investments are measured at amortized cost using the effective interest method. This
method uses an effective interest rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to the net carrying amount of the financial asset. Where the Group sells
other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified
as AFS investments. Gains and losses are recognized in the consolidated statement of income when the
investments are derecognized or impaired, as well as through the amortization process. As at December 31,
2009 and 2008, the Group has no HTM investments.
AFS investments
AFS investments are those non-derivative financial assets which are designated as such or do not qualify to
be classified as financial assets designated at FVPL, HTM investments or loans and receivables. They are
purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market
conditions. After initial measurement, AFS investments are measured at fair value with unrealized gains or
losses recognized in the consolidated statement of
16
comprehensive income and consolidated statement of changes in equity in the “Unrealized mark-to-market
gain on AFS investments” until the AFS investments is derecognized, at which time the cumulative gain or
loss recorded in equity is recognized in the consolidated statement of income. Assets under this category
are classified as current assets if expected to be realized within twelve months from the balance sheet date
and as noncurrent assets if maturity date is more than a year from balance sheet date.
The Group’s AFS investments as at December 31, 2009 and 2008 included investment in quoted and unquoted
shares of stock.
Financial liabilities
Initial recognition
Financial liabilities within the scope of PAS 39 are classified as financial liabilities at FVPL, other
financial liabilities, or as derivatives designated as hedging instruments in an effective hedge, as
appropriate. The Group determines the classification of its financial liabilities at initial recognition and,
where allowed and appropriate, reevaluates such designation at every balance sheet date.
Financial liabilities are recognized initially at fair value plus, in the case of investments not at FVPL,
directly attributable transaction costs.
Other financial liabilities
Financial liabilities are classified in this category if these are not held for trading or not designated as at
FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings.
The Group’s financial liabilities include debt and other borrowings (presented as loans payable in the
consolidated balance sheet), trade and other payables, obligations under finance lease, and redeemable
preferred shares.
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
Financial liabilities at FVPL
Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated
upon initial recognition at FVPL.
Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near
term. This category includes derivative financial instruments entered into by the Group that do not meet the
hedge accounting criteria as defined by PAS 39.
Gains and losses on liabilities held for trading are recognized in the consolidated statement of income.
As at December 31, 2009 and 2008, the Group does not have a financial liability held for trading and has not
designated any financial liabilities as at FVPL.
17
Other financial liabilities
Other financial liabilities are initially recognized at fair value of the consideration received, less directly
attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured
at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any
related issue costs, discount or premium. Gains and losses are recognized in the consolidated statement of
income when the liabilities are derecognized, as well as through the amortization process.
Financial guarantee contracts
Financial guarantee contracts issued by the Parent Company to its Subsidiaries are those contracts that
require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails
to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee
contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly
attributable to the issuance of the guarantee. Subsequently, the ability is measured at the higher of the best
estimate of the expenditure required to settle the present obligation at the balance sheet date and the
amount recognized less cumulative amortization.
Embedded Derivatives
Derivatives embedded in host contracts are separated from the host contract and accounted for as a
derivative if all of the following conditions are met: (a) the economic characteristics and risks of the
embedded derivative are not closely related to the risks and characteristics of the host contract;
(b) a separate instrument with the same terms as the embedded derivatives would meet the definition of a
derivative; and (c) the hybrid or combined instrument is not recognized at FVPL. These embedded derivatives
are measured at fair value with gains and losses arising from changes in fair value recognized in the
consolidated statement of income. Reassessment only occurs if there is a change in the terms of the
contract that significantly modifies the cash flows that would otherwise be required.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated
balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized
amounts and there is an intention to settle on a net basis, or to realize the assets and settle the
liabilities simultaneously. This is not generally the case with master netting agreements, and the related
assets and liabilities are presented at gross amounts in the consolidated balance sheet.
Fair value of financial instruments
The fair value for financial instruments traded in active markets at the balance sheet date is based on their
quoted market price or dealer price quotations (bid price for long positions and ask price for short positions),
without any deduction for transaction costs. When current bid and asking prices are not available, the price
of the most recent transaction provides evidence of the current fair value as long as there has not been a
significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using
appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to
similar instruments for which market observable prices exist, options pricing models, and other relevant
valuation models.
18
‘Day 1’ profit and loss
Where the transaction price in a non-active market is different from the fair value of other observable
current market transactions in the same instrument or based on a valuation technique whose variables
include only data from observable market, the Group recognizes the difference between the transaction price
and fair value (a Day 1 profit and loss) in the consolidated statement of income unless it qualifies for
recognition as some other type of asset. In cases where use is made of data which is not observable, the
difference between the transaction price and model value is only recognized in the consolidated statement of
income when the inputs become observable or when the instrument is derecognized. For each transaction,
the Group determines the appropriate method of recognizing the ‘Day 1’ profit and loss amount.
Classification of financial instruments between debt and equity
A financial instrument is classified as debt if it provides for a contractual obligation to:
deliver cash or another financial asset to another entity; or
exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Group; or
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset
for a fixed number of own equity shares.
If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle
its contractual obligation, the obligation meets the definition of a financial liability. The components of issued
financial instruments that contain both liability and equity elements are accounted for separately, with the
equity component being assigned the residual amount after deducting from the instrument as a whole the
amount separately determined as the fair value of the liability component on the date of issue.
Impairment of Financial Assets
The Group assesses at each balance sheet date whether a financial asset or group of financial assets is
impaired. A financial asset or a group of financial assets is deemed to be impaired if and only if, there is an
objective evidence of impairment as a result of one or more events that has occurred after the initial
recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future
cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of
impairment may include indications that the debtors or a group of debtors is experiencing significant
financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter
bankruptcy or other financial reorganization and where observable data indicate that there is a measurable
decrease in the estimated future cash flows, such as changes in arrears or economic conditions that
correlate with defaults.
Loans and receivables
For loans and receivables carried at amortized cost, the Group first assesses individually whether objective
evidence of impairment exists for financial assets that are individually significant, or collectively for financial
assets that are not individually significant. If the Group determines that no objective evidence of impairment
exists for an individually assessed financial asset, whether significant or not, the asset is included in a group
of financial assets with similar credit risk characteristics and that group of financial assets is collectively
assessed for impairment. Assets that are individually assessed for impairment and for which an impairment
loss is or continues to be recognized are not included in a collective assessment of impairment.
19
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured
as the difference between the asset’s carrying amount and the present value of estimated future cash flows
(excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is
reduced through the use of an allowance account and the amount of the loss is recognized in the
consolidated statement of income. Interest income continues to be accrued on the reduced carrying amount
based on the original effective interest rate of the financial asset. Loans together with the associated
allowance are written off when there is no realistic prospect of future recovery and all collateral has been
realized or has been transferred to the Group. If, in a subsequent period, the amount of the impairment loss
increases or decreases because of an event occurring after the impairment was recognized, the previously
recognized impairment loss increased or decreased by adjusting the allowance account. Any subsequent
reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the
carrying value of the asset does not exceed its amortized cost at the reversal date.
In relation to trade receivables, a provision for impairment loss is made when there is objective evidence
(such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not
be able to collect all the amounts due under the original terms of the invoice. The carrying amount of the
receivables is reduced through use of an allowance account. Impaired debts are derecognized when they are
assessed as uncollectible.
Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at
fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and
must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss
is measured as the difference between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the current market rate of return for a similar financial asset.
AFS investments
For AFS investments, the Group assess at each balance sheet date whether there is objective evidence that
an investment or Group of investment is impaired.
In the case of equity investments classified as AFS, objective evidence of impairment would include a
significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of
impairment, the cumulative loss (measured as the difference between the acquisition cost and the current
fair value, less any impairment loss on that financial asset previously recognized in the consolidated
statement of income) is removed from equity and recognized in the consolidated statement of income.
Impairment losses on equity investments are not reversed through the consolidated statement of income.
Increases in fair value after impairment are recognized in other comprehensive income.
In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as
financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount
and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring
impairment loss. Such accrual is recorded as part of “Interest income” in the consolidated statement of
income. If, in subsequent period, the fair value of a debt instrument increased and the increase can be
objectively related to an event occurring after the impairment loss was recognized in the consolidated
statement of income, the impairment loss is reversed through the consolidated statement of income.
20
Redeemable Preferred Shares (RPS)
The component of the RPS that exhibits characteristics of a liability is recognized as a liability in the
consolidated balance sheet, net of transaction costs. The corresponding dividends on those shares are
charged as interest expense in the consolidated statement of income. On issuance of the RPS, the fair value
of the liability component is determined using a market rate for an equivalent non-convertible bond; and this
amount is carried as a long term liability on the amortized cost basis until extinguished on conversion or
redemption.
The remainder of the proceeds is allocated to the conversion option that is recognized and included in
consolidated statement of changes in equity, net of transaction costs. The carrying amount of the conversion
option is not remeasured in subsequent years.
Transaction costs are apportioned between the liability and equity components of the convertible preference
shares based on the allocation of proceeds to the liability and equity components when the instruments are
first recognized.
Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets)
is derecognized when:
the rights to receive cash flows from the asset have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay
them in full without material delay to a third party under a “pass-through” arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred
substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred
nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the
asset is recognized to the extent of the Group’s continuing involvement in the asset.
In such case, the Group also recognizes an associated liability. The transferred asset and the associated
liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the
lower of the original carrying amount of the asset and the maximum amount of consideration that the Group
could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has
expired.
21
Where an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the recognition of a new liability, and the difference in
the respective carrying amounts is recognized in the consolidated statement of income.
Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and
the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received,
excluding discounts, rebates, sales taxes or duty. The Group assesses its revenue arrangement against
specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is
acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also
be met before revenue is recognized:
Freight and passage
Freight and passage revenues are recognized when the related services are rendered. Customer payments
for services which have not yet been rendered are classified as unearned revenue under “Trade and other
payables” in the consolidated balance sheet.
Manning and crewing services
Revenue is recognized upon embarkation of qualified ship crew based on agreed rates and when the
corresponding training courses have been conducted.
Management services
Management fee is recognized when the related services are rendered.
Sale of goods
Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the
goods have passed to the buyer, usually on delivery of the goods.
Commissions
Commissions are recognized as revenue in accordance with the terms of the agreement with the principal
and when the related services have been rendered.
Charter revenues
Charter revenues from short-term chartering arrangements are recognized in accordance with the terms of
the charter agreements.
Rental income
Rental income arising from operating leases is recognized on a straight-line basis over the lease term.
Interest income and expense
For all financial instruments measured at amortized cost and interest bearing financial assets classified as
AFS, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that
exactly discounts the estimated future cash payments or receipts through the expected life of the financial
instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or
liability.
Dividend income
Dividend income is recognized when the shareholders’ right to receive the payment is established.
22
Borrowing Costs
Borrowing costs, including foreign exchange difference arising from foreign currency borrowings that are
regarded as an adjustment to interest costs, are capitalized if they are directly attributable to the acquisition
or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to
prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing
costs are capitalized until the assets are substantially ready for their intended use. If the carrying amount of
the asset exceeds its recoverable amount, an impairment loss is recorded. All other borrowing costs that the
Group incurs in connection with the borrowing of funds are expensed in the period they occur.
Pension Benefits
The Group has thirteen (13) defined benefit pension plans, which require contributions to be made to
separately administered funds.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit
actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the net
cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous
reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets
at that date. These gains or losses are recognized over the expected average remaining working lives of the
employees participating in the plans.
The past service cost is recognized as an expense on a straight-line basis over the average period until the
benefits become vested. If the benefits are already vested immediately following the introduction of, or
changes to, a pension plan, past service cost is recognized immediately.
The defined benefit asset or liability comprises the present value of the defined benefit obligation, less past
service costs and actuarial gains and losses not yet recognized and less the fair value of plan assets out of
which the obligations are to be settled. Plan assets are assets that are held by a long-term employee benefit
fund or qualifying insurance policies. Plan assets are not available to the creditors of the Group, nor can they
be paid directly to the Group. Fair value is based on market price information and in the case of quoted
securities it is the published bid price. The value of any defined benefit asset recognized is restricted to the
sum of any past service costs and actuarial gains and losses not yet recognized and the present value of any
economic benefits available in the form of refunds from the plan or reductions in the future contributions to
the plan.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the
arrangement at inception date: whether the fulfillment of the arrangement is dependent on the use of a
specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after
the inception of the lease only if one of the following applies:
(a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) A renewal option is exercised and extension granted, unless the term of the renewal or extension was
initially included in the lease term;
(c) There is a change in the determination of whether fulfillment is dependent on a specified asset; or
(d) There is a substantial change to the asset.
When a reassessment is made, lease accounting shall commence or cease from the date when the change in
circumstances give rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or
extension period for scenario (b).
23
Group as a lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of
the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if
lower, at the present value of the minimum lease payments. Lease payments are apportioned between the
finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are reflected in the consolidated statement of income.
Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset and the
lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease
term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as expense in the consolidated
statement of income on a straight-line basis over the lease term.
Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset
are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to
the carrying amount of the leased asset and recognized over the lease term on the same bases as rental
income. Contingent rents are recognized as revenue in the period in which they are earned.
Foreign Currency Translation
The Group’s consolidated financial statements are presented in Philippine peso, which is the Parent
Company’s functional and presentation currency. Each entity in the Group determines its own functional
currency and items included in the financial statements of each entity are measured using that functional
currency.
Transactions in foreign currencies are initially recorded at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the
functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the
consolidated statement of income with the exception of all monetary items that provide an effective hedge for
a net investment in a foreign operation. These are recognized in other comprehensive income until the
disposal of the net investment, at which time they are recognized in the consolidated statement of income.
Tax charges and credits attributable to exchange differences on those monetary items are also recorded in
equity.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
the exchange rates as at the dates of the initial transactions.
Non-monetary items are measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value is determined.
The functional currency of JMBVI and Subsidiaries is the United States (US) dollars. The assets and liabilities
of foreign operations are translated into Philippine peso using the Philippine Dealing System (PDS) closing
rate at the balance sheet date and their statements of income are translated at the PDS weighted average
exchange rates for the year. The exchange differences arising from the translation are taken directly to a
separate component of equity, under the “Cumulative translation adjustments (CTA)” account. On disposal of
a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign
operation is recognized in the consolidated statement of income.
24
Income Taxes
Current income tax
Current income tax assets and liabilities for the current periods are measured at the amount expected to be
recovered from or paid to the tax authority. The tax rates and tax laws used to compute the amount are those
that are enacted, by the balance sheet date, in the countries where the Group operates and generates taxable
income.
Current income tax relating to items recognized directly in equity is recognized in equity and not in the
consolidated statement of income. Management periodically evaluates positions taken in the tax returns
with respect to situations in which applicable tax regulations are subject to interpretation and establishes
provisions where appropriate.
Deferred income tax
Deferred income tax is provided using the balance sheet liability method on temporary differences on the
balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences,
except:

where the deferred income tax liability arises from the initial recognition of goodwill or of an asset
or liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit or loss; and

in respect of taxable temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary differences will not reverse in
the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of
net operating loss carryover (NOLCO) and minimum corporate income tax (MCIT), to the extent that it is
probable that future taxable profit will be available against which the deductible temporary differences and
the carry forward of unused tax credits and unused tax losses can be utilized except:

where the deferred income tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
and

in respect of deductible temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, deferred tax assets are recognized only to the extent that
it is probable that the temporary differences will reverse in the foreseeable future and taxable
profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient future taxable profit will be available to allow all or part
of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at
each balance sheet date and are recognized to the extent that it has become probable that future taxable
profit will allow the deferred income tax asset to be recovered.
25
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year
when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted on the balance sheet date.
Deferred income tax relating to items recognized either in other comprehensive income or directly in equity
is recognized in consolidated statement of comprehensive income or consolidated statement of changes in
equity and not in the consolidated statement of income.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists
to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable
entity and the same taxation authority.
Sales tax
Revenues, expenses, and assets are recognized net of amount of sales tax except:


where the sales tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the
asset or as part of the expense item as applicable; and
receivable and payables that are stated with the amount of sales tax are included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of
receivables or payables in the consolidated balance sheet.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a
past event, it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects
some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is
recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to
any provision is presented in the consolidated statement of income net of any reimbursement. If the effect of
the time value of money is material, provisions are discounted using a current pre-tax rate that reflects,
where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision
due to the passage of time is recognized as an interest expense.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless
the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not
recognized in the consolidated financial statements but are disclosed in the notes to consolidated financial
statements when an inflow of economic benefits is probable.
Events After Balance Sheet Date
Post year events that provide evidence of conditions that existed on the balance sheet date are reflected in
the consolidated financial statements. Subsequent events that are indicative of conditions that arose after
balance sheet date are disclosed in the notes to consolidated financial statements when material.
Earnings Per Common Share
Basic earnings per common share are determined by dividing net income by the weighted average number of
common shares outstanding, after retroactive adjustment for any stock dividends and stock splits declared
during the year.
26
Diluted earnings per common share amounts are calculated by dividing the net income for the year
attributable to the ordinary equity holders of the parent by the weighted average number of common shares
outstanding during the year plus the weighted average number of ordinary shares that would be issued for
any outstanding common stock equivalents.
3.
Significant Accounting Judgments and Estimates
The preparation of the Group’s consolidated financial statements requires management to make judgments,
estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and
the disclosure of contingent liabilities, as at December 31, 2009, 2008 and 2007. However, uncertainty about
these assumptions and estimates could result in outcomes that require a material adjustment to the carrying
amount of the asset or liability affected in the future periods.
Judgments
In the process of applying the Group’s accounting policies, management has made the following judgments,
apart from those involving estimations, which have the most significant effect on the amounts recognized in
the financial statements:
Operating lease commitments - Group as lessee
The Group has entered into commercial property leases on its distribution warehouses, sales outlets,
trucking facilities and administrative office locations. The Group has determined that it does not acquire all
the significant risks and rewards of ownership of these properties which are leased on operating leases.
Operating lease commitments - Group as lessor
The Group has entered into short-term leases or chartering arrangements. The Group has determined that
it retains all the significant risks and rewards of ownership of these equipment and so accounts for it as an
operating lease.
Disposal group classified as held for sale
On December 19, 2008, AEV, together with ACO accepted the Term Sheet offered by KGLI-NM for the
acquisition of ATSC and Subsidiaries subject to the terms and conditions that the Aboitiz Jebsen Group will be
sold to AEV and ACO on or before April 30, 2009.
The Management considered the investments in Aboitiz Jebsen Group met the criteria to be classified as held
for sale as at December 19, 2008 for the following reasons:
 Aboitiz Jebsen Group is available for immediate sale and can be sold to AEV in its current condition.
 The Board has plan to sell the Aboitiz Jebsen Group to AEV according to the terms of MOA.
 The Board expects the sale of Aboitiz Jebsen Group to be completed by April 30, 2009.
On April 30, 2009, the Parent Company was advised by AEV and ACO that KGLI-NM will no longer proceed
with the purchase of the Parent Company’s shares. Consequently, AEV and ACO will no longer acquire the
Aboitiz Jebsen Group from the Parent Company.
As the sale of Aboitiz Jebsen Group did not materialize, the Group ceased to classify the Aboitiz Jebsen Group
as held for sale in 2009.
27
For more details on the disposal group refer to Notes 1 and 32.
Determining functional currency
Based on the economic substance of the underlying circumstances relevant to the Group, the functional
currency of the companies in the Group has been determined to be the Philippine peso, except for
subsidiaries whose functional currency is the US dollar. The Philippine peso is the currency of the primary
economic environment in which the Group generally operates. It is the currency that mainly influences the
sale of services and the costs of the rendering of services.
Legal contingencies
The Group is currently involved in legal and administrative proceedings. The Group’s estimate of the
probable costs for the resolution of these claims has been developed in consultation with outside counsels
handling defense in these matters and is based upon an analysis of potential results. The Group and its legal
counsels currently do not believe these proceedings will have a material adverse effect on its financial
position and results of operations. It is possible, however, that future results of operations could be
materially affected by changes in the estimates or in the effectiveness of strategies relating to these
proceedings (see Note 33).
Estimates and Assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance
sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
Estimating allowance for impairment losses on trade and other receivables
The Group maintains allowances for impairment losses on trade and other receivables at a level considered
adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by the
Group on the basis of factors that affect the collectibility of the accounts. These factors include, but are not
limited to, the length of the Group’s relationship with debtors, their payment behavior and known market
factors. The Group reviews the age and status of the receivables, and identifies accounts that are to be
provided with allowance on a continuous basis. The amount and timing of recorded expenses for any period
would differ if the Group made different judgment or utilized different estimates. An increase in the Group’s
allowance for impairment losses would increase the Group’s recorded expenses and decrease current
assets.
The main considerations for impairment assessment include whether any payments are overdue or if there
are any known difficulties in the cash flows of the counterparties. The Group assesses impairment into two
areas: individually assessed allowances and collectively assessed allowances.
The Group determines allowance for each significant receivable on an individual basis. Among the items
that the Group considers in assessing impairment is the inability to collect from the counterparty based on
the contractual terms of the receivables. Receivables included in the specific assessment are the accounts
that have been endorsed to the legal department, non-moving account receivables, accounts of defaulted
agents and accounts from closed stations.
For collective assessment, allowances are assessed for receivables that are not individually significant and
for individually significant receivables where there is no objective evidence of individual impairment.
Impairment losses are estimated by taking into consideration the age of the receivables, past collection
experience and other factors that may affect collectibility.
28
As at December 31, 2009 and 2008, allowance for impairment losses on trade and other receivables
amounted to P
= 259,359 and P
= 299,727, respectively. Carrying values of the Group’s trade and other
receivables as at December 31, 2009 and 2008 amounted to P
= 2,347,627 and
P
= 1,985,574, respectively (see Notes 8 and 37).
Estimating allowance for inventory losses
The Group provides an allowance for inventories whenever the value of inventories becomes lower than its
cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes. The
allowance account is reviewed on an annual basis. Inventory items identified to be obsolete and unusable are
written off and charged as expense for the period.
As at December 31, 2009 and 2008, the net carrying value of inventories amounted to P
= 571,179 and P
= 376,336,
respectively (see Note 9). Allowance for inventory obsolescence as at
December 31, 2009 and 2008 amounted to P
= 34.7 million and P
= 61.2 million, respectively.
Estimating useful lives of property and equipment
The estimated useful lives used as basis for depreciating property and equipment items were determined on
the basis of management’s assessment of the period within which the benefits of these asset items are
expected to be realized taking into account actual historical information on the use of such assets as well as
industry standards and averages applicable to the Group’s assets. In 2007, management extended the
estimated useful life of Super Ferry 2, one of the ships in operation, by five (5) years. Also, the estimated
useful life of the steel component of each of the vessels was revised from 2 ½ years to 7 years or the
remaining useful life of the related vessel whichever is shorter. The extension is based on management’s
assessment of the period within which the benefit of using these assets is expected to be realized, after the
extensive improvements done to the assets. The change in estimated useful life has reduced depreciation
expense by
P
= 3.0 million in 2007.
In 2009, the estimated useful life of the vessel’s steel component was changed from 7 years to 5 years mainly
because of the increased utilization of vessels resulting from the rationalization of the Parent Company’s
fleet.
The change in estimated useful life has increased depreciation expense by P
= 4.2 million in 2009.
The Group’s property and equipment balance amounted to P
=4,817,558 and P
= 4,237,249 as at
December 31, 2009 and 2008, respectively (see Note 14).
Estimating residual value
The residual value of the Group’s property and equipment asset is estimated based on the amount that would
be obtained from disposal of the asset, after deducting estimated costs of disposal, if the assets are already
of the age and in the condition expected at the end of its useful life. Such estimation is based on the
prevailing price of scrap steel. The estimated residual value of each asset is reviewed periodically and
updated if expectations differ from previous estimates due to changes in the prevailing price of scrap steel.
Estimating useful life of software development costs
The estimated useful life used as a basis for amortizing software development costs was determined on the
basis of management’s assessment of the period within which the benefits of these costs are expected to be
realized by the Group.
As at December 31, 2009 and 2008, the carrying value of software development costs amounted to
P
= 112,127 and P
= 188,210, respectively (see Note 15).
29
Deferred income tax assets
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient future taxable profit will be available to allow all or part of
the deferred income tax assets to be utilized. Significant management judgment is required to determine the
amount of deferred income tax assets that can be recognized, based upon the likely timing and the level of
future taxable income together with the future tax planning strategies. Management expects future
operations will generate sufficient taxable profit that will allow part of the deferred income tax assets to be
utilized.
The Group’s gross deferred income tax assets amounted to P
= 270,849 and P
= 369,528 as at
December 31, 2009 and 2008, respectively (see Note 31).
Impairment of AFS investments
The Group considers AFS financial assets as impaired when there has been a significant or prolonged decline
in the fair value of such investments below their cost or where other objective evidence of impairment exists.
The determination of what is “significant” or “prolonged” requires judgment. The Group treats “significant”
generally as 20% or more and “prolonged” as greater than twelve months. In addition, the Group evaluates
other factors, including normal volatility in share price for quoted equities and future cash flows and discount
factors for unquoted equities in determining the amount to be impaired.
The carrying value of AFS investments amounted to P
= 43,323 and P
= 37,053 as at
December 31, 2009 and 2008, respectively (see Notes 13 and 37).
Fair value of financial instruments
Where the fair value of financial assets and liabilities recorded in the consolidated balance sheet cannot be
derived from active markets, they are determined using valuation techniques including the discounted cash
flows model. The inputs to the models are taken from observable markets where possible, but where this is
not feasible, a degree of judgment is required in establishing the fair values. The judgments include
considerations of inputs such as liquidity risk and credit risk. Changes in assumptions about these factors
could affect the reported fair value of financial instruments.
The carrying values and corresponding fair values of financial assets and financial liabilities and the manner
in which fair values were determined are described in Note 38.
Impairment of nonfinancial asset
Determining the recoverable amounts of the nonfinancial assets listed below, which involves the
determination of future cash flows expected to be generated from the continued use and ultimate disposition
of such assets, requires the use of estimates and assumptions that can materially affect the consolidated
financial statements. Future events could indicate that these nonfinancial assets are impaired. Any
resulting impairment loss could have a material adverse impact on the financial condition and results of
operations of the Group.
The preparation of estimated future cash flows involves significant judgment and estimations. While the
Group believes that its assumptions are appropriate and reasonable, significant changes in these
assumptions may materially affect its assessment of recoverable values and may lead to future additional
impairment changes under PFRS.
30
Assets that are subject to impairment testing when impairment indicators are present (such as
obsolescence, physical damage, significant changes to the manner in which the asset is used, worse than
expected economic performance, a drop in revenues or other external indicators) are as follows:
Other current assets - net (see Note 10)
Property and equipment - net (see Note 14)
Investments in associates (see Notes 11 and 20)
Software development cost - net (see Note 15)
Other noncurrent assets - net (except refundable
deposits) (see Notes 16 and 20)
2009
P
= 785,366
4,817,558
74,208
112,127
2008
P
= 706,785
4,237,249
17,346
188,210
128,674
74,139
No impairment losses were recognized in 2009, 2008 and 2007.
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation
of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in
use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit
and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The
carrying amount of goodwill as at December 31, 2009 and 2008 amounted to P
= 256,463 (see Note 6).
Pension benefit
The determination of the obligation and cost for pension and other retirement benefits is dependent on the
selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions were
described in Note 30 and include among others, discount rate, expected return on plan assets and rate of
compensation increase. In accordance with PFRS, actual results that differ from the Group’s assumptions
are accumulated and amortized over future periods and therefore, generally affect the recognized expense
and recorded obligation in such future periods. While it is believed that the Group’s assumptions are
reasonable and appropriate, significant differences in actual experience or significant changes in
assumptions may materially affect the Group’s pension and other retirement obligations.
The Group’s pension asset and pension liability as at December 31, 2009 amounted to P
= 67,589 and P
= 18,115,
respectively and as at December 31, 2008 amounted to P
=39,501 and P
= 32,556, respectively, (see Notes 16 and
30).
4.
Operating Segment Information
For management purposes, the Group is organized into business units based on their products and services
and has three reportable operating segments as follows.

The shipping and transportation segment renders passage transportation and cargo freight
services.

The distribution segment provides supply chain management.

The manpower services segment renders manning and personnel, particularly crew management
services.
31
No operating segments have been aggregated to form the above reportable operating segments.
Management monitors the operating results of its business units separately for the purpose of making
decisions about resource allocation and performance assessment. Segment performance is evaluated based
on operating profit or loss and is measured consistently with operating profit or loss in the consolidated
financial statements. However, Group financing (including finance costs and finance income) and income
taxes are managed on a group basis and are not allocated to operating segments.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to
transactions with third parties.
Financial information about business segments follow:
Shipping and
Transportation
Distribution
2009
Manpower
Services
P
= 9,684,838
1,073,377
10,758,215
P
= 1,735,155
–
1,735,155
P
= 404,438
53,759
458,197
P
=–
(1,127,136)
(1,127,136)
Income (Expense)
Fuel
Cost of sales
Depreciation and amortization
Charter hire
Food and subsistence
Share in equity in net earnings
(2,228,950)
–
(998,553)
(680,979)
(147,973)
57,128
(470)
(1,460,875)
(18,900)
–
–
–
–
–
(16,092)
–
–
(3,694)
6,164
–
–
–
–
–
Segment income before
income tax
Segment income (loss)
Segment assets
Segment liabilities
991,314
833,677
10,389,714
4,942,934
34,964
25,265
1,093,833
965,472
110,650
76,930
714,714
622,639
(313,155)
(313,155)
(1,576,265)
(1,068,621)
823,773
622,717
10,621,996
5,462,424
1,862,703
44,874
56,212
24,440
28,804
4,894
–
–
1,947,719
74,208
Shipping and
Transportation
Distribution
2008
Manpower
Services
Elimination
Consolidated
P
= 11,344,936
936,624
12,281,560
P
= 1,163,859
16,705
1,180,564
P
= 359,723
48,182
407,905
P
=–
(1,001,511)
(1,001,511)
P
= 12,868,518
–
12,868,518
(3,384,509)
–
(1,017,463)
(2,020,059)
(182,226)
(6,362)
(336)
(966,463)
(5,757)
–
–
–
–
–
(12,511)
–
–
(1,277)
–
–
–
–
–
–
(3,384,845)
(966,463)
(1,035,731)
(2,020,059)
(182,226)
(7,639)
Revenue
External customer
Inter-segment
Total revenue
Other information:
Capital expenditures
Investment in associate
Revenue
External customer
Inter-segment
Total revenue
Results
Fuel
Cost of sales
Depreciation and amortization
Charter hire
Food and subsistence
Share in equity in net earnings
(Forward)
Eliminations
Consolidated
P
= 11,824,431
–
11,824,431
(2,223,256)
(1,460,875)
(1,033,545)
(680,979)
(147,973)
53,434
32
Distribution
2008
Manpower
Services
Elimination
Consolidated
P
= 226,627
226,565
9,604,086
4,681,675
P
= 31,522
18,275
754,637
651,198
P
= 90,884
56,522
742,829
664,367
(P
= 201,938)
(201,938)
(1,692,532)
(1,179,006)
P
= 147,095
99,424
9,409,020
4,818,234
1,016,793
12,358
97,133
–
30,710
4,988
–
–
1,144,636
17,346
Shipping and
Transportation
Segment income (loss) before
income tax
Segment income (loss)
Segment assets
Segment liabilities
Other information:
Capital expenditures
Investment in associate
Shipping and
Transportation
2007
Manpower
Services
Elimination
Consolidated
P
= 10,760,420
872,621
11,633,041
P
=295,548
53,292
348,840
P
=–
(925,913)
(925,913)
P
= 11,055,968
–
11,055,968
Results
Fuel
Depreciation and amortization
Charter hire
Food and subsistence
Share in equity in net earnings
(2,647,599)
(1,167,087)
(2,315,748)
(187,041)
(34)
–
(11,256)
–
–
444
–
–
–
–
–
(2,647,599)
(1,178,343)
(2,315,748)
(187,041)
410
Segment income (loss) before
income tax
Segment income (loss)
Segment assets
Segment liabilities
682,306
520,265
9,196,989
4,257,088
57,968
37,866
587,228
509,762
(119,350)
(119,350)
(1,145,210)
(631,483)
620,924
438,781
8,639,007
4,135,367
Other information:
Capital expenditures
Investment in associate
1,565,647
18,035
15,984
6,666
–
–
1,581,631
24,701
Revenue
External customer
Inter-segment
Total revenue
5.
Business Combinations and Goodwill
On June 3, 2008, AOI acquired 100% ownership in SOI, a company engaged in the business of sales,
marketing, warehousing and transportation of temperature-controlled and ambient food products to its
customers in the Philippines.
33
The fair value of the identifiable assets and liabilities of SOI as at the date of acquisition and the
corresponding carrying amounts immediately before the acquisition were:
Cash and cash equivalents
Trade and other receivables
Merchandise inventory
Prepayments and other current assets
Property and equipment
Trade and other payables
Other liabilities
Net assets
Goodwill arising from acquisition
Total consideration satisfied by cash
Cashflow on acquisition:
Net cash acquired with the subsidiary
Cash paid
Net cash outflow
Fair value
recognized
on acquisition
P
= 148,246
119,070
68,651
64,822
11,009
411,798
223,096
65,282
123,420
250,450
P
= 373,870
Previous
carrying value
P
= 148,246
119,070
68,651
64,822
11,009
411,798
223,096
65,282
P
= 123,420
P
= 148,246
(373,870)
(P
= 225,624)
SOI has contributed P
= 10.5 million and P
= 18.9 million to the net income of the Group in 2009 and 2008,
respectively.
The following table shows the movement of goodwill:
Balances at beginning of year
Addition
Disposal
Balances at end of year
2009
P
= 256,463
–
–
P
= 256,463
2008
P
= 10,323
250,450
(4,310)
P
= 256,463
On January 22, 2009, AOI entered into an Investor’s Agreement (the Agreement) with Kerry Logistics Network
Limited (KLN), a Hong-Kong based logistics company. In accordance with the Agreement, AOI invested P
= 4.8
million in a wholly-owned subsidiary, KLN Investment Holdings Philippines, Inc. (KLN Investment) on
February 26, 2009.
On August 1, 2009, AOI subsequently sold its investment in KLN Investment to Kerry Freight Services (Far
East) Pte. Ltd, a subsidiary of KLN, which resulted in a gain of P
= 52.5 million.
6.
Impairment Testing of Goodwill
Goodwill acquired through business combinations have been attributed to each cash-generating unit. The
recoverable amount of the investments has been determined based on a value in use calculation using cash
flow projections based on financial budgets approved by senior management covering a five-year period. The
discount rate applied to cash flow projections is 11.40% in 2009, and cash flows beyond the five-year period
are extrapolated using a zero percent growth rate.
34
Key assumptions used in value in use calculation for December 31, 2009
The following describes each key assumption on which management has based its cash flow projections to
undertake impairment testing of goodwill.
Foreign exchange rates
In 2008, the assumption used to determine foreign exchange rate is a fluctuating Philippine peso which starts
at a rate of P
= 40 to a dollar starting 2008 until the fifth year. In 2009, the rate used in the assumption is P
= 48.50
to a dollar starting 2009 until the fifth year.
Materials price inflation
In 2008, the assumption used to determine the value assigned to the materials price inflation is a 2% basis
point increase in inflation in 2009, which then decreased by 1% basis points on the second year and remains
steady on the third until the fifth year. The starting point of 2009 is consistent with external information
sources. In 2009, the assumption used to determine the value assigned to the materials price inflation is a
4.74% basis point increase in inflation in 2010.
As at December 31, 2009, the Group has not recognized any impairment in goodwill.
7.
Cash and Cash Equivalents
Cash on hand and in banks
Cash equivalents
Cash and cash equivalents included in the disposal group
classified as held for sale (see Note 32)
2009
P
= 927,648
168,063
1,095,711
2008
P
= 991,932
100,911
1,092,843
–
P
= 1,095,711
232,589
P
= 860,254
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are made for varying
periods of up to three months depending on the immediate cash requirements of the Group, and earn
interest at the respective short-term investment rates.
Total interest income earned by the Group from cash in banks and cash equivalents amounted to
P
= 25,098, P
= 14,824 and P
= 25,557 in 2009, 2008 and 2007, respectively.
8.
Trade and Other Receivables
Trade (see Note 22)
Service fees
Freight
Passage
Others
Nontrade (see Note 22)
Insurance and other claims (see Note 33)
Advances to officers and employees
(Forward)
2009
2008
P
= 751,912
694,874
27,955
588,148
269,805
223,656
50,636
2,606,986
P
= 832,621
794,438
12,080
321,555
242,667
41,524
40,416
2,285,301
35
Less allowance for impairment losses
Trade and other receivables included in the disposal
group classified as held for sale (see Note 32)
2009
P
= 259,359
2,347,627
2008
P
= 299,727
1,985,574
–
P
= 2,347,627
364,899
P
= 1,620,675
Trade receivables are non-interest bearing and are generally on 30 days’ terms. Insurance claims
receivables pertain to the Group’s claims for reimbursement of losses against insurance coverages for hull
and machinery, cargo and personal accidents.
Nontrade receivables are non-interest bearing and include advances to affiliates and suppliers.
The following table sets out the rollforward of the allowance for impairment losses:
As at December 31, 2009
Balances at beginning of year
Provisions (see Note 25)
Reversals (see Note 29)
Changes through the statement
of income
Allowances used to cover
write-offs
Balances at end of year
Service fees
P
=62,378
6,453
–
Trade
Freight
P
= 202,737
23,676
(60,884)
Others
P
= 2,721
–
–
Nontrade
P
= 7,962
–
–
Insurance
and claims
P
= 23,929
–
–
Total
P
= 299,727
30,129
(60,884)
6,453
(37,208)
–
–
–
(30,755)
(1,779)
P
= 67,052
(1,194)
P
= 164,335
–
P
= 2,721
(3,335)
P
= 4,627
(3,305)
P
=20,624
(9,613)
P
= 259,359
As at December 31, 2008
Balances at beginning of year
Allowance from acquired
subsidiaries
Provisions (see Note 25)
Reversals
Changes through the
statement
of income
Allowances used to cover
write-offs
Balances at end of year
Insurance Advances to
and other officers and
claims employees
P
= 24,506
P
=5
Service fees
P
= 58,718
Trade
Freight
P
= 202,737
Others
P
= 2,721
Nontrade
P
= 9,214
2,042
9,292
(12,011)
–
–
–
–
–
–
–
964
(2,216)
–
–
(348)
–
–
(5)
2,042
10,256
(14,580)
(2,719)
–
–
(1,252)
(348)
(5)
(4,324)
4,337
P
= 62,378
–
P
= 202,737
–
P
= 2,721
–
P
= 7,962
(229)
P
= 23,929
–
P
=–
4,108
P
=299,727
Total
P
=297,901
The following table sets out the analysis of collective and individual impairment of trade and other
receivables:
As at December 31, 2009
Trade
Nontrade receivable
Insurance and other claims
Collectively
impaired
P
= 37,066
–
1,501
P
=38,567
Individually
impaired
P
=197,042
4,627
19,123
P
= 220,792
Total
P
= 234,108
4,627
20,624
P
= 259,359
36
As at December 31, 2008
Trade
Nontrade receivable
Insurance and other claims
Collectively
impaired
P
= 81,199
–
1,501
P
= 82,700
Individually
impaired
P
=186,637
7,962
22,428
P
=217,027
Total
P
= 267,836
7,962
23,929
P
= 299,727
Trade and other receivables that are individually determined to be impaired at the balance sheet date relate
to debtors that are in significant financial difficulties and have defaulted on payments and accounts under
dispute and legal proceedings. These receivables are not secured by any collateral or credit enhancements.
9.
Inventories
Materials, parts and supplies - at NRV
Fuel and lubricants - at cost
Total inventories at lower of cost and NRV
Inventories included in the disposal group classified as
held for sale (see Note 32)
2009
P
= 451,683
119,496
571,179
2008
P
= 286,794
89,542
376,336
–
P
= 571,179
31,671
P
= 344,665
The allowance for inventory obsolescence as at December 31, 2009 and 2008 amounted to
P
= 34.7 million and P
= 61.2 million, respectively.
The cost of inventories recognized as “Cost of sales” in the consolidated statements of income amounted to P
=
1,460,875, P
= 966,463 and nil in 2009, 2008 and 2007, respectively.
10. Other Current Assets
Prepaid expenses
Input value-added tax (VAT)
Others
Prepaid expenses and other current assets included in the
disposal group classified as held for sale (see Note
32)
2009
P
= 683,043
94,099
8,224
785,366
2008
P
= 601,865
89,898
15,022
706,785
–
P
= 785,366
78,836
P
= 627,949
37
11. Investments in Associates
2009
Acquisition cost:
Balances at beginning of year
Additions during the year
Disposals during the year
Balances at end of year
Accumulated equity in net earnings:
Balances at beginning of year
Equity in net earnings (losses) during the year
Balances at end of year
Share in CTA of associates
Investments in associates included in the disposal
group classified as held for sale (see Note 32)
2008
P
= 18,849
3,600
–
22,449
P
= 19,249
–
(400)
18,849
(2,188)
53,434
51,246
P
= 73,695
513
74,208
5,451
(7,639)
(2,188)
P
= 16,661
685
17,346
–
P
= 74,208
4,988
P
= 12,358
The Group’s investments in associates which are accounted for under the equity method follow:
Associates
MCCP Philippines (MCCP)
Aboitiz Project/T.S.
Corporation (APTSC)
JPS
Country of
Incorporation
Philippines
Philippines
Norway
Nature of Business
Container transportation
Project logistics and
consultancy
Manpower services
Percentage of Ownership
2009
2008
Direct Indirect
Direct
Indirect
33%
–
33%
–
–
–
50%
50%
–
–
50%
–
In February 2009, AJBTC purchased 50 shares of Jebsen People Solutions AS (JPS) at Norwegian Krone
(NOK)1,000 per share. As at December 31, 2009, JPS’s operations resulted to a loss of NOK2.1 million (P
= 17.0
million). The share in equity loss was recognized by AJBTC to the extent of its initial investment.
Summarized financial information of the associates follows:
As at December 31, 2009
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income (loss)
APTSC
P
= 195,665
4,809
163,540
–
444,886
24,165
MCCP
P
= 437,425
436,983
372,118
–
965,976
136,501
JPS
P
= 7,245
–
16,933
6,480
266
(17,016)
Total
P
= 640,335
441,792
552,591
6,480
1,411,128
143,650
38
As at December 31, 2008
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income (loss)
APTSC
P
= 32,221
1,750
21,507
78
67,176
8,510
MCCP
P
= 148,125
–
169,871
–
284,922
(89,653)
Total
P
= 180,346
1,750
191,378
78
352,098
(25,333)
As at December 31, 2007
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income (loss)
APTSC
P
= 14,873
1,448
8,151
68
12,783
7,881
MCCP
P
= 79,894
–
71,274
–
54,274
(19,902)
WJMSI
P
= 457
–
–
–
–
177
Total
P
= 95,224
1,448
79,425
68
67,057
(11,844)
12. Interest in Joint Ventures
On March 18, 2009, AOI and KLN Investments formed KLN Holdings, a jointly controlled entity. In accordance
with the Agreement, AOI and KLN Investments (the venturers) will hold ownership interests of 78.4% and
21.6%, respectively, in KLN Holdings. However, the venturers have the power to govern the financial and
operating policies of KLN Holdings unanimously. As at December 31, 2009, AOI’s investment in KLN
Holdings amounted to P
= 7.5 million.
In March 30, 2009, KLN Holdings and KLN Investments formed another jointly controlled entity, Kerry-Aboitiz
Logistics, Inc. (KALI), to engage in the business of international freight and cargo forwarding. In accordance
with the Agreement, KLN Holdings and KLN Investments will hold 62.5% and 37.5% interest in KALI,
respectively. However, the venturers have the power to govern the financial and operating policies of KALI
unanimously. As of December 31, 2009, KLN Holdings’ investment in KALI amounted to P
= 9.6 million.
In accordance with the Agreement, AOI indirectly holds a 49% interest in KALI. To account for this, KALI is
proportionately consolidated by KLN Holdings using the latter’s 62.5% share. The consolidated balances of
KLN Holdings are then proportionately consolidated by AOI using the latter’s 78.4% share.
39
The Group’s share of the assets and liabilities of KALI and KLN Holdings as at
December 31, 2009 and the income and expenses in the jointly controlled entities for the year ended
December 31, 2009, which are proportionately consolidated in the consolidated financial statements, are as
follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity
P
= 48,912
932
41,475
236
P
= 8,133
Revenue
Cost and expenses
Other income (charges)
Income before income tax
Income tax expense
Net income for the year
P
= 55,532
54,843
170
859
252
P
= 607
13. AFS Investments
Quoted equity investments
Listed shares of stocks
Club shares
Unquoted equity investments - at cost
AFS investments included in the disposal group classified
as held for sale (see Note 32)
2009
2008
P
= 26,789
5,500
11,034
43,323
P
= 17,225
4,000
15,828
37,053
–
P
= 43,323
9,419
P
= 27,634
Listed shares of stocks and club shares are carried at market value. Unrealized mark-to-market gains or
losses on AFS investments are recognized in the statement of comprehensive income and included in the
“Equity” section of the consolidated balance sheet.
Unquoted shares of stocks pertain to preferred shares which has a fixed number of shares that can be
redeemed every year.
The following table shows the movement of “Unrealized mark-to-market gain on AFS investments” account:
At beginning of year
Increase (decrease) in value of AFS investments
during the year
Re-presentation of comprehensive income
(see Note 32)
At end of year
2009
P
= 5,621
10,376
2,315
P
= 18,312
2008
P
= 12,563
(6,942)
–
P
= 5,621
40
14. Property and Equipment
The Parent Company’s ships in operation, land and improvements, and buildings and warehouses, were
appraised for the purpose of determining their market values. Based on the latest appraisal dated
September 2008 made by Eagle Marine Consultants Inc, the related ships in operation have an aggregate
market value of P
= 4,445 million against net book value of P
=2,607 million.
Containers include units acquired under finance lease arrangements (see Note 19). The related depreciation
of the leased containers amounting to P
= 29.0 million in 2009, P
= 62.1 million in 2008 and P
=128.8 million in 2007
were computed on the basis of the Company’s depreciation policy for owned assets.
To ensure the maintenance of the ships in operation in accordance with international standards, the Parent
Company has availed of the services of its subsidiary and ship management company, AJBTC, to oversee the
regular upgrading and maintenance of the ships.
The Parent Company disposed three ships in operation in 2007 resulting in a gain of
P
= 623.1 million. In 2008, the Parent Company disposed Tagbilaran properties, leasehold improvements
related to the vessel, MV2Go1, and containers that resulted to a net gain of
P
= 117.8 million.
In 2008 and 2007, the Group recorded an impairment loss amounting to P
= 15.2 million and
P
= 19.6 million, respectively, to write down flight and handling equipment to the recoverable amount. This has
been recognized in the consolidated statements of income in the line item “Overhead Expenses”.
In 2009, the Parent Company’s disposal of Our Lady of Medjugorje and containers resulted in a net gain of P
=
19.7 million. The retirement of Super Ferry 9 due to the incident that happened in September 2009 resulted
in a net gain from insurance proceeds on marine hull of P
= 79.5 million which was presented as “Other
income” in the consolidated statements of income. The net book value of Super Ferry 9 that was retired
amounted to P
= 255.5 million.
In 2009 and 2008, the Group recognized a reversal of impairment loss and an impairment loss of
P
= 0.2 million and P
= 15.2 million, respectively, on its flight equipment due to irreparable damage on its aircraft
engines.
As at December 31, 2009
COST:
At January 1
Additions
Disposals
Retirements/Reclassifications
At December 31
ACCUMULATED DEPRECIATION
AND AMORTIZATION:
At January 1
Depreciation and amortization for
the year
Disposals
Retirements/
Reclassifications
At December 31
Net Book Value
Ships Under
Refurbishment
and
Flight Furniture and
Land and Buildings and
Leasehold Transportation Construction
Equipment
Equipment Improvements
Warehouses Improvements
Equipment
in Progress
Ships in
Operation
Containers
Handling
Equipment
P
= 5,098,939
1,639,082
(465,921)
(460,786)
5,811,314
P
= 1,537,335
–
(63,812)
214
1,473,737
P
= 1,190,142
85,988
(29,867)
(13,307)
1,232,956
P
= 62,980
564
(12,913)
(8)
50,623
P
= 732,073
90,932
(81,243)
(673)
741,089
P
= 417,775
30,763
–
–
448,538
P
= 248,680
23,128
(23,288)
(36,647)
211,873
= 306,467
P
29,205
(2,763)
36,629
369,538
P
= 318,706
41,794
(92,668)
406
268,238
2,099,918
1,362,742
1,092,545
57,770
584,108
65,114
174,195
163,810
156,692
–
5,756,894
679,946
(362,548)
28,525
(59,265)
63,795
(22,838)
1,038
(8,170)
76,267
(81,453)
11,813
–
15,262
(21,401)
30,824
(4,728)
43,740
(81,197)
–
–
951,210
(641,600)
(196,403)
2,220,913
P
= 3,590,401
(389)
1,331,613
P
= 142,124
(6,193)
1,127,309
P
= 105,647
(15)
50,623
P
=–
(78)
578,844
P
= 162,245
–
76,927
P
= 371,611
(22,276)
145,780
P
=66,093
22,078
211,984
P
= 157,554
(690)
118,545
P
= 149,693
–
–
(203,966)
5,862,538
P
= 4,817,558
Total
P
= 81,046 P
= 9,994,143
– 1,941,456
– (772,475)
(8,856) (483,028)
72,190 10,680,096
P
= 72,190
As at December 31, 2008
COST:
At January 1
Acquisition of subsidiary
Additions
Disposals
Retirements/Reclassifications
At December 31
ACCUMULATED DEPRECIATION,
AMORTIZATION AND
IMPAIRMENT LOSS:
At January 1
Acquisition of subsidiary
Depreciation and amortization
for the year
Disposals
Retirements/Reclassifications
Impairment for the year
Cumulative translation adjustment
At December 31
Property and equipment included
in the
disposal group held for sale
(see Note 32)
Net Book Value
Ships Under
Refurbishment
and
Flight Furniture and
Land and Buildings and
Leasehold Transportation Construction
Equipment
Equipment Improvements
Warehouses Improvements
Equipment
in Progress
Ships in
Operation
Containers
Handling
Equipment
P
= 4,638,474
–
735,660
(170,910)
(104,285)
5,098,939
P
= 1,710,581
–
12
(172,330)
(928)
1,537,335
P
= 1,210,726
–
16,879
(37,445)
(18)
1,190,142
P
= 156,232
–
280
(93,447)
(85)
62,980
P
= 659,633
23,111
99,407
(72,999)
22,921
732,073
P
= 392,207
–
42,685
(17,117)
–
417,775
P
= 189,290
4,581
51,637
(4,246)
7,418
248,680
P
= 277,558
–
25,593
(201)
3,517
306,467
P
= 303,370
7,712
119,886
(114,185)
1,923
318,706
1,703,776
–
1,458,885
–
1,055,811
–
122,620
–
548,602
14,086
60,070
–
134,049
1,650
145,348
–
198,353
7,712
–
–
5,427,514
23,448
629,660
(132,697)
(100,821)
–
–
2,099,918
2,999,021
67,949
(162,200)
(1,892)
–
–
1,362,742
174,593
81,464
(37,239)
7,795
–
(15,286)
1,092,545
97,597
1,533
(81,487)
(84)
15,188
–
57,770
5,210
74,690
(72,225)
18,955
–
–
584,108
147,965
8,383
(3,258)
(81)
–
–
65,114
352,661
29,754
(1,966)
10,708
–
–
174,195
74,485
17,310
(87)
1,239
–
–
163,810
142,657
40,747
(91,806)
1,686
–
–
156,692
162,014
–
–
–
–
–
–
81,046
951,490
(582,965)
(62,495)
15,188
(15,286)
5,756,894
4,237,249
–
P
= 2,999,021
–
P
= 174,593
9,063
P
= 88,534
–
P
= 5,210
17,825
P
= 130,140
–
P
= 352,661
–
P
= 74,485
2,473
P
= 140,184
13,391
P
= 148,623
Total
P
= 64,822 P
= 9,602,893
–
35,404
9,182
1,101,221
–
(682,880)
7,042
(62,495)
81,046
9,994,143
–
42,752
P
= 81,046 P
= 4,194,497
15. Software Development Costs
Movement of the Group’s software development costs follows:
2009
In Use
2008
Under
Development
Total
P
= 48,423
–
–
(48,423)
–
P
= 547,599
29,710
–
–
577,309
Cost:
At January 1
Additions
Disposal
Reclassifications
At December 31
P
= 577,309
6,264
(5,017)
–
578,556
P
= 499,176
29,710
–
48,423
577,309
Accumulated amortization:
At January 1
Amortization for the year
Disposal
Adjustments
At December 31
Net book values
389,099
82,335
(5,005)
–
466,429
P
= 112,127
300,816
84,241
–
4,042
389,099
P
= 188,210
–
–
–
–
–
P
=–
300,816
84,241
–
4,042
389,099
P
= 188,210
16. Other Noncurrent Asset
Pension assets (see Note 30)
Refundable deposits and others
Other noncurrent assets included in the disposal group
classified as held for sale (see Note 32)
2009
P
= 67,589
195,314
262,903
2008
P
= 39,501
114,940
154,441
–
P
= 262,903
1,503
P
= 152,938
2009
P
= 1,279,200
113,190
–
1,392,390
2008
P
= 551,000
235,224
43,655
829,879
–
P
= 1,392,390
278,879
P
= 551,000
17. Loans Payable
Peso loans
US dollar loans
US dollar overdraft facility
Loans payable included in the disposal group classified as
held for sale (see Note 32)
The peso loans pertain to unsecured short-term notes payable obtained by the Parent Company and AOI from local
banks with annual interest rates ranging from 5.35% to 8.75% in 2009 and 6.00% to 11.00% in 2008. These loans will
mature on various dates up to November 2010.
The US dollar loans represent unsecured short-term notes payable obtained by AJBTC and JMI from local banks
and have outstanding balances amounting to US$2.5 million and
US$4.5 million as at December 31, 2009 and 2008, respectively. These loans bear interest rates of 4.0% to 6.5% in
2009 and 5.45% to 5.99% in 2008. These loans will mature on various dates up to July 2010.
The US dollar overdraft facility pertains to a loan obtained from a foreign bank by Jebsens Orient Shipping AS, a
wholly owned subsidiary of JMBVI based in Norway, with interest at the aggregate of London Inter-bank Offered
Rate (LIBOR) plus a margin of 1.50% per year. This loan is secured by an assignment of the borrower’s earnings and
a guarantee of JMBVI shareholder.
Total interest expense incurred by the Group for the loans amounted to P
= 63.7 million,
P
= 24.3 million and P
= 65.0 million in 2009, 2008 and 2007, respectively.
18. Trade and Other Payables
Trade (see Note 22)
Accrued expenses
Nontrade (see Note 22)
Unearned revenue - net of deferred discounts
Dividends payable
Trade and other payables included in the disposal group
classified as held for sale (see Note 32)
2009
P
= 1,623,585
1,474,183
766,449
88,460
30,030
3,982,707
2008
P
= 1,460,437
1,176,008
1,050,131
118,671
–
3,805,247
–
P
= 3,982,707
399,054
P
= 3,406,193
Trade and other payables are non-interest bearing and are normally on 30 days’ term.
The dividend payable pertains to dividend declared by JMBVI to its minority shareholders on December 31, 2009 to
be paid on or before February 28, 2010.
19. Finance Lease
The Group has certain containers and transportation equipment under finance lease arrangements denominated in
US dollars. Assets under finance lease as at December 31, 2009 and 2008, shown under “Property and equipment”
account in the consolidated balance sheets, include the following amounts:
Cost
Less accumulated depreciation
Net book value
2009
P
= 44,526
37,847
P
= 6,679
2008
P
= 1,037,370
876,769
P
= 160,601
In 2009, the lease term on the containers has already ended and the Parent Company has exercised its bargain
purchase option. The net book value of the containers previously under finance lease amounted to P
= 130.4 million as
at December 31, 2009.
Future minimum lease payments under finance lease, together with the present value of the minimum lease
payments, are as follows:
Minimum lease payments due within one year
Beyond one year but not later than five years
More than five years
Total minimum lease payments
Less amount representing interest
Present value of minimum lease payments
Less current portion
2009
P
= 8,466
27,069
3,308
38,843
7,275
31,568
6,222
P
= 25,346
2008
P
= 81,692
32,846
–
114,538
2,014
112,524
81,692
P
= 30,832
The outstanding balance of the US dollar-denominated finance lease obligation of
US$0.7 million and US$2.4 million as at December 31, 2009 and 2008, respectively, have been restated at the rate
prevailing as of those dates of P
= 46.20 and P
= 47.52 to US$1, respectively.
20. Redeemable Preferred Shares (RPS)
On January 7, 2003, the Parent Company issued 374,520,487 RPS in the form of stock dividends out of capital in
excess of par value at the rate of one share for every four common shares held by the shareholders.
The RPS has the following features:
 non-voting;

preference on dividends at the same rate as common share;
 redeemable at any time, in whole or in part, as may be determined by the BOD within a period not exceeding
10 years from the date of issuance at a price of not lower than P
= 6 per share as may be determined by the
BOD. The shares must be redeemed in the amount of at least P
= 250,000 per calendar year;
 if not redeemed in accordance with the foregoing, the RPS may be converted to a bond bearing interest at
4% over prevailing treasury bill rate to be issued by the Parent Company; and,
 preference over assets in the event of liquidation.
On May 25, 2006, the Parent Company’s shareholders approved the Amendment of Article 7 of the Articles of
Incorporation to add a convertibility feature to the RPS so as to allow holders of RPS, at their option, to convert every
RPS into two (2) common shares of the Parent Company, which conversion must be exercised on or before
December 29, 2006 or within 120 days from the approval by the SEC of such amendment, whichever occurs earlier.
On June 15, 2006, the SEC approved the Parent Company’s application for the amendment of its Articles of
Incorporation for the addition of this convertibility feature on the RPS.
On July 27, 2006, the BOD approved the call to all preferred shareholders to convert at their option preferred shares
into common shares at the stipulated conversion price of P
= 3.20 for one (1) preferred share or two common shares
for every one (1) RPS held. During the Conversion Period from September 1 to October 13, 2006, a total of
70,343,670 preferred shares or 93.91% were converted to common shares. Consequently, the Parent Company
issued a total of 140,687,340 new common shares to those RPS holders who opted to convert their preferred shares.
The capital stock was increased by P
= 140.7 million representing the issuance of new common shares. The excess
between the carrying value of the preferred shares converted over the par value of the common shares issued was
credited to “Capital in excess of par value” amounting to
P
= 67.2 million.
The remaining carrying value of the RPS shown under “Noncurrent Liabilities” section of the consolidated balance
sheets is presented at amortized cost. Increase in carrying value represents accretion of interest expense
amounting to P
= 2.4 million, P
= 2.1 million and P
= 1.9 million in 2009, 2008 and 2007, respectively (see Note 37).
There are 4,560,417 outstanding preferred shares as at December 31, 2009.
21. Equity
a.
Capital stock
On August 7, 2008, the SEC approved the Parent Company’s application for the amendment of its Articles of
Incorporation for the reclassification of 70,343,670 converted preferred shares to common shares resulting to
an increase in common shares’ authorized capital stock of 70,343,670 and a decrease of the redeemable
preferred shares’ authorized capital stock of the same amount.
The Company has authorized capital stock of 4,070,343,670 shares with P
= 1 par value.
Outstanding capital stock are as follows:
Common shares issued:
Balance at beginning of year
Less treasury shares
b.
Number of
Shares
Peso
Values
2,484,653
38,517
2,446,136
P
= 2,484,653
58,715
P
= 2,425,938
Retained earnings
Retained earnings include undistributed earnings amounting to P
= 168.6 million in 2009 and
P
= 157.7 million in 2008 representing accumulated equity in net earnings of subsidiaries and associates, which
are not available for dividend declaration until received in the form of dividends from such subsidiaries and
associates. Retained earnings are further restricted for the payment of dividends to the extent of the cost of the
shares held in treasury.
On December 31, 2009, AJBTC, AJMSI and JMI paid dividends to minority interests amounting to P
= 18.8 million, P
=
0.4 million and P
= 3.8 million, respectively.
22. Related Party Transactions
Transaction with associates and other related parties
In the normal course of business, transactions with associates and other related companies consist of shipping
services, charter hire, management services, ship management services, purchases of steward supplies, availment
of stevedoring, arrastre, trucking, and repair services and rental. Those transactions were entered into at terms no
less favorable than could have been obtained if the transactions were entered into with unrelated parties. The
amounts included in the consolidated financial statements with respect to these transactions are as follows:
2009
Ultimate Parent
ACO
Parent
AEV
Associate
APTSC
Joint Venture
KALI
Affiliates
Pilmico Foods Corporation
(PFC)
Pilmico Animal Nutrition
Corporation (PANC)
Aboitiz Construction Group,
Inc. (ACGI)
Pilmico-Mauri Foods
Corporation
Total Distribution
Logistics Systems, Inc.
(TDLSI)
Cox Trucking Corporation
(CTC)
Davao Lights & Power
Corporation
Others
2008
Revenue
Purchases/
Expenses
P
=–
2007
Revenue
Purchases/
Expenses
Revenue
Purchases/
Expenses
P
= 1,024
P
=–
P
= 30,977
P
=–
P
= 18,377
–
25,478
–
40,044
–
30,465
3,920
–
2,893
–
6,730
222
11,335
–
–
–
–
–
96,407
–
93,161
–
49,871
–
441
–
15,786
42
37,838
19
286
–
85
37
655
37
66
–
–
–
–
–
–
49,774
–
107,614
–
54,900
–
8,953
–
–
–
–
–
–
P
= 112,455
515
8
P
= 85,752
–
36,900
P
= 148,825
–
28,833
P
= 207,547
–
347
P
= 95,441
–
24,172
P
= 128,192
The consolidated balance sheets include the following amounts with respect to the transactions with the above
related parties:
Related Parties
Ultimate Parent
ACO
Parent
AEV
Associate
APTSC
Joint Venture
KALI
Affiliates
STI
PFC
(Forward)
2009
Trade/Nontrade
Trade and
Receivables
Other Payables
2008
Trade/Nontrade
Receivables
Trade and
Other Payables
P
=–
P
=–
P
= 1,500
P
=–
21
4,374
2
331,888
554
–
937
–
1,348
141
–
–
2,523
362
–
–
–
–
–
–
Related Parties
Aboitiz Jebsen Far East
Shipping SA
Brinkness SA
TDLSI
Philippine Fast Ferry Corp.
CTC
PANC
AJ Shipman LTD
Jebsen Transpacific
Sioux International
Jebsen Maritime Crewing
Harbor Training
Tschudi & Eitzens Philippines
Others
2009
Trade/Nontrade
Trade and
Receivables
Other Payables
P
=–
–
–
–
–
–
–
–
–
–
–
–
2,059
P
= 6,867
P
= 5,859
2,182
1,382
756
251
–
–
–
–
–
–
–
7
P
= 14,952
2008
Trade/Nontrade
Receivables
P
=–
–
5
–
–
224
7,800
3,400
8,200
–
–
–
4,393
P
= 26,461
Trade and
Other Payables
P
=–
–
325
–
–
–
–
–
–
37,000
9,000
41,000
10,751
P
= 429,964
As at December 31, 2009, AEV owns 77.24% of the common shares of the Parent Company. ACO is the ultimate
parent of the Group and owns 15.96% of the common shares of the Parent Company.
In the normal course of business, the Group enters into transactions with related parties, principally consisting of the
following:
a.
The Parent Company provided management services to SFFC, ZIP, AOI, RVSI, AODI, HLP, APTSC, Cox and TDLSI
at fees based on agreed rates. Management and other services provided by the Parent Company amounted to P
=
59.3 million, P
= 63.1 million and P
= 63.9 million in 2009, 2008 and 2007, respectively.
b.
AJBTC provided ship management services to the Parent Company that amounted to
P
= 47.6 million, P
= 48.2 million and P
= 75.4 million in 2009, 2008 and 2007, respectively.
c.
AOI provided management services to ZIP at fees based on the agreed rates. Management service fee to AOI
amounted to P
= 10.9 million, P
= 11.52 million and P
= 11.6 million in 2009, 2008 and 2007, respectively.
d.
AOI, ZIP, WSI and AJBTC place temporary cash advances to Parent Company that amounted to P
= 139.5 million
and P
= 125.5 million as at December 31, 2009 and 2008, respectively. The advances are non-interest bearing.
e.
SFFC obtained long-term cash advances from the Parent Company for working capital requirements. The
advances are interest bearing at an average rate of 9% per annum. As at December 31, 2009 and 2008, the
outstanding balance of long term cash advances amounted to P
= 428.5 million and P
= 308.9 million, respectively.
f.
Interest income earned by the Parent Company from SFFC advances amounted to
P
= 27.1 million, P
= 21.6 million and P
= 3.9 million in 2009, 2008 and 2007, respectively.
Compensation of the Group’s key management personnel
Short term employee benefits
Post-employment benefits
2009
P
= 104,990
6,219
P
= 111,209
2008
P
= 82,991
3,852
P
= 86,843
2007
P
= 81,780
3,507
P
= 85,287
23. Operating Expenses
Fuel and lubricants
Outside services
Depreciation and amortization
(see Note 26)
Charter hire (see Note 36c)
Repairs and maintenance
Personnel costs
(see Notes 27 and 30)
Rentals (see Note 36d)
Food and subsistence
Insurance
Steward supplies
Communication, light and water
Sales concessions
Commissions
Others
2009
P
= 2,193,654
1,270,797
2008
(as re-presented,
see Note 32)
P
= 3,341,247
1,046,222
2007
(as re-presented,
see Note 32)
P
= 2,612,190
626,094
715,267
680,979
499,933
662,075
2,020,059
397,094
726,914
2,315,748
445,031
398,791
201,540
147,973
127,373
73,852
71,584
46,960
30,045
305,923
P
= 6,764,671
384,332
150,290
182,226
133,878
76,311
67,296
79,453
43,943
169,474
P
= 8,753,900
412,875
100,156
187,041
177,496
88,978
46,247
73,504
82,930
417,258
P
= 8,312,462
2009
P
= 302,351
2008
P
= 548,494
2007
P
= 244,203
241,587
257,496
277,710
123,737
173,969
241,976
112,425
80,214
43,426
29,602
72,425
P
= 1,005,767
101,572
73,593
45,246
43,598
52,655
P
= 1,296,623
97,841
59,782
48,785
35,409
71,086
P
= 1,076,792
24. Terminal Expenses
Transportation and delivery
Outside services
(see Notes 22 and 36)
Depreciation and amortization
(see Note 26)
Personnel costs
(see Notes 27 and 30)
Repairs and maintenance
Rent (see Note 36)
Fuel and lubricants
Others
25. Overhead Expenses
2009
Personnel costs
(see Notes 27 and 30)
Depreciation and amortization
(see Note 26)
Outside services
Advertising
Communication, light and water
Rent (see Note 36)
Entertainment, amusement and
recreation
Provision for impairment loss on
receivables
Transportation and travel
Taxes and licenses
Repairs and maintenance
Office supplies
Computer charges
Others
2008
(as re-presented,
see Note 32)
2007
(as re-presented,
see Note 32)
P
= 967,309
P
= 873,812
P
= 776,774
194,541
188,570
120,693
98,187
93,054
199,687
151,739
103,395
94,246
85,490
209,453
134,072
108,015
96,137
106,577
34,790
38,478
34,904
30,129
48,358
36,922
21,230
20,766
24,662
216,526
P
= 2,095,737
8,504
51,104
26,623
15,593
18,492
24,364
203,282
P
= 1,894,809
11,906
13,397
19,397
15,281
4,855
3,876
353,995
P
= 1,888,639
2008
(as re-presented,
see Note 32)
P
= 611,258
2007
(as re-presented,
see Note 32)
P
= 665,810
26. Depreciation and Amortization Expenses
Ships in operation (see Note 14)
Other property and equipment
(see Note 14)
Software development costs
(see Note 15)
2009
P
= 679,946
271,264
340,232
414,142
82,335
P
= 1,033,545
84,241
P
= 1,035,731
98,391
P
= 1,178,343
27. Personnel Costs
Salaries and wages
Crewing cost
Pension benefits (see Note 30)
Other employee benefits
2009
P
= 1,024,867
217,796
50,937
184,925
P
= 1,478,525
2008
(as re-presented,
see Note 32)
P
= 938,868
215,318
36,864
168,666
P
= 1,359,716
2007
(as re-presented,
see Note 32)
P
= 871,081
219,309
22,540
174,560
P
= 1,287,490
28. Finance Costs
2009
Interest expense
(see Notes 17 and 19)
Other financing costs
P
= 90,685
8,425
P
= 99,110
2008
(as re-presented,
see Note 32)
P
= 75,507
1,478
P
= 76,985
2007
(as re-presented,
see Note 32)
P
= 100,568
2,018
P
= 102,586
29. Other Income
2009
Gain on insurance claims
(see Note 14)
Reversal of impairment on
receivables
Recovery of inventory
obsolescence
Commission income
Management income
Others
2008
(as re-presented,
see Note 32)
2007
(as re-presented,
see Note 32)
P
= 79,484
P
= 22,853
P
=–
60,884
14,580
5,852
2,783
546
208
132,520
P
= 276,425
5,003
37,226
45,126
68,338
P
= 193,126
32,081
11,848
14,377
71,593
P
= 135,751
30. Pension Benefits
The Group has funded defined benefit pension plans covering all regular and permanent employees. The benefits
are based on employees’ projected salaries and number of years of service.
The following tables summarize the components of benefit expense recognized in the consolidated statements of
income and the funded status and amounts recognized in the consolidated balance sheets for the plan.
Certain subsidiaries have defined benefit liability as at December 31, 2009 and 2008. The following tables
summarize the components of net benefit expense recognized by AOI, ZIP, JMI, AJBTC, AJMAN and SFFC as
included in the consolidated statements of income and the funded status and amounts as included in the
consolidated balance sheets.
Net Benefit Expense
Current service cost
Interest cost on benefit obligation
Net actuarial loss
Expected return on plan assets
Past service cost:
Vested benefits
Nonvested benefits
Expense recognized due to asset
limit
Net benefit expense
Actual return on plan assets
2009
P
= 34,021
37,399
2,456
(19,084)
2008
(as re-presented,
see Note 32)
P
= 29,227
18,638
429
(17,553)
2007
(as re-presented,
see Note 32)
P
= 24,268
16,277
1,848
(23,792)
–
2,001
–
764
2,679
763
(5,856)
P
= 50,937
5,360
P
= 36,865
497
P
= 22,540
(P
= 11,603)
P
= 23,634
P
= 23,280
2009
P
= 145,581
(105,742)
39,839
(14,605)
(7,119)
18,115
2008
P
= 82,994
(58,345)
24,649
13,580
(5,673)
32,556
–
P
= 18,115
8,986
P
= 23,570
Pension Liability
Defined benefit obligation
Fair value of plan assets
Unfunded obligation
Unrecognized net actuarial gains (losses)
Unrecognized past service cost
Benefit liability included in the disposal group held
for sale (see Note 32)
Changes in the present value of the defined benefit obligation are as follows:
Defined benefit obligation at January 1
Defined benefit obligation of disposed subsidiary
Defined benefit obligation of an acquired subsidiary
Interest cost
Current service cost
Actuarial loss (gain) on obligations
Benefits paid
Defined benefit obligation at December 31
2009
P
= 91,303
–
–
19,615
17,141
18,576
(1,054)
P
= 145,581
2008
P
= 70,786
(6,825)
14,458
6,490
10,980
(1,540)
(11,355)
P
= 82,994
Change in the fair value of plan assets are as follows:
2009
P
= 66,928
–
7,362
30,936
(1,054)
1,570
P
= 105,742
Fair value of plan assets at January 1
Fair value of plan assets of disposed subsidiary
Expected return
Actual contributions
Benefits paid
Actuarial loss (gain) on plan assets
Fair value of plan assets at December 31
2008
P
= 55,810
(5,716)
3,506
16,833
(11,355)
(733)
P
= 58,345
Unrecognized actuarial loss (gain) are as follows:
2009
Net cumulative unrecognized actuarial
loss at January 1
Net cumulative unrecognized loss of disposed
subsidiary
Net cumulative unrecognized actuarial
gain of an acquired subsidiary
Actuarial loss (gain) on plan assets
Actuarial loss (gain) on obligations
Actuarial loss (gain) recognized
Net cumulative unrecognized actuarial
loss (gain) at December 31
(P
= 769)
2008
(P
= 15,536)
2,107
(1,570)
18,576
(1,632)
P
= 14,605
2007
P
= 49,115
–
–
733
(1,540)
656
(12,091)
(196)
(50,517)
(1,847)
(P
= 13,580)
(P
= 15,536)
The Parent Company and AOI have defined benefit asset as at December 31, 2009 and 2008. As at December 31,
2008, ZIP has a defined benefit asset.
The following tables summarize the components of net benefit expense recognized by them as included in the
consolidated statements of income and the funded status and amounts as included in the consolidated balance
sheets.
Pension Asset
Fair value of plan assets
Defined benefit obligation
Deficit
Unrecognized net actuarial gain
Asset not recognize due to asset limit
2009
P
= 118,557
(266,623)
(148,066)
215,655
–
P
= 67,589
2008
P
= 135,895
(159,517)
(23,622)
70,246
(7,123)
P
= 39,501
Changes in the present value of the defined benefit obligation are as follows:
Defined benefit obligation at January 1
Defined benefit obligation of disposed subsidiary
Interest cost
Current service cost
Actuarial loss on obligations
Benefits paid
Defined benefit obligation at December 31
2009
P
= 151,206
–
17,784
16,880
117,826
(37,073)
P
= 266,623
2008
P
= 150,151
(3,398)
12,148
18,247
23,224
(40,855)
P
= 159,517
2009
P
= 127,310
–
11,722
41,128
(29,345)
(32,258)
P
= 118,557
2008
P
= 160,973
(9,852)
14,047
19,233
(40,855)
(7,651)
P
= 135,895
Change in the fair value of plan assets are as follows:
Fair value of plan assets at January 1
Fair value of plan assets of disposed subsidiary
Expected return
Actual contributions
Benefits paid
Actuarial loss on plan assets
Fair value of plan assets at December 31
Unrecognized actuarial gain (loss) are as follows:
2009
Net cumulative unrecognized actuarial
gain at January 1
Net cumulative unrecognized actuarial loss of
an acquired subsidiary
Actuarial loss (gain) on obligations
Actuarial loss (gain) on plan assets
Actuarial loss (gain) recognized
Net cumulative unrecognized actuarial
gain (loss) at December 31
P
= 66,395
117,826
32,258
(824)
P
= 215,655
2008
2007
(P
= 40,456)
P
= 12,760
–
(23,224)
(7,651)
1,085
(935)
(63,525)
11,245
(1)
(P
= 70,246)
(P
= 40,456)
The principal assumptions as of January 1 used in determining pension benefit obligations for the Group’s plans are
shown below:
Discount rate
Expected rate of return on assets
Future salary increases
2009
8.25 to 11.0%
8.53 to 11.0%
6.00 to 9.00%
2008
7.60% to 9.27%%
7.00% to 9.43%
5.00 to 8.00%
2007
7.00% to 8.08%
8.19% to 15.00%
5.00% to 8.00%
As of December 31, 2009, the discount rate, expected rate of return on assets and future salary increases are 8.25%
to 11.00%, 9% to10.00% and 5.00% to 8.00%, respectively.
The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
Investments in:
Common trust fund
Notes receivable
Shares of stock
Government securities and other
debt securities
Others
2009
2008
2007
60%
24%
4%
52%
11
6
5%
4
20
11%
1%
100%
24
7
100%
63
8
100%
Experience gain (loss) adjustments on plan liabilities as at December 31, 2009, 2008, 2007 and 2006 amounted to P
=
18.3 million, (P
= 69.8 million), (P
= 64.1 million) and P
= 7.4 million, respectively. Experience gain (loss) adjustments on
plan assets as at December 31, 2009, 2008 and 2007 amounted to (P
= 30.1 million), (P
= 0.5 million), P
= 12.7 million andP
=
2.7 million, respectively.
Defined benefit obligation as at December 31, 2009, 2008, 2007 and 2006 amounted to
P
= 412.2 million, P
= 242.5 million, P
= 220.9 million, and P
= 201.6 million, respectively.
The Group expects to contribute approximately P
= 64.4 million to the defined benefit pension plan in 2010.
31. Income Tax
The reconciliation of provision for income tax computed at the statutory tax rate to provision for income tax as shown
in the consolidated statements of income is summarized as follows:
2008
2007
(as re-presented, (as re-presented,
2009
see Note 32)
see Note 32)
Provision for income tax at statutory tax
rate of 30% in 2009 and
35% in 2008 and 2007
Income tax effects of:
NOLCO derecognized
MCIT derecognized
Changes in enacted tax rates
Changes in unrecognized MCIT
Gain on sale of building already
subjected to final tax
Gain on sale of investment
already subjected to
final tax
Nondeductible interest expense
and others
(Forward)
P
= 247,132
P
= 51,483
P
= 217,323
13,473
9,161
2,025
–
–
–
44,907
1,155
7,284
10,094
6,987
–
(5,038)
(13,884)
–
–
–
5,709
17,425
(1,460)
12,317
2008
2007
(as re-presented, (as re-presented,
2009
Note 32)
Note 32)
Interest income already
subjected to a lower
final tax
Income tax holiday (ITH)
incentive on registered
activities (see Note 35)
Dividend income
Others
(P
= 18,954)
(P
= 16,984)
(P
= 7,355)
(25,125)
(37,288)
4,923
P
= 201,056
(45,277)
–
–
P
= 47,671
(49,163)
–
–
P
= 182,143
The components of deferred income taxes are as follows:
Deferred income tax assets:
Allowances for:
Impairment of receivables
Inventory obsolescence
NOLCO
MCIT
Accrued pension benefits and others
Unrealized foreign exchange gain
Deferred income tax liabilities:
Prepaid pension costs
Others
Net deferred tax asset included in the disposal group
classified as held for sale (Note 32)
2009
2008
P
= 71,185
17,645
74,050
59,351
46,452
2,166
270,849
P
= 86,011
19,386
170,883
44,584
39,016
9,648
369,528
14,263
1,055
15,318
255,531
11,750
1,058
12,808
356,720
–
P
= 255,531
11,978
P
= 344,742
In computing deferred income tax assets and liabilities as at December 31, 2009 and 2008, the rates used were 30%
and 35%, respectively, which are the rates expected to apply to taxable income in the years in which the deferred
income tax assets and liabilities are expected to be recovered or settled.
As at December 31, 2009, details of the Parent Company’s NOLCO and MCIT which can be carried forward and
claimed as tax credit against regular taxable income and regular income tax due, respectively, are as follows:
NOLCO
Balances at beginning of year
Addition
Application
Expiration
Balances at end of year
2009
P
= 569,610
–
(267,009)
(55,768)
P
= 246,833
2008
P
= 813,080
15,890
(238,550)
(20,810)
P
= 569,610
MCIT
Balances at beginning of year
Addition
Expiration
Balances at end of year
2009
P
= 44,584
24,311
(9,544)
P
= 59,351
2008
P
= 35,078
10,662
(1,156)
P
= 44,584
The Parent Company did not recognize deferred income tax assets on NOLCO and portion of MCIT incurred at
December 31, 2007 amounting to P
= 7.3 million and P
= 10.1 million, respectively, as management believes they will not
be realizable in the future.
32. Assets and Liabilities of Disposal Group Classified as Held for Sale
Assets and liabilities of disposal group classified as held for sale as of December 31, 2008 represent those of the
Aboitiz Jebsen Group.
The results of operations of the disposal group previously presented as held for sale were
re-presented and included in income from continuing operations for all periods presented. For further details on the
disposal group held for sale refer to Notes 1 and 3.
The major classes of assets and liabilities classified as held for sale as at December 31, 2008 are as follows:
Assets
Cash and cash equivalents
Receivables
Inventories
Prepaid expenses and other assets
Investment in an associate
AFS investments
Property and equipment
Deferred income tax assets
Deposits and other noncurrent assets
Assets classified as held for sale
Liabilities
Bank loans
Trade and other payables
Pension liability
Income tax payable
Liabilities directly associated with assets classified as held for
sale
Net assets directly associated with disposal group
Cumulative translation adjustment
Net unrealized valuation gain on AFS investments
Reserve of disposal group classified as held for sale
P
= 232,589
364,899
31,671
78,836
4,988
9,419
42,752
11,978
1,503
778,635
278,879
399,054
8,986
10,253
697,172
P
= 81,463
P
= 1,870
2,315
P
= 4,185
33. Contingencies
There are certain legal cases filed against the Group in the normal course of business. Management and its legal
counsel believe that the Group has substantial legal and factual bases for its position and are of the opinion that
losses arising from these cases, if any, will not have a material adverse impact on the consolidated financial
statements.
Also, the Parent Company has pending insurance claims (presented as part of Insurance and Other Claims)
amounting to P
= 150.6 million as at December 31, 2009 which management believes is probable of collection.
As at December 31, 2009, the Parent Company has provided guarantees on the bank loans of AOI, AODI and ZIP
amounting to P
= 200.0 million.
34. Earnings Per Common Share
Basic and diluted earnings per common share were computed as follows:
Net income attributable to equity holders
of the parent (a)
Weighted average number of common shares
outstanding for the year (b)
Earnings per common share (a/b)
2009
2008
2007
P
= 546,142
P
= 82,815
P
= 419,970
2,446,136,400
P
= 0.22
2,446,136,400
P
= 0.03
2,446,136,400
P
= 0.17
There are no dilutive potential common shares as at December 31, 2009, 2008 and 2007.
35. Registration with the BOI
The Parent Company is registered with the BOI under the Omnibus Investment Code (OIC) of 1987 as a new operator
of inter-island shipping through its SuperFerries 15, 16, 17 and 18 vessels on a pioneer status starting February 13,
2003, SuperFerry 19 starting December 29, 2004, and SuperFerry 12 starting May 4, 2005. Such registration entitles
the Parent Company to income tax holiday for a period of three to six years from the date of registration. Upon the
request of the Parent Company, the BOI cancelled the registrations of SuperFerry 19 and SuperFerries 15, 16, 17
and 18 last October 18, 2006 and January 12, 2007 including all incentives granted thereunder. The Parent Company
requested the cancellation of the said registrations due to the change in activity of SuperFerry 19 and the sale of
SuperFerries 15, 16, 17 and 18 leaving only
SuperFerry 12 as the remaining vessel entitled to ITH incentives up to May 3, 2008.
ZIP is registered with BOI under OIC of 1987 as a non-pioneer operator of logistics service facilities. Such
registration entitles ZIP to income tax holiday (ITH) for a period of four (4) years from May 2005 or actual start of
commercial operations, whichever is earlier. On October 30, 2007, the BOI approved ZIP’s application under
Executed Order 226 as an expanding operator of logistics service facilities, the new registration entitles ZIP to ITH
for a period of three (3) years from the date of registration. Incentives availed amounted to P
= 23.7 million in 2009, P
=
68.6 million in 2008 and P
= 55.8 million in 2007.
On February 19, 2008, the BOI approved SFFC’s application for registration as a New Operator of Domestic Shipping
(Passenger Vessel) on a Non-Pioneer status. The Company is entitled to four (4) years ITH from date of
registration. Incentives availed amounted to P
= 63.6 million in 2009 and nil in 2008 due to net taxable loss position in
non-registered activities.
36. Commitments and Other Matters
a.
In 2002, the Parent Company entered into a Memorandum of Agreement (Agreement) with Asian
Terminals, Inc. (ATI) for the use of the ATI’s facilities and services at the South Harbor for the embarkation and
disembarkation of the Parent Company’s domestic passengers, as well as loading, unloading and storage of
cargoes. The Agreement shall be for a period of five years, which shall commence from the first scheduled
service of the Parent Company at the South Harbor. The Agreement is renewable for another five years under
such terms as may be agreed by the parties in writing. If the total term of the Agreement is less than ten years,
then the Parent Company shall pay the penalty equivalent to the unamortized reimbursement of capital
expenditures and other related costs incurred by ATI in the development of South Harbor. The Agreement
became effective on January 14, 2003.
Under the terms and conditions of the Agreement, the Parent Company shall avail of the terminal services of
ATI, which include, among others, stevedoring, arrastre, storage, warehousing and passenger terminal.
Domestic tariff for such services (at various rates per type of service as enumerated in the Agreement) shall be
subject to an escalation of 5% every year. Total service fees charged to operations amounted to P
= 128.8 million,
P
= 159.4 million and P
= 160.1 million in 2009, 2008 and 2007, respectively (see Note 24).
b.
AJBTC, JMI and AJMSI (Agents) have outstanding agreements with foreign shipping principals, wherein
the Agents render manning and crew management services consisting primarily of the employment of crew for
the principals’ vessels. As such, the principals have authorized the Agents to act on their behalf with respect to
all matters relating to the manning of the vessels. Total service fees revenues recognized in the consolidated
statements of income from these agreements amounted to P
= 400.0 million in 2009, P
= 387.8 million in 2008 and P
=
326.0 million in 2007.
c.
JMBVI and Subsidiaries have outstanding Charter Party Agreements with vessels’ owners for the use of
the vessels or for sublease to third parties within the specified periods of one (1) to three (3) years under the
terms and conditions covered in the agreements. In consideration thereof, JMBVI recognized charter hire
expense amounted to P
= 529.4 million, P
= 1,962 million and P
= 2,245 million in 2009, 2008 and 2007, respectively (see
Note 23).
d.
The Group has entered into various operating lease agreements for its office spaces. The future
minimum rentals payable under the noncancellable operating leases are as follows:
Within one year
After one year but not more than five years
More than five years
2009
P
= 162,177
286,360
10,934
P
= 459,471
2008
P
= 141,648
319,499
15,545
P
= 476,692
e.
In 2009, the Parent Company entered into various agreements to charter the following vessels:
Charter Period
From
To
15-Aug-08
20-Dec-09
05-Dec-09
18-Jul-10
02-Feb-09
23-Apr-09
11-May-09
31-Oct-09
02-Dec-09
03-Mar-10
10-Aug-09
27-Nov-09
f.
Vessel
MV MYRIAD
MV MYRIAD
MV INGENUITY
MV MARKELLA
MV MARKELLA
MV EPONYMA
Rate per day
$4,250
4,050
3,400
4,100
3,125
3,200
The Parent Company acquired SFFC from its affiliate, Accuria, Inc. on August 30, 2007 for a total
consideration of P
= 13,700. The pooling of interest method was applied to account for the acquisition since the
Parent Company and Accuria, Inc. are entities under common control. The excess of cost over SFFC’s net
assets during the time of acquisition, amounting to
P
= 11,700 is recorded in equity as “Excess of cost over net asset value of an investment”.
37. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise of cash and cash equivalents, trade and other receivables,
trade and other payables, redeemable preferred shares, and interest-bearing loans. Trade and other receivables
and trade and other payables arise from the Group’s operations. Redeemable preferred shares and interestbearing loans are used by the Group to finance its operations.
The main risks arising from the Group’s financial instruments are cash flow interest rate risk resulting from
movements in interest rates that may have an impact on interest bearing financial instruments; credit risk involving
possible exposure to counter-party default, primarily, on its cash investments and receivables; liquidity risk in terms
of the proper matching of the type of financing required for specific investments and maturing obligations; and
foreign exchange risk in terms of foreign exchange fluctuations that may significantly affect its foreign currency
denominated placements and borrowings.
Risk Management Structure
BOD
The BOD is mainly responsible for the overall risk management approach and for the approval of risk strategies and
policies of the Group.
Financial Risk Committee
The Financial Risk Committee has the overall responsibility for the development of risk strategies, principles,
frameworks, policies and limits. It establishes a forum of discussion of the Group’s approach to risk issues in order
to make relevant decisions.
Treasury Risk Office
The Treasury Risk Office is responsible for the comprehensive monitoring, evaluating and analyzing of the Group’s
risks in line with the policies and limits set by the Treasury Risk Committee.
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to its long-term debt and
obligations under finance lease. To manage this risk, the Group determines the mix of its debt portfolio as a
function of the level of current interest rates, the required tenor of the loan, and the general use of the proceeds of
its various fund raising activities.
In 2009, interest rates of obligations under finance lease range from 7.0% to 9.0% (see Note 19).
Shown below are the carrying amounts, by maturity, of the Group’s interest bearing financial instruments:
As at December 31, 2009
Cash in banks
Cash equivalents
Refundable deposits
Loans payable
Obligations under finance lease
Redeemable preferred shares
<1 year
P
= 889,265
168,063
–
P
= 1,057,328
1-5 years
P
=–
–
15,000
P
= 15,000
Total
P
= 889,265
168,063
15,000
P
= 1,072,328
P
= 1,392,390
6,222
–
P
= 1,398,612
P
=–
25,346
20,176
P
= 45,522
P
= 1,392,390
31,568
20,176
P
= 1,444,134
As at December 31, 2008
Cash in banks
Cash equivalents
Refundable deposits
Loans payable
Obligations under finance lease
Redeemable preferred shares
<1 year
P
= 927,063
100,911
–
P
= 1,027,974
1-5 years
P
=–
–
15,000
P
= 15,000
Total
P
= 927,063
100,911
15,000
P
= 1,043,974
P
= 829,879
81,692
–
P
= 911,571
P
=–
30,832
17,790
P
= 48,622
P
= 829,879
112,524
17,790
P
= 960,193
In 2008, the Group paid in full its Banco De Oro bilateral loan and Vereins Bank clean loan amounting to P
= 46.3
million and P
= 8.7 million, respectively. As a result of the repayment of the loans in 2008, the Group is no longer
subject to cash flow interest rate risk. The Group’s remaining financial liabilities have fixed interest rates and are
not subject to cash flow interest rate risk.
Equity price risk
Equity price risk is the risk that the fair value of traded equity instruments decrease as the result of the changes in
the levels of equity indices and the value of the individual stocks.
As at December 31, 2009 and 2008, the Group’s exposure to equity price risk is minimal.
Credit risk
The Group trades only with recognized, creditworthy third parties and the exposure to credit risk is monitored on an
ongoing basis with the result that the Group’s exposure to bad debts is not significant. Since the Group trades only
with the recognized third parties, collateral is not required in respect of financial assets.
For its cash investments, the Group’s credit risk is generally concentrated on possible default of the counter-party,
with a maximum exposure equal to the carrying amount of these investments (see Note 38). The risk is mitigated by
the short-term and/or liquid nature of its cash investments mainly in bank deposits and placements, which are
placed with financial institutions of high credit standing.
The credit quality per class of financial assets that were neither past due nor impaired is as follows:
As at December 31, 2009
Cash in banks
Cash equivalents
Trade receivables
Service fees
Freight
Passage
Others
Nontrade receivables
Insurance and other claims
Advances to officers and
employees
Quoted equity investments
Listed shares of stocks
Club shares
Unquoted equity investments
Refundable deposits
Total
Neither past due nor impaired
High
Medium
P
= 889,265
P
=–
168,063
–
Low
P
=–
–
Past due or
individually
impaired
P
=–
–
Total
P
= 889,265
168,063
233,997
347,851
27,953
392,302
28,319
18,525
49,245
155,126
7,968
–
–
–
12,026
–
233,580
149,026
–
–
5,455
–
–
129,208
190,029
2
195,846
236,031
193,105
1,391
751,911
694,874
27,955
588,148
269,805
223,656
50,636
26,789
5,500
11,034
66,640
P
= 2,265,483
–
–
–
–
P
= 175,120
–
–
–
–
P
= 388,061
–
–
–
–
P
= 945,612
26,789
5,500
11,034
66,640
P
= 3,774,276
Low
P
=–
–
Past due or
individually
impaired
P
=–
–
Total
P
= 927,063
100,911
As at December 31, 2008
Cash in banks
Cash equivalents
Trade receivables
Service fees
Freight
Passage
Others
Nontrade receivables
Insurance and other claims
Advances to officers and
employees
Quoted equity investments
Listed shares of stocks
Club shares
Unquoted equity investments
Refundable deposits
Total
Neither past due nor impaired
High
Medium
P
= 927,063
P
=–
100,911
–
708,806
35,961
10,347
158,393
172,345
6,115
18,154
226,985
–
31,152
–
–
30,764
27,473
–
5,853
2,096
–
74,897
504,019
1,733
126,157
68,226
35,409
832,621
794,438
12,080
321,555
242,667
41,524
35,995
–
3,496
925
40,416
17,225
4,000
15,828
40,801
P
= 2,233,790
–
–
–
–
P
= 276,291
–
–
–
–
P
= 69,682
–
–
–
–
P
= 811,366
17,225
4,000
15,828
40,801
P
= 3,391,129
High quality receivables pertain to receivables from related parties and customers with good favorable credit standing.
Medium quality receivables pertain to receivables from customers that slide beyond the credit terms but pay a week
after being past due are classified under medium quality. Low quality receivables are accounts from new customers and
forwarders. For new customers, the Group has no basis yet as far payment habit is concerned. With regards to the
forwarders, most of them are either under legal or suspended. In addition, their payment habits extend beyond the
approved credit terms because their funds are not sufficient to conduct their operations.
The Group evaluated its cash in bank and cash equivalents as high quality financial assets since these are placed in
financial institutions of high credit standing.
With respect to AFS investments and refundable deposits, the Group evaluates the counterparty’s external credit
rating in establishing credit quality.
The aging analysis per class of financial assets that were past due but not impaired is as follows:
As at December 31, 2009
Cash in banks
Cash equivalents
Trade receivables
Service fees
Freight
Passage
Others
Nontrade receivables
Insurance and other
claims
Advances to officers and
employees
Quoted equity investments
Listed shares of stocks
Club shares
Unquoted equity
investments
Refundable deposits
Total
Neither past
due nor
impaired
P
= 889,265
168,063
Past due but not impaired
Less than 30
31 to 60
61 to 90
days
days
days
P
=–
P
=–
P
=–
–
–
–
Over 90
days
P
=–
–
Impaired
financial
assets
P
=–
–
Total
P
= 889,265
168,063
14,148
479
–
27,218
41,704
67,052
164,335
–
2,721
4,627
751,912
694,874
27,955
588,148
269,805
20,624
223,656
622,704
504,845
27,953
392,302
33,774
33,814
19,635
–
154,775
25,492
9,278
2,995
2
4,391
41,253
4,916
2,585
–
6,741
122,955
30,551
–
–
172,481
49,245
730
121
81
459
–
50,636
26,789
5,500
–
–
–
–
–
–
–
–
–
–
26,789
5,500
11,034
66,640
P
= 2,828,665
–
–
P
= 234,446
–
–
P
= 58,040
–
–
–
–
P
= 309,759 P
= 84,008
–
–
P
= 259,359
11,034
66,640
3,774,277
As at December 31, 2008
Neither past
due nor
impaired
P
= 927,063
100,911
Cash in banks
Cash equivalents
Trade receivables
Service fees
757,724
Freight
290,419
Passage
10,347
Others
195,398
Nontrade receivables
174,441
Insurance and other claims
6,115
Advances to officers and
employees
39,491
Quoted equity investments
Listed shares of stocks
17,225
Club shares
4,000
Unquoted equity
investments
15,828
Refundable deposits
40,801
Total
P
= 2,579,763
Past due but not impaired
Less than 30
31 to 60
61 to 90
days
days
days
P
=–
P
=–
P
=–
–
–
–
Over 90
days
P
=–
–
Impaired
financial
assets
P
=–
–
Total
P
= 927,063
100,911
–
87,617
1,575
81,976
28,183
34
–
78,336
119
16,662
464
345
6,718
102,062
–
2,835
14,916
10,990
5,801
33,267
39
21,963
16,701
111
62,378
202,737
–
2,721
7,962
23,929
832,621
794,438
12,080
321,555
242,667
41,524
172
88
215
450
–
40,416
–
–
–
–
–
–
–
–
–
–
17,225
4,000
–
–
P
= 199,557
–
–
P
= 96,014
–
–
P
= 137,736
–
–
P
= 78,332
–
15,828
–
40,801
P
= 299,727 P
= 3,391,129
Liquidity risk
The Group maintains sufficient cash and cash equivalents to finance its operations. Any excess cash is invested in
short-term money market placements. These placements are maintained to meet maturing obligations and pay
dividend declarations.
The Group’s policy is that not more than 35% of borrowings should mature in any 12-month period. As at December
31, 2009 and 2008, the Company has no long-term debt.
The Group’s existing credit facilities with various banks are covered by the Continuing Suretyship for the accounts of
the Group.
The liability of the Surety is primary and solidary and is not contingent upon the pursuit by the bank of whatever
remedies it may have against the debtor or collaterals/liens it may possess. If any of the secured obligations is not
paid or performed on due date (at stated maturity or by acceleration), the Surety shall, without need for any notice,
demand or any other account or deed, immediately be liable therefore and the Surety shall pay and perform the
same.
The table below summarizes the maturity profile of the Group’s financial assets and liabilities at the balance sheet
date based on contractual undiscounted repayment obligations:
2009
Financial assets:
Cash
Trade and other receivables
AFS investments
Refundable deposits
Total undiscounted financial
assets
(Forward)
Less than
1 year
1 to 5 years
P
= 1,095,711
2,606,986
–
–
3,702,697
2008
Total
Less than
1 year
1 to 5 years
Total
P
=–
–
43,323
66,640
P
= 1,095,711
2,606,986
43,323
66,640
P
= 1,092,843
2,285,301
–
–
P
=–
–
37,053
40,801
P
= 1,092,843
2,285,301
37,053
40,801
109,963
3,812,660
3,378,144
77,854
3,455,998
2009
Financial liabilities:
Trade and other payables
Loans payable
Redeemable preferred shares
Obligation under capital lease
Other noncurrent liabilities
Total undiscounted financial
liabilities
Total net undiscounted
financial liabilities
Less than
1 year
1 to 5 years
P
= 3,894,247
1,399,833
–
8,466
–
2008
Total
Less than
1 year
1 to 5 years
Total
P
=–
–
27,363
30,377
257
P
= 3,894,247
1,399,833
27,363
38,843
257
P
= 3,826,507
855,258
–
87,401
–
P
=–
–
27,363
38,025
3,736
P
= 3,826,507
855,258
27,363
125,426
3,736
5,302,546
57,997
5,360,543
4,769,166
69,124
4,838,290
(P
= 1,599,849)
(P
= 51,966)
(P
= 1,547,883)
(P
= 1,391,022)
(P
= 8,730)
(P
= 1,382,292)
Foreign exchange risk
The foreign exchange risk of the Group relates primarily to its foreign currency-denominated bank loans, obligation
under finance lease, revenues and crew salaries. Management closely monitors the fluctuations in exchange rates
so as to anticipate the impact of foreign currency risks associated with the financial instruments. To mitigate the
risk of incurring foreign exchange losses, the Group maintains cash in banks in foreign currency to match its
financial liabilities.
The following table sets forth the financial assets and financial liabilities denominated in foreign currency:
As at December 31, 2009
Financial Assets
Cash
Trade receivables
Amounts owed by related
parties
Total Financial Assets
Financial Liabilities
Loans payable
Trade payables
Advances from shipping
principals
Amounts owed to a related
party
Obligations under finance
lease
Total Financial Liabilities
Net foreign currency
denominated liabilities
1
4
2
5
$1 = P
= 41.1395
$1 = P
= 44.4747
3
kr 1 =P
= 8.9572
€1 = P
= 66.6646
$1 = P
= 32.8207
6
$1 = P
= 46.2000
Total Peso
USD6 Equivalent
AUD1
CAD2
DKK3
EUR4
NZD5
$–
–
$–
–
kr –
–
€–
–
$2
–
$4,273
3,910
P
= 197,478
180,642
–
$–
–
$–
–
kr –
–
€–
–
$2
1,234
$9,417
57,011
P
= 435,131
$–
173
$–
9
kr –
850
€–
137
$–
25
$2,450
11,775
P
= 113,190
569,090
–
–
–
–
–
212
9,794
–
–
–
–
–
607
28,043
–
$173
–
$9
–
kr850
–
€137
–
$25
683
$15,727
31,568
P
= 751,685
($173)
($9)
(kr850)
(€137)
($23)
($6,310)
(P
= 316,554)
As at December 31, 2008
Financial Assets
Cash
Trade receivables
Amounts owed by related
parties
Total Financial Assets
AUD1
CAD2
DKK3
EUR4
NZD5
USD6
Total Peso
Equivalent
$7
–
$–
–
kr –
–
€–
–
$6
–
$4,781
9,516
P
= 227,580
452,200
–
$7
–
$–
–
kr –
–
€–
–
$6
1,313
$15,610
62,394
P
= 742,174
$–
364
$–
9
kr –
1,550
€–
186
$–
180
$5,869
7,568
P
= 278,895
402,655
–
–
–
–
–
1,334
63,392
Financial Liabilities
Loans payable
Trade payables
Advances from shipping
principals
Amounts owed to a related
party
Obligations under finance
lease
Total Financial Liabilities
–
–
–
–
–
536
25,471
–
$364
–
$9
–
kr 1,550
–
€186
–
$180
2,368
$17,675
112,524
P
= 882,937
Net foreign currency
denominated liabilities
($357)
($9)
(kr 1,550)
(€186)
($174)
($2,065)
(P
= 140,763)
1
4
2
5
$1 = P
= 32.2194
$1 = P
= 39.0566
3
kr 1 = P
= 8.8940
€1 = P
= 66.2463
$1 = P
= 26.8717
6
$1 = P
= 47.5200
The following table demonstrates the sensitivity to a reasonably possible change in the foreign currency exchange
rates, with all other variables held constant, of the Group’s profit before tax as at December 31, 2009 and 2008.
Australian Dollar (AUD)
Appreciation/
(Depreciation) of
Foreign
Currency
+5%
(5%)
Effect on Income Before Tax
2009
2008
(P
= 356)
(P
= 575)
356
575
Canadian Dollar (CAD)
+5%
(5%)
(20)
20
(18)
18
Danish Krone (DKK)
+5%
(5%)
(381)
381
(689)
689
Euro (EUR)
+5%
(5%)
(457)
457
(616)
616
New Zealand Dollar (NZD)
+5%
(5%)
(38)
38
(234)
234
US Dollar (USD)
+5%
(5%)
(14,576)
14,576
(4,906)
4,906
There is no other impact on the Group’s equity other than those already affecting the consolidated statement of
income.
The table below demonstrates the income, expense, gains or losses of the Group’s financial instruments for the
years ended December 31, 2009, 2008 and 2007.
Effect in Profit or Loss
Increase (Decrease)
2009
2008
Loans and receivables:
Interest income on:
Cash in banks
Cash equivalents
Advances to a
subsidiary
Impairment loss on
receivables
Reversal of allowance
for impairment
losses
AFS investments:
Gain (loss) on sale
Unrealized mark-tomarket gains
(losses)
Realized mark-tomarket loss
Financial liabilities at
amortized cost:
Interest expense on:
Loans payable
Advances from
affiliate
Obligations under
finance lease
Interest accretion on
redeemable
preferred shares
2007
Effect in Equity
Increase (Decrease)
2009
2008
2007
P
= 23,995
1,103
P
= 12,646
2,178
P
= 23,592
1,965
P
=–
–
P
=–
–
P
=–
–
3,432
4,581
7,147
–
–
–
30,129
8,504
11,906
–
–
–
60,884
–
–
–
–
–
–
(74)
2,732
–
–
–
–
–
–
11,219
(5,040)
(5,374)
–
–
–
–
–
(3,465)
(63,705)
(24,270)
(64,953)
–
–
–
(21,961)
(31,899)
(20,473)
–
–
–
(11,058)
(18,712)
(15,305)
–
–
–
(2,386)
(2,104)
(1,855)
–
–
–
Capital Management
Capital includes equity attributable to the equity holders of the parent.
The Group adopts a prudent approach on capital management to ensure that it maintains a strong credit rating and
healthy capital ratios in order to support its business and maximize shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To
maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital
to shareholders, or issue new shares. The Group is not subject to any externally imposed capital requirements.
No changes were made in the objectives, policies or processes during the years ending
December 31, 2009 and 2008.
The Group monitors capital using a gearing ratio, which is net debt divided by equity attributable to equity holders of
parent plus net debt. The Group includes within net debt are loans payable, obligation under capital lease, longterm debt, redeemable preferred shares, less cash and cash equivalents.
The table below summarized the Group’s net debt and capital:
Loans payable
Obligation under capital lease
Redeemable preferred shares
Cash and cash equivalents
Net debt
Equity attributable to equity holders of the Parent
2009
P
= 1,392,390
31,568
20,176
(1,095,711)
348,423
5,108,730
Capital and net debt
P
= 5,457,153
Gearing ratio
2008
P
= 829,879
112,524
17,790
(1,092,843)
(132,650)
4,556,281
P
= 4,423,631
6.38%
(3.00%)
38. Fair Value of Financial Instruments
Set out below is a comparison by category of carrying amounts and fair values of all the Group’s financial
instruments as at December 31, 2009 and 2008:
2009
FINANCIAL ASSETS
Loans and receivables
Cash on hand and in banks
Cash equivalents
Trade and other receivables
Trade receivables
Service fees
Freight
Passage
Others
Nontrade
Insurance and other claims
Advances to officers and
employees
Refundable deposits
AFS investments
Quoted shares of stocks
Listed shares of stocks
Club shares
Unquoted shares of stocks
(Forward)
Carrying
Amount
2008
Fair Value
Carrying
Amount
Fair Value
P
= 927,648
168,063
P
= 927,648
168,063
P
= 991,932
100,911
P
= 991,932
100,911
684,860
530,539
27,955
585,427
265,178
203,032
684,860
530,539
27,955
585,427
265,178
203,032
770,243
591,701
12,080
318,833
221,601
30,700
770,243
591,701
12,080
318,833
221,601
30,700
50,636
66,640
3,509,978
50,636
66,640
3,509,978
40,416
40,801
3,119,218
40,416
40,801
3,119,218
26,789
5,500
11,034
43,323
P
= 3,553,301
26,789
5,500
11,034
43,323
P
= 3,553,301
17,225
4,000
15,828
37,053
P
= 3,156,271
17,225
4,000
15,828
37,053
P
= 3,156,271
2009
Carrying
Amount
FINANCIAL LIABILITIES
Other financial liabilities
Trade and other payables
Trade
Accrued expenses
Nontrade
Loans payable
Obligations under finance
lease
Redeemable preferred shares
Fair Value
2008
Carrying
Amount
Fair Value
P
= 1,623,585
1,474,183
766,449
1,392,390
P
= 1,623,585
1,474,183
766,449
1,392,390
P
= 1,460,437
1,176,008
1,050,130
829,879
P
= 1,460,437
1,176,008
1,050,130
829,879
31,568
20,176
P
= 5,308,351
23,208
24,096
P
= 5,303,911
112,524
17,790
P
= 4,646,768
100,357
21,935
P
= 4,638,746
Fair value is defined as the amount at which the financial instrument could be exchanged in a current transaction
between knowledgeable willing parties in an arm’s-length transaction, other than in a forced liquidation or sale.
Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models, as
appropriate.
The following methods and assumptions are used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents and trade and other receivable, trade and other payables and
loans payable
The carrying amounts of cash and cash equivalents, trade and other receivables and trade and other payables
approximate fair value due to the relatively short-term maturity of these financial instruments.
Loans payable
Loans payable that reprice every three (3) months, the carrying value approximates the fair value because of recent
and regular repricing based on current market rate. For fixed rate loans, the carrying value approximates fair value
due to its short term maturities, ranging from three months to twelve months.
Redeemable preferred shares
The fair values of the redeemable preferred shares are based on the discounted value of future cash flows using the
applicable market interest rates. Discount rates ranging from 4.8% to 5.6% in 2009 and 6.2% to 6.7% in 2008 were
used in calculating the fair value of the Group’s redeemable preferred shares.
Refundable deposits
As at December 31, 2009, the carrying value of refundable deposits approximates fair value due to the relatively
short-term maturity of this financial instrument. As at December 31, 2008, the fair values of refundable deposits are
based on the discounted value of future cash flows using the applicable market interest rates. Discount rates
ranging from 6.4% to 6.5% in 2008 were used in calculating the fair value of the Company’s refundable deposits.
AFS investments
The fair values of AFS investments are based on quoted market prices, except for unquoted equity shares which are
carried at cost since fair values are not readily determinable.
Obligations under finance lease
The fair values of obligation under finance lease are based on the discounted net present value of cash flows using
discount rates of 6.79% to 9.03% as at December 31, 2009 and 8.21% to 9.13% as at December 31, 2008.
Fair Value Hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data.
Only the Group’s AFS investments, which are classified under Level 1, are measured at fair value. During the
reporting period ending December 31, 2009, there were no transfers between Level 1 and Level 2 fair value
measurements, and no transfers into and out of Level 3 fair value measurements.