1. business and industrial
2. company
3. merger and acquisition

COVER SHEET
4 4 0 9
SEC Registration Number
2 G O
[ F o r m e r l y
G R O U P , I N C.
A T S
( A T S C ) ,
C o n s o l
i d a t e d
I n c . ]
(Company’s Full Name)
1 2 t h
F l o o r ,
U n i t e d
N a t
T i m e s
i o n s
A v e n u e ,
P l a z a
A v e n u e
E r m i t a ,
B u i
l d i n g ,
c o r n e r
M a n i
T a f t
l a
(Business Address: No. Street City/Town/Province)
Jeremias E. Cruzabra
(02)528-7608 / (02)554-8777
(Contact Person)
(Company Telephone Number)
1 2
3 1
Month
Day
1 7 - Q
(Form Type)
(Fiscal Year)
0 5
3 1
Month
Day
(Annual Meeting)
June 30, 2012
(Secondary License Type, If Applicable)
Corporate Finance
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
1,974
Total No. of Stockholders
Domestic
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
Foreign
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended June 30, 2012
2. Commission identification number 4409
3. BIR Tax Identification No 000-313-401
2GO GROUP, INC.
4. Exact name of issuer as specified in its charter
5. Province, country or other jurisdiction of incorporation or organization Philippines
6. Industry Classification Code:
(SEC Use Only)
th
12 Floor Times Plaza Building United Nations Avenue corner Taft Avenue Ermita, Manila /1000
7. Address of issuer's principal office
Postal Code
(02) 528-7608 and (02) 554-8777
8. Issuer's telephone number, including area code
ATS Consolidated (ATSC), Inc., Serging Osmeña Blvd. North Reclamation Area, Cebu City
9. Former name, former address and former fiscal year, if changed since last report
10.Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA
Title of each Class
Common Stock
Redeemable Preferred Stock
Number of shares of common
Stock outstanding and amount of debt outstanding
2,446,136,400
4,560,417
11. Are any or all of the securities listed on a Stock Exchange?
Yes [ X ]
No [ ]
Common and Redeemable Preferred Stock
Philippine Stock Exchange
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or
Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation
Code of the Philippines, during the preceding twelve (12) months (or for such shorter period the
registrant was required to file such reports)
Yes [ X ] No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [ X ] No [ ]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following Financial Statements are filed as part of this SEC Form 17-Q:
1. Unaudited Consolidated Balance Sheets as of June 30, 2012 and
Audited Consolidated Balance Sheets as of December 31, 2012
Page 9
2. Unaudited Consolidated Statements of Income for the Six Months
Ended June 30, 2012 and 2011
Page 10
3. Unaudited Consolidated Statements of Comprehensive Income for
the Six Months Ended June 30, 2012 and 2011
Page 11
4. Unaudited Consolidated Statement of Changes in Equity for the Six
Months Ended June 30, 2012 and 2011
Page 12
5. Unaudited Consolidated Cash Flows for the Six Months Ended
June 30, 2012 and 2011
Page 14
6. Notes to Consolidated Financial Statements
Page 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - FIRST HALF 2012
Key Performance Indicators (KPI)
The following KPI’s are used to evaluate the financial performance of 2GO Group, Inc. (the “Company” or “2GO”) and
its subsidiaries. The amounts are in millions of Pesos except for the financial ratios. 2011 financial ratios on the table
below are based on latest audited December 31, 2011.
a. Revenues – 2GO revenues are mainly composed of freight and passage revenues and they are recognized when
the related services are rendered. Total Revenue for the six months ended June 30, 2012 is P6.96 billion.
b. Gross Profit - is calculated by deducting cost and expenses from total revenues. Gross profit for June 30, 2012
is P(21) million.
c. Income (Loss) before income tax (IBT) – is the earnings of the company before income (loss) tax expense. The
Loss Before Income Tax for June 30, 2012 is P369.75 million, which was mainly due to exceptional items,
particularly the loss on sale of two vessels in June 2012.
d. Debt-to-equity ratio – is determined by dividing total liabilities over stockholders’ equity. 2GO’s debt-to-equity
ratio as of June 30, 2012 is 3.21:1:00. Total liabilities increased by P515.14 million due to additional borrowings
and total equity stood at P2.9 billion or 12% lower compared to 2011 due to the loss for the first half of 2012.
e. Current ratio – is measured by dividing total current assets by total current liabilities. The Company’s current
ratio as of June 30, 2012 is 0.94:1:00. Total current assets is P6.07 billion or 3% higher than 2011. Total current
liabilities are P6.45 billion or 17% increase compared to 2011.
The following table shows comparative figures of the Top Five (5) key performance indicators (KPI) for 2012 versus
2011 (amounts in millions except for the financial ratios) based on the consolidated financial statements of 2GO and
its subsidiaries:
Consolidated
Revenues
Gross Profit
(a)
IBT
(b)
Debt-to-Equity Ratio
(c)
Current Ratio
Note: The figures above are in P’MM except otherwise indicated
a)
Income before income tax or loss before income tax
b)
Total liabilities / total stockholders’ equity.
c)
Total current assets / total current liabilities.
2012
6,963
(21)
(370)
3.21:1.00
0.94:1.00
2011
6,399
(46)
(172)
2.33:1.00
1.03:1.00
Consolidated Income Statement
The Group’s consolidated revenues reached P6.96 billion for the first half of 2012, up 9% or P564.30 million versus
last year for the same period. The shipping business contributed 71% while supply chain added 29% to the total
revenues.
The freight business realized a 21% or P554.41 million increase in revenues versus last year due to the combined
increases in volumes and average price. Passage business has also increased by 10% or P124.86 million owing
largely to higher average rate per passenger. The 2GO Group now operates the whole vessel fleet including the
NENACO vessels (under a time charter arrangement).
Total revenues of the supply chain business declined 19% versus last year mainly due to the disengagement of
certain principals with negative profitability. However, this is partially mitigated by the reduction in operating costs and
expenses.
Total operating costs and expenses, sans fuel and charter hire, plummeted 10% to P4.32 billion from P4.78 billion last
year owing largely to the realization of synergies from the integration of the two companies. Fuel costs jumped 36%
largely due to the lingering fuel price hike coupled with the addition of the NENACO vessels in the combined fleet.
Net loss before income tax reached P365 million largely due to exceptional items, the disposal of two vessels in
particular, amounting to P228 million. Without the exceptional items, the net loss would have been only P137 million
compared to P172 million net loss last year.
Earnings (Loss) Per Share
Earnings (Loss) 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 (Loss) per share for the first half of
2012 stood at (P0.18)/share compared to (P0.02)/share last year.
Other changes (+/-5% or more) in the financial statement not covered in the above discussion
st
st
1 Half 2012 vs. 1 Half 2011
Revenue
>25% or P144 million increase in service fees
>104% or P297 million increase in other revenues
>10% or P125 million increase in passage revenues
>21% or P554 million increase in freight revenues
>35% or P556 million decrease in sale of goods
Cost & Expenses
>32% or P1.22 billion increase in operating expenses
>25% or P168 million decrease in terminal expenses
>37% or P499 million decrease in cost of sales
Other income (charges)
>1,109% or P137 million decrease in gain on disposal of property and equipment
>72% or P15 million increase in interest income
>24% or P1 million increase in foreign exchange gain-net
>117% or P26 million increase in equity in net earnings of associates
>100% or P18 million decrease in gain on disposal of investment
>50% or P23 million decrease in other items –net
Balance Sheet
The Group’s total assets stood at P12.25 billion as of June 30, 2012, slightly higher by 1% or P116.58 million from
P12.13 billion as of December 31, 2011.
Current assets increased by 3% or P172.13 million from P5.90 billion as of December 31, 2011 to P6.07 billion as of
June 30, 2012. The increase in current assets is mainly due to higher trade and other receivables (17% or P491.59
million), inventories (7% or P26.97 million) and other current assets (16% or P160.34 million). Also in June 2012,
2GO1 and 2GO2 vessels included under assets held for sale were sold for cash proceeds of P154 million, which
resulted to a loss on sale of vessels amounting to P146 million.
Property and equipment amounted to P4.60 billion which is about the same as last year. Additions to property and
equipment reached P405.02 million during the first half of 2012 largely due to the drydocking of two (2) ropax vessels
coupled with the refurbishment of Saint Augustine of Hippo (formerly Cebu Ferry 1) and Saint Ignatius of Loyola
(formerly Cebu Ferry 3) as they have undergone major facelift in their interior design and amenities to cater to the new
“Boracay Adventure” of the Passage business via the Batangas-Caticlan route. Also during the period, the Group sold
real property located in Lapuz, Iloilo and two aircraft for cash proceeds of P93.3 million and P3 million, respectively.
Total liabilities amounted to P9.34 billion as of June 30, 2012 from P8.83 billion as of December 31, 2011. Current
liabilities went up by 17% or P957.56 million to reach P6.45 billion in June 2012 while noncurrent liabilities decreased
by 13% or P442.42 million to P2.89 billion. The increase in the current liabilities were mainly due to the reclassification
of long-term debt to current amounting to P200 million, and additional short-term borrowings amounting to P620
million.
Total equity as of June 30, 2012 amounted to P2.91 billion or a decrease by 12% or P398.56 million due to the losses
incurred during the first half of 2012.
Other changes (+/-5% or more) in the financial statement not covered in the above discussion
None.
Cash Flow Statement
The Group ended the first half of 2012 with a net decrease in cash of P205.78 million mainly due to capital
expenditures of P405.02 million related to capitalized drydocking and maintenance costs of vessels coupled with
repayments of long-term loans and obligations under capital lease totaling 751.77 million. During the period under
review, two (2) ropax vessels were drydocked while Saint Augustine of Hippo and Saint Ignatius of Loyola have
undergone major facelift in their interior design and amenities to cater to the new “Boracay Adventure” of the Passage
business via the Batangas-Caticlan route.
During the period, the Group obtained proceeds of P244.89 million from the disposal of property and equipment and
P620.12 million from short-term borrowings. These were used to finance portion of the capital expenditures and partly
pay off maturing loans. Interest paid for the first half of the year amounted to P213.70 million.
Other changes (+/-5% or more) in the financial statement not covered in the above discussion
None.
Other Information
Other material events and uncertainties known to management that would address the past and would have an
impact on 2GO’s future operations are discussed below:
i.
Total fuel/lubes expense is a major component of 2GO’s total cost and expenses. Fuel prices continue to
rise amidst turmoil in the Middle East and Africa. 2GO is constantly looking for ways to reduce fuel
consumption to lessen the impact of the increasing fuel prices on the bottom line.
ii.
Except as disclosed in the management discussion and notes to the financial statements, there are no other
known events that will trigger direct or contingent financial obligation that is material to 2GO, including any
default or acceleration of an obligation. There are also no other known trends, events or uncertainties that
have had or that are reasonably expected to have a material favorable or unfavorable impact on revenues or
income from operations.
iii.
All significant elements of income or loss from continuing operations are already discussed in the
management discussion and notes to financial statements. Likewise any significant elements of income or
loss that did not arise from 2GO’s continuing operations are disclosed either in the management discussion
or notes to financial statements.
iv.
There is no material off-balance sheet transaction, arrangement, obligation, and other relationships of 2GO
with unconsolidated entities or other persons created during the reporting period.
v.
Seasonal aspects of the business are considered in 2GO’s financial forecast.
Company Outlook
The 2GO Group of Companies continues to focus on maximizing the earning capacity of its assets and lowering
overall costs. Challenges in rising fuel costs and fierce competition remain eminent. The Company is working very
closely with its parent, Negros Navigation Co., Inc. (“NENACO”), in increasing efficiencies and creating synergies in
order to meet these continuing challenges and ultimately provide much better service to its customers, while
leveraging on technology to further differentiate itself from competition.
We have studied the strengths of the two companies and have created a union of these strengths resulting in what we
believe is a company that is poised to take advantage of a resilient Philippine Economy that has weathered the storms
of the global economic downturn and is primed to expand once the global economies restart their recovery.
The vision behind the purchase of 2GO by NENACO has always been that the combination of the two companies
will result in a stronger and more responsive entity, which will deliver the best service for its customers in passage
and cargo. We have concretized this vision and redefined our business model into that of a complete supply chain
provider, combining the best of shipping business with the sunrise industry of the logistics and supply chain
management.
Thus, consistent with 2011, and into the first half of 2012 will be remembered as the period that the groundwork for
the metamorphoses of these two business was actualized into the new 2GO Group, Inc., which appropriately became
the new corporate brand reflecting this new vision.
We are confident that the groundwork we have started in 2011 and continued into the first half of 2012 will continue to
reap the benefits in the months and years to come.
We are by no means finished with our task of continuously seeking improvement, as should be the case in a dynamic
market such as ours. But we are confident that we are way past the difficult part of the integration process and, armed
with our unwavering and passionate commitment to serve our customers, we look forward to 2012 with renewed
optimism and confidence.
SIGNATURE
Pursuant to the requirements of the Securities Regulation Code, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
Registrant
2GO GROUP, INC.
Signature and Title
Jeremias E. Cruzabra
Date
August 17, 2012
Corporate Information Officer
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
Jun-12
Unaudited
ASSETS
Current Assets
C ash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Assets held for sale
Total Current Assets
Noncurrent Assets
Investments in associates
Investment Property
Available-for-sale investments
Property and equipment
Deferred tax assets
Goodwill
Software development costs
Other noncurrent assets
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities
Loans payable
Trade and other payables
C urrent portion of:
Long-term debt
Obligations under finance lease
Redeemable preferred shares
Income tax payable
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion
Obligations under finance lease - net of current portion
Accrued retirement benefits
Deferred tax liabilities
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
Equity
Attributable to the equity holders of the Parent C ompany:
Share capital
Additional paid-in capital
Unrealized gain on available-for-sale investments
Share in cumulative translation adjustments of associates
Excess of cost over net asset value of investments
Acquisitions of non-controlling interests
Retained earnings
Treasury shares
Noncontrolling interests
Total Equity
TOTAL LIABLITIES AND EQUITY
Dec-11
Audited
700,486
3,389,784
434,414
1,156,568
5,681,252
391,617
6,072,870
906,203
2,898,193
407,441
996,229
5,208,126
692,617
5,900,743
103,550
9,763
9,377
4,599,492
964,101
250,450
10,393
228,664
6,175,791
12,248,661
99,777
9,763
9,377
4,651,107
964,101
250,450
13,826
232,940
6,231,341
12,132,084
1,345,113
4,040,734
1,215,440
3,432,208
985,716
19,120
25,938
35,915
6,452,535
785,716
30,174
25,938
5,501
5,494,977
2,735,893
91,676
53,347
269
7,219
2,888,404
9,340,939
3,178,028
91,936
52,182
269
8,409
3,330,823
8,825,800
2,484,653
910,901
249
5,294
(10,906)
5,940
(457,658)
(58,715)
2,879,757
27,965
2,907,722
12,248,661
2,484,653
910,901
279
5,294
(10,906)
5,940
(49,698)
(58,715)
3,287,748
18,536
3,306,284
12,132,084
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Earnings (Loss) Per Share Amounts)
For the Six-Month Ended 30 June
REVENUES
Freight
Passage
Service fees
Sale of goods
Others
COSTS AND EXPENSES
Operating
Terminal
Overhead
Cost of goods sold
OTHER INCOME (CHARGES)
Interest and financing charges
Interest Income
Gain (Loss) on disposal of property and
equipment
Gain on disposal of investment
Vessel lay-up costs
Foreign exchange gain (loss)
Equity in net earnings (losses) of associates
Others - net
LOSS BEFORE INTEGRATION COSTS
Integration costs
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM)
INCOME TAX
Current
Deferred
NET LOSS
NET LOSS ATTRIBUTABLE TO:
Equity holders of the parent
Minority interests
For the Three-Month Ended 30 June
2012
2011
2012
2011
Unaudited
Unaudited
Unaudited
Unaudited
3,197,335
1,429,456
716,463
1,037,667
582,539
6,963,460
2,642,927
1,304,592
572,219
1,593,462
285,959
6,399,159
1,690,903
817,685
363,960
499,811
322,603
3,694,962
1,326,745
772,546
312,515
775,947
162,964
3,350,718
5,093,410
507,277
552,090
831,386
6,984,163
3,914,885
642,593
569,505
1,317,754
6,444,737
2,588,530
254,339
265,579
398,673
3,507,120
1,935,936
304,732
270,181
617,322
3,128,171
(196,523)
35,450
(202,792)
20,563
(100,762)
19,175
(102,388)
19,087
(124,883)
12,372
17,526
(202,201)
0
(82,218)
4,055
7,936
773
0
(1,876)
(7,869)
9,834
(74,503)
148,043
(82,218)
3,145
2,539
3,773
22,329
(338,927)
(359,629)
(5,059)
(364,688)
(21,920)
44,956
(126,755)
(172,333)
(172,333)
1,720
11,250
(348,980)
(161,138)
(5,059)
(166,197)
39,238
0
39,238
(403,926)
27,586
(125,343)
(97,757)
(74,576)
24,507
0
24,507
(190,703)
19,456
(25,219)
(5,763)
153,807
(407,959)
4,033
(403,926)
(77,452)
2,876
(74,576)
(192,941)
2,238
(190,703)
153,611
196
153,807
148,043
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
June 2012
NET LOSS
OTHER COMPREHENSIVE LOSS
Net change in unrealized gains (losses) on available
for sale investments
C hanges in C ummulative Translation Adjustment
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD
June 2011
(403,926)
(74,576)
(30)
-
(15,019)
(273)
(30)
(15,292)
(403,956)
(89,868)
(407,989)
(92,744)
ATTRIBUTABLE TO:
Equity Holders of the Parent Company
Total C omprehensive Loss from C ontinuing Operations
Non-Controlling Interest
Total C omprehensive Income from Continuing
Operations
4,033
(403,956)
2,876
(89,868)
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE PERIODS ENDED JUNE 30, 2012 AND 2011
(Amounts in Thousands)
Attributable to Equity Holders of the Parent Company
Share
Capital
(Note 23)
BALANCES AT JANUARY 1, 2012
Issuance of Capital Stock
Purchase of Treasury Shares
Gain on Dilution
Acquisition of Minority Interest
Cash Dividends
Changes in minority interest
Discontinued Operations
Total comprehensive loss for the year
BALANCES AT JUNE 30, 2012
Additional
= 2,484,653
P
Paid-In
Capital
= 910,901
P
Acquisition Excess of Cost
of non- Over Net Asset
controlling
Value of
Interests
Investments
(Note 23)
(Note 23)
= 5,940
P
–
–
–
= 2,484,653
P
= 910,901
P
= 5,940
P
See accompanying Notes to Consolidated Financial Statements.
(P
= 10,906)
–
(P
= 10,906)
Unrealized
Share in
Gain
Cumulative
on AvailableTranslation
for-sale Adjustment of
Investments
an Associate
(Note 14)
= 279
P
(30)
= 249
P
= 5,294
P
Retained
Earnings
(Deficit)
(Note 23)
Treasury
Shares
(Note 23)
Total
Noncontrolling
Interests
Total Equity
(P
= 49,698)
(P
= 58,715)
= 3,287,748
P
= 18,536
P
= 3,306,284
P
9,429
9,429
= 27,965
P
= 2,907,722
P
_
(407,959)
= 5,294
P
(P
= 457,658)
–
(P
= 58,715)
(407,989)
= 2,879,757
P
(407,989)
Share
Capital
(Note 23)
Additional
Paid-In
Capital
Attributable to Equity Holders of the Parent Company
Acquisition Excess of Cost
Unrealized
Share in
of non- Over Net Asset
Gain
Cumulative
controlling
Value of on AvailableTranslation
Interests
Investments
for-sale Adjustment of
(Note 23)
(Note 23) Investments an Associate
(Note 14)
BALANCES AT JANUARY 1, 2011
Issuance of Capital Stock
Purchase of Treasury Shares
Gain on Dilution
Acquisition of Minority Interest
Cash Dividends
Changes in minority interest
Discontinued Operations
Total comprehensive loss for the year
= 2,484,653
P
–
–
–
BALANCES AT JUNE 30, 2011
= 2,484,653
P
= 910,901
P
= 5,940
P
See accompanying Notes to Consolidated Financial Statements.
= 910,901
P
= 5,940
P
(P
= 11,700)
–
(P
= 11,700)
=P
=P
= 21,189
P
(15,292)
= 5,897
P
Retained
Earnings
(Deficit)
(Note 23)
Treasury
Shares
(Note 23)
= 584,569
P
(P
= 58,7 15)
(77,452)
(P
= 507,117)
–
(P
= 58,715)
Total
Noncontrolling
Interests
Total Equity
= 3,936,837
P
(92,744)
= 5,562
P
= 3,942,399
P
= 3,844,093
P
= 5,792
P
(2,646)
2,876
(2,646)
(89,868)
= 3,849,885
P
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
F o r t he S ix- M o nt h E nd ed 3 0 June
2012
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before tax
Adjustments to reconcile net income (loss):
Depreciation and amortization
Doubtful accounts
Decline in value of assets other than AR, Investments & Project Cost
Interest expense
Interest income
Loss (gain) on disposal of property and equipment
Loss (gain) on available-for-sale investments
Equity in net losses (earnings) of associates
Unrealized foreign exchange loss (gain)
Dividend income
Operating income (loss) before working capital changes
Decrease (increase) in:
Receivables
Inventories
Prepaid expenses and other current assets
Increase (decrease) in:
Accounts payable and accrued expense
Other non current liabilities
C ash generated from (used for) operations
Interest received
Income tax paid
Net cash provided by operating activities
2011
(364,688)
(172,333)
446,076
5,554
14,554
196,523
(35,450)
124,883
(3,773)
2,267
385,948
530,765
4,994
24,033
202,792
(20,563)
(12,372)
(17,526)
21,920
299
(81)
561,926
(482,285)
(79,639)
(160,339)
(245,035)
53,952
(56,421)
657,684
(25)
321,344
6,035
(39,238)
288,141
(842,060)
(10,284)
(537,921)
3,758
(27,586)
(561,748)
(405,016)
(411,504)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment
Decrease (increase) in:
Other noncurrent assets
Investments in associates and subsidiaries
Proceeds from:
Disposal of property and equipment and tied-up vessel
Insurance C laims
Sale of AFS Investment
Dividend received
Net cash used in investing activities
2,156
4,000
244,890
(153,969)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Notes/loans payable
Long term debt
Payments of:
Notes/loans payable
Long term debt/obligations under capital lease
Interest paid
(Increase) decrease in minority interest
Net cash provided (used in) financing activities
(490,443)
(261,314)
(213,702)
5,395
(339,948)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
620,116
-
182,804
84,209
22,446
81
(121,964)
1,029,500
3,703,531
(1,662,900)
(1,733,524)
(216,101)
(2,646)
1,117,860
(205,777)
434,147
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
906,263
764,183
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
700,486
1,198,331
2GO GROUP, INC.
[formerly ATS CONSOLIDATED (ATSC), INC.]
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Number of Shares, Earnings per Common Share
Exchange Rate Data and When Otherwise Indicated)
1. Corporate Information and Approval of Consolidated Financial Statements
Corporate Information
2GO Group, Inc. [formerly ATS Consolidated (ATSC), Inc., the Parent Company] was incorporated
in the Philippines on May 26, 1949. Its corporate life was renewed on May 12, 1995 and will expire
on May 25, 2045. The Parent Company’s shares of stocks are listed in the Philippine Stock Exchange
(PSE). The Parent Company and its Subsidiaries (collectively referred to as “the Group”) are
primarily engaged in the business of operating vessels, motorboats and other kinds of watercrafts;
aircrafts and trucks; and acting as agent for domestic and foreign shipping companies for purposes of
transportation of cargoes and passengers by air, land and sea within the waters and territorial
jurisdiction of the Philippines. The Parent Company’s registered office address is 12th Floor, Times
Plaza Building, United Nations Avenue corner Taft Avenue, Ermita, Manila.
On December 1, 2010, the Board of Directors (BOD) of Aboitiz Equity Ventures, Inc. (AEV) and
Aboitiz & Company, Inc. (ACO) approved the sale of their shareholdings in the Parent Company to
Negros Navigation Co., Inc. (NENACO). On December 28, 2010, the sale was finalized at
=1.8813 per share. AEV sold its entire shareholdings in the Parent Company comprising of
P
1,889,489,607 common shares for P
=3.6 billion. ACO, on the other hand, sold its entire shareholdings
in the Parent Company comprising of 390,322,384 common shares for =
P734.0 million. This resulted
to 93.2% NENACO ownership of the outstanding common shares of the Parent Company, along with
all the Parent Company’s non-controlling shares that may be tendered to NENACO subsequent to
December 31, 2010.
As a result of the sale, NENACO whose ultimate parent is Negros Holdings & Management
Corporation (NHMC), becomes the new immediate parent. NENACO and the ultimate parent are
both incorporated and domiciled in the Philippines.
As at December 31, 2009, AEV and ACO own 77.2% and 15.6%, respectively, of the outstanding
common shares of the Parent Company.
On February 22, 2011, in relation to the tender offer issued by NENACO for the outstanding common
shares held by public shareholders of the Parent Company, NENACO acquired 120,330,004 common
shares representing 4.9% for a total purchase price of P
=226.4 million pertaining to the Parent
Company’s noncontrolling interest. As a result, NENACO’s ownership interest in the Parent
Company increased to 98.10%.
Pursuant to the securities and purchase agreements, the Parent Company and its subsidiaries applied
for the change in corporate names, which was approved by the Philippine Securities and Exchange
Commission (SEC) on various dates in 2011. On December 29, 2011, the BOD approved the change
in corporate branding of the Group to 2GO Logistics Group or variants thereto, resulting to another
revision in the corporate names of the Parent Company and its subsidiaries to 2GO (formerly ATSC),
2GO Express, Inc. (formerly ATSEI), and 2GO Logistics, Inc. (formerly ATSDI) upon approval by
the Philippine SEC in February and March 2012.
2
On August 24, 2011, the Philippine SEC also approved the amendment to the Parent Company’s secondary
purpose to include rendering technical services requirement to customers for refrigerated marine container
vans and related equipments or accessories. This amendment was previously adopted by the BOD on April
28, 2011 and the stockholders on June 22, 2011.
On March 9, 2012, the Philippine SEC approved the registration of Special Container and Value Added
Services, Inc., a newly formed company under the Parent Company, which has a primary purpose of
engaging in domestic and/or international business of transporting any and all kinds of goods and cargoes,
by sea, air and land, functioning as non-vessel operating common carrier, engaging in cargo forwarding
including acting as cargo consolidator and breakbulk agent, and courier for mails, letters, pouches, other
cargoes and personal effects of any and all kinds, types and nature.
Approval of Consolidated Financial Statements
The consolidated financial statements of the Group as at December 31, 2011 and 2010 and for each of the
three years in the period ended December 31, 2011 were authorized for issue by the BOD on April 12, 2012.
2. Summary of Significant Accounting and Financial Reporting Policies
Basis of Preparation
The consolidated financial statements are prepared on a historical cost basis, except for quoted
available-for-sale (AFS) investments which are measured at fair value and assets held for sale carried
at fair value less cost to sell. The consolidated financial statements are presented in Philippine peso,
and all values are rounded to the nearest thousand, except when otherwise indicated.
Statement of Compliance
The consolidated financial statements are prepared in compliance with Philippine Financial Reporting
Standards (PFRS).
Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent with those of the previous financial year except for the
following new and amended PFRSs and Philippine Interpretations which were adopted as of January
1, 2011.
Standards or interpretations that have been adopted and that are deemed to have an impact on the
Group’s consolidated financial statement disclosures are described below:
 PAS 24, Related Party Transactions (Amendment), clarifies the definitions of a related party. The new
definitions emphasize a symmetrical view of related party relationships and clarify the circumstances in
which persons and key management personnel affect related party relationships of an entity. In
addition, the amendment introduces an exemption from the general related party disclosure
requirements for transactions with government and entities that are controlled, jointly controlled or
significantly influenced by the same government as the reporting entity.
 PAS 32, Financial Instruments: Presentation (Amendment), alters the definition of a financial liability
in PAS 32 to enable entities to classify rights issues and certain options or warrants as equity
instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of
the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s
own equity instruments for a fixed amount in any currency.
Improvements to PFRSs issued in 2010
Improvements to PFRSs, an omnibus of amendments to standards, deal primarily with a view to
removing inconsistencies and clarifying wording. There are separate transitional provisions for
3
each standard. The adoption of the following amendments resulted in changes to accounting policies
but did not have any impact on the financial position or performance of the Group.
 PFRS 3, Business Combinations [Measurement options available for non-controlling interest (NCI)
were amended]. The measurement options available for NCI were amended. Only components of NCI
that constitute a present ownership interest that entitles their holder to a proportionate share of the
entity’s net assets in the event of liquidation should be measured at either fair value or at the present
ownership instruments’ proportionate share of the acquiree’s identifiable net assets. All other
components are to be measured at their acquisition date fair value.
 PFRS 7, Financial Instruments - Disclosures, intends to simplify the disclosures provided by reducing
the volume of disclosures around collateral held and improving disclosures by requiring qualitative
information to put the quantitative information in context.
 PAS 1, Presentation of Financial Statements, clarifies that an entity may present an analysis of each
component of other comprehensive income either in the statement of changes in equity or in the notes to
the financial statements. The Group opted to present each component of other comprehensive income in
the consolidated statements of changes in equity.
Other amendments resulting from the 2010 Improvements to PFRSs to the following standards did not
have any impact on the accounting policies, financial position or performance of the Group:
 PFRS 3, Business Combinations [Contingent consideration arising from business combination
prior to adoption of PFRS 3 (as revised in 2008)]
 PFRS 3, Business Combinations (Un-replaced and voluntarily replaced share-based payment
awards)
 PAS 27, Consolidated and Separate Financial Statements
 PAS 34, Interim Financial Statements
The following interpretations and amendment to interpretations did not have any impact on the
accounting policies, financial position or performance of the Group:
 Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (determining the fair value of
award credits)
 Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement
(Amendment)
 Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments
New Accounting Standards, Amendments and Interpretations
Effective Subsequent to 2011
The Group will adopt the following standards and interpretations enumerated below when these
become effective. Except as otherwise indicated, the Group does not expect the adoption of these new
and amended PFRSs and Philippine Interpretations to have significant impact on its financial
statements. The relevant disclosures will be included in the notes to the consolidated financial
statements when these become effective.
Effective 2012
 PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements,
requires additional disclosure about financial assets that have been transferred
4
but not derecognized to enable the user of the Group’s financial statements to understand the
relationship with those assets that have not been derecognized and their associated liabilities. In
addition, the amendment requires disclosures about continuing involvement in derecognized assets to
enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement
in those derecognized assets. The amendment affects disclosures only and has no impact on the Group’s
financial position or performance.
 Amendment to PAS 12, Income Taxes - Recovery of Underlying Assets, clarifies the determination of
deferred tax on investment property measured at fair value. The amendment introduces a rebuttable
presumption that deferred tax on investment property measured using the fair value model in PAS 40,
Investment Property, should be determined on the basis that its carrying amount will be recovered
through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that
are measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be
measured on a sale basis of the asset.
Effective 2013
 Amendments to PAS 1, Financial Statement Presentation - Presentation of Items of Other
Comprehensive Income, change the grouping of items presented in Other Comprehensive Income
(OCI). Items that could be reclassified (or “recycled”) to profit or loss at a future point in time (for
example, upon derecognition or settlement) would be presented separately from items that will never be
reclassified. The amendment affects presentation only and has therefore no impact on the Group’s
financial position or performance.
 Amendments to PAS 19, Employee Benefits, range from fundamental changes such as removing the
corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The Group is currently assessing the impact of these amendments.
 PFRS 10, Consolidated Financial Statements, replaces the portion of PAS 27, Consolidated and
Separate Financial Statements that addresses the accounting for consolidated financial statements. It
also includes the issues raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes
a single control model that applies to all entities including special purpose entities. The changes
introduced by PFRS 10 will require management to exercise significant judgment to determine which
entities are controlled, and therefore, are required to be consolidated by a parent, compared with the
requirements that were in PAS 27.
 PAS 27, Separate Financial Statements (as revised in 2011), as a consequence of the new PFRS 10,
Consolidated Financial Statements, and PFRS 12, Disclosure of Interests in Other Entities, what
remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in
separate financial statements.
 PFRS 11, Joint Arrangements, replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointlycontrolled Entities - Non-monetary Contributions by Venturers. PFRS 11 removes the option to
account for jointly-controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet
the definition of a joint venture must be accounted for using the equity method. 2GO EXPRESS INC.
accounts for its joint venture under proportionate consolidation and is currently assessing the impact of
this standard.
 PAS 28, Investments in Associates and Joint Ventures (as revised in 2011), as a consequence of
the new PFRS 11, Joint Arrangements, and PFRS 12, PAS 28 has been renamed PAS 28,
5
Investments in Associates and Joint Ventures, and describes the application of the equity method to
investments in joint ventures in addition to associates.
 PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities,
amendments require an entity to disclose information about rights of set-off and related arrangements
(such as collateral agreements). The new disclosures are required for all recognized financial
instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized
financial instruments that are subject to an enforceable master netting arrangement or ‘similar
agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments
require entities to disclose, in a tabular format unless another format is more appropriate, the following
minimum quantitative information. This is presented separately for financial assets and financial
liabilities recognized at the end of the reporting period:
a. The gross amounts of those recognized financial assets and recognized financial liabilities;
b. The amounts that are set off in accordance with the criteria in PAS 32 when determining the net
amounts presented in the balance sheet;
c. The net amounts presented in the balance sheet;
d. The amounts subject to an enforceable master netting arrangement or similar agreement that are not
otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of the
offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and
e. The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments to PFRS 7 are to be retrospectively applied for annual periods beginning on or after
January 1, 2013. The amendment affects disclosures only and has no impact on the Group’s financial
position or performance.
 PFRS 12, Disclosure of Interests in Other Entities, includes all of the disclosures that were previously in
PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously
included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint
arrangements, associates and structured entities. A number of new disclosures are also required.
 PFRS 13, Fair Value Measurement, establishes a single source of guidance under PFRS for all fair
value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather
provides guidance on how to measure fair value under PFRS when fair value is required or permitted.
The Group is currently assessing the impact that this standard will have on the Group’s financial
position and performance.
 Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine, applies
to waste removal costs that are incurred in surface mining activity during the production phase of the
mine (“production stripping costs”) and provides guidance on the recognition of production stripping
costs as an asset and measurement of the stripping activity asset.
Effective 2014
 PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial
Liabilities, clarifies the meaning of “currently has a legally enforceable right to set-off” and
also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as
6
central clearing house systems) which apply gross settlement mechanisms that are not simultaneous.
While the amendment is expected not to have any impact on the net assets of the Group, any changes in
offsetting is expected to impact leverage ratios and regulatory capital requirements. The Group is
currently assessing impact of the amendments to PAS 32.
Effective 2015
 PFRS 9, Financial Instruments: Classification and Measurement, reflects the first phase on the
replacement of PAS 39 and applies to classification and measurement of financial assets and financial
liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after
January 1, 2015. In subsequent phases, hedge accounting and impairment of financial assets will be
addressed with the completion of this project expected on the first half of 2012. The adoption of the
first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s
financial assets, but will potentially have no impact on classification and measurements of financial
liabilities. The Group will quantify the effect in conjunction with the other phases, when issued, to
present a comprehensive picture.
The Group’s receivables, due to and from related parties, other receivables, accounts payable and
accrued expenses, dividends payable, loans payable and long-term debt may be affected by the
adoption of this standard.
Effectivity date to be determined
 Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, covers accounting
for revenue and associated expenses by entities that undertake the construction of real estate directly or
through subcontractors. The interpretation requires that revenue on construction of real estate be
recognized only upon completion, except when such contract qualifies as construction contract to be
accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case
revenue is recognized based on stage of completion. Contracts involving provision of services with the
construction materials and where the risks and reward of ownership are transferred to the buyer on a
continuous basis will also be accounted for based on stage of completion. The Philippine SEC and the
Financial Reporting Standards Council have deferred the effectivity of this interpretation until the final
revenue standard is issued by International Accounting Standards Board and an evaluation of the
requirements of the final revenue standard against the practices of the Philippine real estate industry is
completed.
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Parent Company and the
following wholly-owned and majority-owned subsidiaries as at June 30, 2012 and December 31, 2011 and
2010.
Subsidiaries
2GO Express, Inc. (formerly ATS Express,
Inc.)1 and Subsidiaries:
2GO Logistics, Inc, (formerly ATS
Distribution, Inc.)1
Scanasia Overseas, Inc. (SOI)
Hapag-Lloyd Philippines, Inc.(HLP)
Reefer Van Specialist, Inc. (RVSI)2
WRR Trucking Corporation (WTC)3
Supercat Fast Ferry Corp. (SFFC)
Special Container and Value Added Services,
Inc.4
Nature of Business
Transportation/
Logistics
Distribution
Distribution
Transportation/
Logistics
Transportation
Transportation
Transporting passenger
Transportation/
Logistics
Percentage of Ownership
2012
2011
Direct
Indirect
Direct
Indirect
2010
Direct
Indirect
100.0
–
100.0
–
100.0
–
–
–
100.0
100.0
–
–
100.0
100.0
–
–
100.0
100.0
–
–
–
100.0
85.0
–
100.0
–
–
–
–
100.0
85.0
–
100.00
–
–
–
–
100.0
85.0
–
–
–
100.0
–
–
–
–
–
7
Subsidiaries
NN-ATS Logistics Management & Holdings
Co., Inc.(NALMHCI)5
J&A Services Corporation (JASC)6
Nature of Business
Holding Company
Vessel support
services
Red Dot Corporation (RDC)6
Manpower services
North Harbor Tugs Corporation (NHTC)6 Tug assistance
Super Terminal Inc. (STI)6 and 7
Passenger terminal
operator
Sungold Forwarding
Transportation/
6
Corporation (SFC)
logistics
Supersail Services Inc. (SSI)6
Manpower provider
W G & A Supercommerce, Inc. (WSI)8
Vessels’ hotel
management
1
In various dates in 2011, the Philippine SEC approved the
amendments in 2GO Express, Inc.’s and 2GO Logistics, Inc.’s Articles
of Incorporation
2
Merged with the Parent Company effective September 1, 2010
3
Acquired in August 2011by 2GO Express from NENACO
4
Incorporated in May 2012
5
Incorporated in November 2011
6
Acquired by NALMHCI on December 1, 2011 from NENACO
7
NALMHCI has control over STI since it has the power to cast the
majority of votes at the BOD’s meeting and the power to govern the
financial and reporting policies of STI.
8
Ceased operations in February 2006
Percentage of Ownership
2012
2011
Direct
Indirect
Direct
Indirect
2010
Direct
Indirect
100.0
–
100.0
–
–
–
20.0
20.0
–
80.0
80.0
59.0
20.0
20.0
–
80.0
80.0
59.0
–
–
–
–
–
–
–
50.0
–
50.0
–
–
–
–
51.1
100.0
–
–
51.1
100.0
–
–
–
–
100.0
–
100.0
–
100.0
–
Except for JMBVI, all the subsidiaries were incorporated in the Philippines.
The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company
using consistent accounting policies.
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies
so as to obtain benefits from its activities and generally accompanying a shareholding of more than one half of
the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from
the date of acquisition, being the date on which control is transferred to the Group and continue to be
consolidated until the date that such control ceases.
Non-controlling interest represents a portion of the profit or loss and net assets of subsidiaries not held by the
Group, directly or indirectly, and are presented separately in profit or loss and within the equity section of the
consolidated balance sheet and consolidated statement of changes in equity, separately from parent’s equity.
However, the Group must recognize in the consolidated balance sheet a financial liability (rather than equity)
when it has an obligation to pay cash in the future (e.g., acquisition of non-controlling interest is required in the
contract or regulation) to purchase the non-controlling’s shares, even if the payment of that cash is conditional
on the option being exercised by the holder. The Group will reclassify the liability to equity if a put option
expires unexercised.
Non-controlling interest shares in losses, even if the losses exceed the non-controlling equity interest in the
subsidiary. Changes in the controlling ownership interest, i.e., acquisition of non-controlling interest or partial
disposal of interest over a subsidiary that do not result in a loss of control, are accounted for as equity
transactions.
Consolidated financial statements are prepared using uniform accounting policies for like transactions and
other events in similar circumstances. All intra-group balances, transactions, income and expenses and profits
and losses resulting from intra-group transactions that are recognized in assets, liabilities and equities, are
eliminated in full.
8
If the Group loses control over a subsidiary, it:
 Derecognizes the assets (including goodwill) and liabilities of the subsidiary
 Derecognizes the carrying amount of any non-controlling interest
 Derecognizes the related other comprehensive income like cumulative translation differences,
recorded in equity
 Recognizes the fair value of the consideration received
 Recognizes the fair value of any investment retained
 Recognizes any surplus or deficit in profit or loss
 Reclassifies the parent’s share of components previously recognized in other comprehensive
income to profit or loss or retained earnings, as appropriate.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the
amount of any non-controlling interest in the acquiree. For each business combination, the acquirer
measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the
acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative
expenses.
When the Group acquires a business, it assesses the financial assets and financial liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic circumstances
and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in
host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously
held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be
an asset or liability, will be recognized in accordance with PAS 39 either in profit or loss or as a change to
other comprehensive income. If the contingent consideration is classified as equity, it should not be
remeasured until it is finally settled within equity.
Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the
business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses.
Where goodwill forms part of a cash-generating unit or a group of cash-generating units and part of the
operation within that unit is disposed of, the goodwill associated with the operation disposed of is included
in the carrying amount of the operation when determining the gain or loss on disposal of the operation.
Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed
of and the portion of the cash-generating unit retained.
When subsidiaries are sold, the difference between the selling price and the net assets plus any other
comprehensive income, and fair value of retained interest is recognized in profit or loss.
Where there are business combinations in which all the combining entities within the Group are
ultimately controlled by the same ultimate parties before and after the business combination and
9
that the control is not transitory (“business combinations under common control”), the Group accounts
such business combinations under the purchase method of accounting, if the transaction was deemed to have
substance from the perspective of the reporting entity. In determining whether the business combination has
substance, factors such as the underlying purpose of the business combination and the involvement of
parties other than the combining entities such as the non-controlling interest, shall be considered.
In cases where the business combination has no substance, the Group accounts for the transaction
similar to a pooling of interests. The assets and liabilities of the acquired entities and that of the
Parent Company are reflected at their carrying values. Comparatives shall be restated to include
balances and transactions as if the entities had been acquired at the beginning of the earliest period
presented as if the companies had always been combined.
Investments in Associates
The following are the associates of the Group as at March 31, 2012 and December 31, 2011:
MCCP Philippines (MCCP)
Hansa-Meyer ATS Projects, Inc. (HATS)
(formerly Aboitiz Project
T.S. Corporation)
Nature of Business
Container transportation
Project logistics and
consultancy
Percentage of Ownership
Direct
Indirect
33
–
–
50
The Group’s investments in associates are accounted for under the equity method. An associate is an entity
in which the Group has significant influence and which is neither a subsidiary nor a joint venture.
Under the equity method, the investments in associates are carried in the consolidated balance sheet at cost
plus post acquisition changes in the Group’s share in the net assets of associates. Goodwill relating to an
associate is included in the carrying amount of the investment and is not amortized or separately tested for
impairment.
The profit or loss reflects the share in the results of operations of the associates. Where there has been a
change recognized directly in the consolidated statement of changes in equity of the associate, the Group
recognizes its share of any changes and discloses it, when applicable, in the consolidated statement of
changes in equity. Unrealized gains and losses resulting from transactions between the Group and the
associates are eliminated to the extent of the interest in the associate.
The share of profit of associates is recognized in profit or loss. This is the profit attributable to equity
holders of the associate and therefore is profit after tax and non-controlling interest in the subsidiaries of the
associates.
The financial statements of the associate are prepared for the same reporting period as the Parent Company
and the associates’ accounting policies conform to those used by the Group for like transactions and events
in similar circumstances.
After the application of the equity method, the Group determines whether it is necessary to
recognize an additional impairment loss on the Group’s investments in associates. The Group
determines at the end of each reporting period whether there is any objective evidence that the
investment in the associate is impaired. If this is the case the Group calculates the amount of
10
impairment as the difference between the recoverable amount of the associate and its carrying value and
recognizes the amount in profit or loss.
Interest in a Joint Venture
The Group has an interest in a joint venture which is a jointly controlled entity, whereby the joint venture
partners have a contractual arrangement that establishes joint control over the economic activities of the
entity. The Group recognizes its interest in the joint venture using the proportionate consolidation method.
The Group combines its proportionate share of each of the assets, liabilities, income and expenses of the
joint venture with similar items, line by line, in its consolidated financial statements. The financial
statements of the joint venture are prepared for the same reporting period as the Parent Company.
Adjustments are made where necessary to bring the accounting policies in line with those of the Group.
Adjustments are made in the Group’s consolidated financial statements to eliminate the Group’s share of
intragroup balances, income and expenses and unrealized gains and losses on transactions between the
Group and its jointly controlled entity. Losses on transactions are recognized immediately if the loss
provides evidence of a reduction in the net realizable value of current assets or an impairment loss. The
joint venture is proportionately consolidated until the date on which the Group ceases to have joint control
over the joint venture.
Upon loss of joint control and provided the former jointly controlled entity does not become a subsidiary or
associate, the Group measures and recognizes its remaining investment at its fair value. Any difference
between the carrying amount of the former jointly controlled entity upon loss of joint control and the fair
value of the remaining investment and proceeds from disposal is recognized in profit or loss. When the
remaining investment constitutes significant influence, it is accounted for as investment in an associate.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash, with original maturities of three months or less, and are
subject to an insignificant risk of change in value.
Financial Instruments
Initial recognition
Financial assets and financial liabilities are recognized in the consolidated balance sheet when the Group
becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that
require delivery of assets within a time frame established by regulation or convention in the marketplace
(regular way purchases) are recognized on the trade date i.e., the date that the Group commits to purchase or
sell the asset.
Financial instruments are recognized initially at fair value plus transaction costs except for those designated
at fair value through profit and loss (FVPL).
Classification of financial instruments
The Group further classifies its financial assets in the following categories: held-to-maturity (HTM)
investments, AFS investments, financial assets at FVPL, and loans and receivables. Financial
liabilities are classified as financial liabilities at FVPL and other financial liabilities.
The
classification depends on the purpose for which the investments are acquired and whether they are
quoted in an active market. Management determines the classification of its financial assets
11
and liabilities at initial recognition and, where allowed and appropriate, re-evaluates such designation at
every reporting date.
Determination of fair value
The fair value for financial instruments traded in active markets at the end of reporting period is based on
their quoted market price or dealer price quotations (bid price for long positions and ask price for short
positions), without any deduction for transaction costs. When current bid and asking prices are not
available, the price of the most recent transaction provides evidence of the current fair value as long as there
has not been a significant change in economic circumstances since the time of the transaction.
If the financial instruments are not listed in an active market, the fair value is determined using appropriate
valuation techniques which include recent arm’s length market transactions, net present value techniques,
comparison to similar instruments for which market observable prices exist, options pricing models, and
other relevant valuation models.
Fair value measurement hierarchy
The Group categorizes its financial asset and financial liability based on the lowest level input that is
significant to the fair value measurement.
The fair value hierarchy has the following levels:
(a) Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities accessible by the
Group; (b) Level 2 - inputs that are observable in the marketplace other than those classified as Level 1; and
(c) Level 3 - inputs that are unobservable in the marketplace and significant to the valuation.
Subsequent measurement
The subsequent measurement of financial assets and financial liabilities depends on their classification as
follows:
a. Financial assets and financial liabilities at FVPL
Financial assets or financial liabilities classified in this category are financial assets or financial
liabilities that are held for trading or financial assets and financial liabilities that are designated by
management as at FVPL on initial recognition when any of the following criteria are met:
 the designation eliminates or significantly reduces the inconsistent treatment that would otherwise
arise from measuring the assets or liabilities or recognizing gains or losses on them on a different
basis; or
 the assets and liabilities are part of a group of financial assets and financial liabilities, respectively,
or both financial assets and financial liabilities, which are managed and their performance is
evaluated on a fair value basis, in accordance with a documented risk management or investment
strategy; or
 the financial instrument contains an embedded derivative, unless the embedded derivative does not
significantly modify the cash flows or it is clear, with little or no analysis, that it would not be
separately recorded.
Financial assets are classified as held for trading if these are acquired for the purpose of selling in
the near term. Derivatives are also classified as held for trading unless they are designated as
effective hedging instruments.
12
Financial assets and financial liabilities at FVPL are recorded in the consolidated balance sheet at fair
value. Changes in fair value are recorded in profit or loss. Interest earned is recorded as interest
income, while dividend income is recorded in other income according to the terms of the contract, or
when the right of the payment has been established. Interest incurred is recorded as interest expense.
As at December 31, 2011 and 2010, the Group has not designated any financial asset or financial
liability as at FVPL.
Embedded derivatives
An embedded derivative is separated from the host financial or nonfinancial contract and accounted for
as derivative if all the following conditions are met:
 the economic characteristics and risks of the embedded derivative are not closely related to the
economic characteristic of the host contract;
 a separate instrument with the same terms as the embedded derivative would meet the definition of
a derivative; and
 the hybrid or combined instrument is not recognized at FVPL.
The Group assesses whether embedded derivatives are required to be separated from host contract when
the Group first becomes a party to the contract. Reassessment only occurs if there is change in the terms
of the contract that significantly modifies the cash flows that would otherwise be required.
Embedded derivatives that are bifurcated from the host contracts are accounted for as financial asset at
FVPL. Changes in the fair values are included in profit or loss.
As at December 31, 2011, the Group has embedded derivatives on its long-term debt, the value of
which is insignificant. As at December 31, 2010, the Group has no embedded derivative.
b. Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market, they are not entered into with the intention of immediate or short-term
resale and are not designated as AFS financial assets or financial assets at FVPL. Loans and receivables
are carried at amortized cost using the effective interest rate method, less allowance for impairment.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees
that are integral part of the effective interest rate. Gains and losses are recognized in profit or loss when
the loans and receivables are derecognized or impaired, as well as through the amortization process.
Loans and receivables are included in current assets if maturity is within 12 months from the end of
reporting period.
As at December 31, 2011 and 2010, financial assets included under this classification are the
Group’s cash in banks, cash equivalents, trade and other receivables, and refundable deposits
(presented as part of “Other noncurrent assets” in the consolidated balance sheet).
13
c. HTM investments
HTM investments are quoted non-derivative financial assets which carry fixed or determinable
payments and fixed maturities and which the Group has the positive intention and ability to hold to
maturity. After initial measurement, HTM investments are measured at amortized cost using the
effective interest rate method. This method uses an effective interest rate that exactly discounts
estimated future cash receipts through the expected life of the financial asset to the net carrying
amount of the financial asset. Where the Group sells other than an insignificant amount of HTM
investments, the entire category would be tainted and reclassified as AFS investments. Gains and
losses are recognized in profit or loss when the investments are derecognized or impaired, as well as
through the amortization process.
As at December 31, 2011 and 2010, the Group has no HTM investments.
d. AFS investments
AFS investments are those non-derivative financial assets which are designated as such or do not
qualify to be classified as financial assets designated at FVPL, HTM investments or loans and
receivables. They are purchased and held indefinitely, and may be sold in response to liquidity
requirements or changes in market conditions. After initial measurement, AFS investments are
measured at fair value with unrealized gains or losses recognized in the consolidated statement of
comprehensive income and consolidated statement of changes in equity in the “Unrealized gain on
AFS investments” until the AFS investments is derecognized, at which time the cumulative gain or
loss recorded in equity is recognized in profit or loss. Assets under this category are classified as
current assets if expected to be realized within 12 months from the end of reporting period and as
noncurrent assets if maturity date is more than a year from the end of reporting period.
As at December 31, 2011 and 2010, financial assets included as part of the Group’s AFS investments
are investment in quoted and unquoted shares of stock and club shares.
e. Other financial liabilities
This classification pertains to financial liabilities that are not designated as at FVPL upon the
inception of the liability. Included in this category are liabilities arising from operations or
borrowings.
The financial liabilities are recognized initially at fair value and are subsequently carried at amortized
cost, taking into account the impact of applying the effective interest rate method of amortization (or
accretion) for any related premium (discount) and any directly attributable transaction costs.
As at December 31, 2011 and 2010, financial liabilities included under this classification are the
Group’s loans payable, trade and other payables, long-term debt, obligations under finance lease,
redeemable preferred shares, and other noncurrent liabilities.
Classification of Financial Instruments between Debt and Equity
Financial instruments are classified as liabilities or equity in accordance with the substance of the
contractual arrangement. Interest relating to a financial instrument or a component that is a financial
liability is reported as expenses.
14
A financial instrument is classified as debt if it provides for a contractual obligation to:
a. deliver cash or another financial asset to another entity; or
b. exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Group; or
c. satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset
for a fixed number of own equity shares.
If the Group does not have an unconditional right to avoid delivering cash or another financial asset to
settle its contractual obligation, the obligation meets the definition of a financial liability.
The components of issued financial instruments that contain both liability and equity elements are accounted
for separately, with the equity component being assigned the residual amount after deducting from the
instrument as a whole the amount separately determined as the fair value of the liability component on the
date of issue.
Redeemable preferred shares (RPS)
The component of the RPS that exhibits characteristics of a liability is recognized as a liability in the
consolidated balance sheet, net of transaction costs. The corresponding dividends on those shares are
charged as interest expense in profit or loss. On issuance of the RPS, the fair value of the liability
component is determined using a market rate for an equivalent non-convertible bond; and this amount is
carried as a long term liability on the amortized cost basis until extinguished on conversion or redemption.
Day 1 Difference
Where the transaction price in a non-active market is different from the fair value of other observable current
market transactions in the same instrument or based on a valuation technique whose variables include only
data from observable market, the Group recognizes the difference between the transaction price and fair
value (a Day 1 profit and loss) in profit or loss unless it qualifies for recognition as some other type of asset.
In cases where use is made of data which is not observable, the difference between the transaction price and
model value is only recognized in profit or loss when the inputs become observable or when the instrument
is derecognized. For each transaction, the Group determines the appropriate method of recognizing the
‘Day 1’ profit or loss amount.
Offsetting of Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance
sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is
an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. This is
not generally the case with master netting agreements, and the related assets and liabilities are presented at
gross amounts in the consolidated balance sheet.
Derecognition of Financial Assets and Liabilities
Financial asset
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets)
is derecognized when:
a. the rights to receive cash flows from the asset have expired;
b. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them
in full without material delay to a third party under a “pass-through” arrangement; or
15
c. the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred
substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all
the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough agreement, and has neither transferred nor retained substantially all the risks and rewards of the
asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing
involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred
asset is measured at the lower of the original carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
In such case, the Group also recognizes an associated liability. The transferred asset and the associated
liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Financial liability
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has
expired.
When an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the recognition of a new liability, and the difference in
the respective carrying amounts is recognized in profit or loss.
Impairment of Financial Assets
The Group assesses at the end of each reporting period whether a financial asset or group of financial assets
is impaired.
Loans and receivables
For loans and receivables carried at amortized cost, the Group first assesses individually whether objective
evidence of impairment exists for financial assets that are individually significant, or collectively for
financial assets that are not individually significant. If the Group determines that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the asset is
included in a group of financial assets with similar credit risk characteristics and that group of financial
assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is or continues to be recognized are not included in a collective assessment of
impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured
as the difference between the asset’s carrying amount and the present value of estimated future cash flows
(excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is
reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss.
Interest income continues to be accrued on the reduced carrying amount based on the original effective
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
16
recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized
cost at the reversal date.
Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at
fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and
must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss
is measured as the difference between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the current market rate of return for a similar financial asset.
AFS investments
For AFS investments, the Group assesses at the end of each reporting period whether there is objective
evidence that an investment or group of investment is impaired.
In the case of equity investments classified as AFS investments, objective evidence of impairment would
include a significant or prolonged decline in the fair value of the investments below its cost. Where there is
evidence of impairment, the cumulative loss (measured as the difference between the acquisition cost and
the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss)
is removed from equity and recognized in profit or loss. Impairment losses on equity investments are not
reversed through profit or loss. Increases in fair value after impairment are recognized in other
comprehensive income.
In the case of debt instruments classified as AFS investments, impairment is assessed based on the same
criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying
amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of
measuring impairment loss. Such accrual is recorded as part of “Interest income” in profit or loss. If, in
subsequent period, the fair value of a debt instrument increased and the increase can be objectively related to
an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed
through profit or loss.
Inventories
Inventories are valued at the lower of cost or net realizable value (NRV). Cost comprises all cost of purchase
and other costs incurred in bringing the inventories to their present location or condition. Cost is determined
using the moving average method for materials, parts and supplies, flight equipment expendable parts and
supplies, the weighted average method for trading goods, and the first-in, first-out method for truck and
trailer expendable parts, fuel, lubricants and spare parts. NRV is the estimated selling price in the ordinary
course of business, less estimated costs necessary to make the sale.
Asset Held for Sale and Discontinued Operation
Assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair
value less costs to sell. Noncurrent assets and disposal groups are classified as held for sale if their carrying
amount will be recovered principally through a sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly probable and the asset or disposal group is
available for immediate sale in its present condition. Management must be committed to the sale which
should be expected to qualify for recognition as a completed sale within 12 months from the date of
classification.
Property and equipment once classified as held for sale are not depreciated or amortized.
17
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 profit or loss from continuing operations in the period in which
the criteria for the asset or disposal group to be classified as held for sale are no longer met. The Group
presents that adjustment in the same caption in profit or loss used to present a gain or loss recognized, if any.
In the consolidated statement of income of the reporting period, and of the comparable period of the
previous year, income and expenses from discontinued operations are reported separately from normal
income and expenses down to the level of profit after taxes, even when the Group retains a non-controlling
interest in the asset after the sale. The resulting profit or loss (after taxes) is reported separately in profit or
loss.
Property and Equipment
Property and equipment, other than land, are carried at cost, less accumulated depreciation, amortization and
impairment losses, if any. The initial cost of property and equipment consists of its purchase price and costs
directly attributable to bringing the asset to its working condition for its intended use. When significant parts
of property and equipment are required to be replaced in intervals, the Group recognizes such parts as
individual assets with specific useful lives and depreciation, respectively. Land is carried at cost less
accumulated impairment losses.
Subsequent expenditures relating to an item of property and equipment that have already been recognized
are added to the carrying amount of the asset when the expenditure have resulted in an increase in future
economic benefits, in excess of the originally assessed standard of performance of the existing asset, will
flow to the Group. Expenditures for repairs and maintenance are charged to the operations during the year
in which they are incurred.
Drydocking costs, consisting mainly of engine overhaul, replacement of steel plate of the vessels’ hull and
related expenditures, are capitalized as a separate component of “Vessels in operations”. When significant
drydocking costs are incurred prior to the end of the amortization period, the remaining unamortized balance
of the previous drydocking cost is charged against profit or loss.
Vessels under refurbishment, if any, include the acquisition cost of the vessels, the cost of ongoing
refurbishments and other direct costs. Construction in progress represents structures under construction and
is stated at cost. This includes cost of construction and other direct costs. Borrowing costs that are directly
attributable to the refurbishment of vessels and construction of property and equipment are capitalized
during the refurbishment and construction period. Vessels under refurbishment and construction in progress
are not depreciated until such time the relevant assets are complete and available for use. Refurbishments of
existing vessels are capitalized as part of vessel improvements and depreciated at the time the vessels are put
back into operation.
Vessel on lay-over, if any, represents vessel for which drydocking has not been done pending availability of
the necessary spare parts. Such vessels, included under the “Property and equipment account in the
consolidated balance sheet is stated at cost less accumulated depreciation and any impairment in value.
18
Depreciation and amortization are computed using the straight-line method over the following estimated
useful lives of the property and equipment as follows:
Number of Years
Vessels in operation, excluding drydocking costs and
vessel equipment and improvements
Drydocking costs
Vessel equipment and improvements
Containers and reefer vans
Terminal and handling equipment
Furniture and other equipment
Land improvements
Buildings and warehouses
Transportation equipment
15-30
2-2 ½
3-5
5-10
5-7
3-5
5-10
5-20
5-10
Leasehold improvements are amortized over their estimated useful lives of 5-20 years or the term of the
lease, whichever is shorter. Flight equipment is depreciated based on the estimated number of flying hours.
Depreciation commences when an asset is in its location or condition capable of being operated in the
manner intended by management. Depreciation ceases at the earlier of the date that the item is classified as
held for sale in accordance with PFRS 5 and the date the asset is derecognized.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the item) is included in profit or
loss in the year the item is derecognized.
The asset’s residual values, useful lives and depreciation methods are reviewed at each reporting period, and
adjusted prospectively if appropriate. Fully depreciated assets are retained in the accounts until these are no
longer in use. When property and equipment are sold or retired, their cost and accumulated depreciation and
any allowance for impairment in value are eliminated from the accounts and any gain or loss resulting from
their disposal is included in profit or loss.
Investment Property
Investment property, consisting of a parcel of land of 2GO Express, Inc., is measured at cost less any
impairment in value.
Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic
benefits associated with the asset will flow to the Group and the cost of the item can be measured reliably.
Derecognition of an investment property will be triggered by a change in use or by sale or disposal. Gain or
loss arising on disposal is calculated as the difference between any disposal proceeds and the carrying
amount of the related asset, and is recognized in the parent company statement of income. Transfers are
made to investment property when, and only when, there is change in use, evidenced by cessation of owneroccupation, commencement of an operating lease to another party or completion of construction or
development, transfers are made from investment property when, and only when, there is a change in used,
evidenced by commencement of owner-occupation or commencement of development with a view to sale.
19
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible
assets acquired in a business combination is fair value as at the date of the acquisition. Following initial
recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated
impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not
capitalized and expenditure is reflected in profit or loss in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Software development costs
Software development costs are initially recognized at cost. Following initial recognition, the software
development costs are carried at cost less accumulated amortization and any accumulated impairment in
value.
The software development costs is amortized on a straight-line basis over its estimated useful economic life
of three to five years and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The amortization commences when the software development
costs is available for use. The amortization period and the amortization method for the software
development costs are reviewed at each reporting period. Changes in the estimated useful life is accounted
for by changing the amortization period or method, as appropriate, and treated as changes in accounting
estimates. The amortization expense is recognized in profit or loss in the expense category consistent with
the function of the software development costs.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually either
individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to
determine whether the indefinite life continues to be supportable. If not, the change in useful life from
indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the
net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss when the asset
is derecognized.
Impairment of Nonfinancial Assets
The Group assesses at the end of each reporting period whether there is an indication that nonfinancial asset
may be impaired. If any such indication exists, or when annual impairment testing for nonfinancial asset is
required, the Group makes an estimate of the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less
costs to sell and its value in use (VIU) and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets. Where the
carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is
written down to its recoverable amount. In assessing VIU, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation
model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly
traded subsidiaries or other available fair value indicators.
Impairment losses of continuing operations are recognized in profit or loss in those expense categories
consistent with the function of the impaired asset.
20
For nonfinancial assets excluding goodwill, an assessment is made at the end of each reporting period as to
whether there is any indication that previously recognized impairment losses may no longer exist or may
have decreased. If such indication exists, the Group makes an estimate of the asset’s or CGU’s recoverable
amount. A previously recognized impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset’s recoverable amount since the last impairment loss was
recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been determined, net of depreciation
or amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is
recognized in profit or loss unless the asset is carried at revalued amount, in which case the reversal is
treated as a revaluation increase. After such a reversal, the depreciation expense or amortization is adjusted
in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic
basis over its remaining useful life.
The Group’s nonfinancial assets consist of creditable withholding taxes, input VAT, prepaid expense, other
current assets, assets held for sale, property and equipment, investment property, investments in associates,
software development cost, deferred input VAT and pension asset.
Goodwill
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be
impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of
CGU) to which the goodwill relates. Where the recoverable amount of CGU (or group of CGUs) is less
than their carrying amount, an impairment loss is recognized immediately in profit or loss of the CGU (or
the group of CGUs) to which goodwill has been allocated. Impairment losses relating to goodwill cannot be
reversed in future periods.
Provisions and Contingencies
Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of a
past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation.
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless
the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not
recognized in the consolidated financial statements but disclosed in the notes to consolidated financial
statements when an inflow of economic benefits is probable.
Equity
Share capital is measured at par value for all shares issued. When the Company issues more than one class
of stock, a separate account is maintained for each class of stock and the number of shares issued.
Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a
deduction from proceeds, net of tax.
Additional paid-in capital (APIC) is the difference between the proceeds and the par value when the shares
are sold at a premium. Contributions received from shareholders are recorded at the fair value of the items
received with the credit going to share capital and any excess to APIC.
Retained earnings (deficit) represent the cumulative balance of net income or loss, net of any dividend
declaration and other capital adjustments.
21
Treasury shares are owned equity instruments that are reacquired. Treasury shares are recognized at cost
and deducted from equity. No gain or loss is recognized in profit or loss on the purchase,
sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying
amount and the consideration, if reissued, is recognized as APIC. Voting rights related to treasury shares are
nullified for the Group and no dividends are allocated to them.
Other comprehensive income comprises items of income and expenses that are not recognized in profit or
loss for the year in accordance with PFRS.
Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and
the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received,
excluding discounts, rebates, value-added taxes or duty.
The Group assesses its revenue arrangement against specific criteria in order to determine if it is acting as
principal or agent. The Group has concluded that it is acting as a principal in all of its revenue
arrangements. The specific recognition criteria for each type of revenue are as follows:
Freight and passage revenue are recognized when the related services are rendered. Customer payments for
services which have not yet been rendered are classified as unearned revenue under “Trade and other
payables” in the consolidated balance sheet.
Service fees are recognized when the related services have been rendered. Service revenue are also
recognized when cargos are received by either shippers or consignee for export and import transactions.
These amounts are presented, net of certain costs which are reimbursed by customers.
Revenue from sale of goods is recognized when the significant risks and rewards of ownership of the goods
have passed to the buyer, usually on delivery of the goods.
Revenue from sale of food and beverage is recognized upon delivery and acceptance by customers.
Charter revenues from short-term chartering arrangements are recognized in accordance with the terms of
the charter agreements.
Manning and crewing services revenue is recognized upon embarkation of qualified ship crew based on
agreed rates and when the corresponding training courses have been conducted.
Management fee is recognized when the related services are rendered.
Commissions are recognized as revenue in accordance with the terms of the agreement with the principal
and when the related services have been rendered.
Rental income arising from operating leases is recognized on a straight-line basis over the lease term.
Interest income. For all financial instruments measured at amortized cost and interest bearing financial
assets classified as AFS, interest income is recorded using the effective interest rate (EIR), which is the rate
that exactly discounts the estimated future cash payments or receipts through the expected life of the
financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset
or liability.
Dividend income is recognized when the shareholders’ right to receive the payment is established.
22
Costs and Expenses
Costs and expenses are recognized in profit or loss when decrease in future economic benefits related to a
decrease in an asset or an increase of a liability has arisen that can be measured reliably.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the
arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a
specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after the
inception of the lease only if any of the following applies:
a. 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).
The Group as a lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of
the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if
lower, at the present value of the minimum lease payments. Lease payments are apportioned between the
finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognized directly in profit or loss.
Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset and the
lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease
term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified
as operating leases. Operating lease payments are recognized as expense in profit or loss on a straight-line
basis over the lease term.
The Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the
carrying amount of the leased asset and recognized over the lease term on the same bases as rental income.
Contingent rents are recognized as revenue in the period in which they are earned.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use or sale,
are added to the cost of those assets, until such time as the assets are substantially ready for their
intended use or sale. All other borrowing costs are expensed as incurred.
23
Pension Benefits
The Group has defined benefit pension plans, which require contributions to be made to separately
administered funds.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit
method. Actuarial gains and losses are recognized as income or expense when the net cumulative
unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year
exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date.
These gains or losses are recognized over the expected average remaining working lives of the employees
participating in the plans.
The past service cost is recognized as an expense on a straight-line basis over the average period until the
benefits become vested. If the benefits are already vested immediately following the introduction of, or
changes to, a pension plan, past service cost is recognized immediately.
The defined benefit asset or liability comprises the present value of the defined benefit obligation, less past
service costs and actuarial gains and losses not yet recognized and less the fair value of plan assets out of
which the obligations are to be settled. Plan assets are assets that are held by a long-term employee benefit
fund or qualifying insurance policies. Plan assets are not available to the creditors of the Group, nor can
they be paid directly to the Group. Fair value is based on market price information and in the case of quoted
securities it is the published bid price. The value of any defined benefit asset recognized is restricted to the
sum of any past service costs and actuarial gains and losses not yet recognized and the present value of any
economic benefits available in the form of refunds from the plan or reductions in the future contributions to
the plan.
Taxes
Current tax
Current tax assets and liabilities for the current periods are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those
that are enacted at the end of each reporting period, in the countries where the Group operates and generates
taxable income.
Current tax relating to items recognized directly in equity is recognized in equity and not in profit or loss.
Management periodically evaluates positions taken in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the
financial reporting date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are
recognized for all deductible temporary differences relating to carryforward benefits of the minimum
corporate income tax (MCIT) and the net operating loss carry over (NOLCO) to the extent that it is probable
that sufficient future taxable income will be available against which the deductible temporary differences,
carryforward benefits of the excess of the MCIT and NOLCO can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient future taxable income will be available to allow
24
all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end
of each reporting period and are recognized to the extent that it has become probable that sufficient future
taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when
the asset is realized or the liability is settled, based on tax rate and tax laws that have been enacted or
substantively enacted at the end of the reporting period.
Deferred tax relating to items recognized in other comprehensive income or directly in equity is recognized
in the consolidated statement of comprehensive income and consolidated statement of changes in equity and
not in profit or loss.
Deferred tax assets and liabilities are offset, if there is a legally enforceable right to offset current income tax
assets against current income tax liabilities and they relate to income taxes levied by the same taxing
authority and the Group intends to settle its current income tax assets and liabilities on a net basis.
Value-added tax (VAT)
Revenue, expenses, assets and liabilities are recognized net of the amount of VAT, except where the VAT
incurred as a purchase of assets or service is not recoverable from the taxation authority, in which are the
VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable.
The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of
receivables or payables in the consolidated balance sheet.
Creditable withholding taxes
Creditable withholding taxes (CWT), included in “Other current assets” account in the consolidated balance
sheet, are amounts withheld from income subject to expanded withholding taxes (EWT). CWTs can be
utilized as payment for income taxes provided that these are properly supported by certificates of creditable
tax withheld at source subject to the rule on Philippine income taxation. CWTs which are expected to be
utilized as payment for income taxes within 12 months are classified as current asset.
Foreign Currency-denominated Transactions and Translations
The Group’s consolidated financial statements are presented in Philippine Peso, which is the Parent
Company’s functional and presentation currency. Each entity in the Group determines its own functional
currency and items included in the financial statements of each entity are measured using that functional
currency.
Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the
functional currency rate of exchange ruling at the end of the reporting period. All differences are taken to
the profit or loss except for the exchange differences arising from translation of the balance sheets of
subsidiaries and associates which are considered foreign entities into the presentation currency of the Parent
Company (Peso) at the closing exchange rate at the end of the reporting period and their statements of
income translated using the weighted average exchange rate for the year. These are recognized in other
comprehensive income until the disposal of the net investment, at which time they are recognized in profit
or loss. Tax charges and credits attributable to exchange differences on those monetary items are also
recorded in equity.
25
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
the exchange rates as at the dates of the initial transactions and are not retranslated. Non-monetary items
measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair
value was determined.
Related Party Relationships and Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making financial and operating decisions.
Parties are also considered to be related if they are subject to common control or
common significant influence. Related parties may be individuals or corporate entities. The key
management personnel of the Group and post-employment benefit plans for the benefit of the Group’s
employees are also considered to be related parties. In considering each related party relationships, attention
is directed to the substance of the transaction and not merely its legal form.
Earnings Per Common Share
Basic earnings per common share are determined by dividing net income by the weighted average number
of common shares outstanding, after retroactive adjustment for any stock dividends and stock splits declared
during the year.
Diluted earnings per common share amounts are calculated by dividing the net income for the year
attributable to the ordinary equity holders of the parent by the weighted average number of common shares
outstanding during the year plus the weighted average number of ordinary shares that would be issued for
any outstanding common share equivalents. The Group has no potential dilutive common shares.
Dividends on Common Shares
Dividends on common shares are recognized as a liability and deducted from retained earnings when
approved by the respective shareholders of the Company and subsidiaries. Dividends for the year that
are approved after the balance sheet date are dealt with as an event after the balance sheet date.
Segment Reporting
The Company’s operating businesses are organized and managed separately according to the nature of
the products and services provided, with each segment representing a strategic business unit that
offers different products and serves different markets. Financial information on business segments is
presented in Note 5.
Events After the Reporting Period
Post year events that provide evidence of conditions that existed on the balance sheet date are
reflected in the consolidated financial statements. Subsequent events that are indicative of conditions
that arose after balance sheet date are disclosed in the notes to consolidated financial statements when
material.
3. Significant Judgments, Accounting Estimates and Assumptions
The preparation of the consolidated financial statements in compliance with PFRS requires
management to make judgments, accounting estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. The judgments,
estimates and assumptions are based on management’s evaluation of relevant facts and
26
circumstances as of the date of the consolidated financial statements. Actual results could differ
from these estimates and assumptions used.
Judgments
In the process of applying the Group’s accounting policies, management has made the following judgments,
apart from those involving estimations, which have the most significant effect on the amounts recognized in
the financial statements:
Determination of functional currency
Based on the economic substance of the underlying circumstances relevant to the Group, the functional
currency is determined to be the Philippine Peso. It is the currency that mainly influences the sale of
services and the cost of rendering the services.
Determination if control exists in an investee company
Control is presumed to exist when the parent company owns, directly or indirectly through subsidiaries,
more than half of the voting power of an entity unless, in exceptional circumstances, it can be clearly
demonstrated that such ownership does not constitute control. Management has determined that despite
only having 50% ownership in STI, it has control by virtue of its power to cast the majority votes at
meetings of the BOD and control of the entity is by that BOD.
Classification of financial instruments
The Group classifies a financial instrument, or its component parts, on initial recognition as a financial asset,
a financial liability or an equity instrument in accordance with the substance of the contractual agreement
and the definitions of a financial asset, a financial liability or an equity instrument. The substance of a
financial instrument, rather than its legal form, governs its classification in the consolidated balance sheet.
The Group’s classification of financial instruments is presented in Note 35.
Classification of leases - the Group as lessee
The Group has entered into commercial property leases on its distribution warehouses, sales outlets,
trucking facilities and administrative office locations. Based on an evaluation of the terms and conditions
of the arrangements, management assessed that there is no transfer of ownership of the properties by the end
of the lease term and the lease term is not a major part of the economic life of the properties. Thus, the
Group does not acquire all the significant risks and rewards of ownership of these properties and so account
for it as an operating lease
The Group has also entered into a finance lease agreement covering certain property and equipment. The
Group has determined that it bears substantially all the risks and benefits incidental to ownership of said
properties based on the terms of the contracts (such as existence of bargain purchase option, present value of
minimum lease payments amount to at least substantially all of the fair value of the leased asset).
Classification of leases - the Group as lessor
The Group has entered into short-term leases or chartering arrangements, which provide no transfer of
ownership to the lessee. The Group has determined that it retains all the significant risks and rewards of
ownership of these equipment and so accounts for it as an operating lease.
Classification of assets held for sale
In 2011, management assessed that some of the existing vessels met the criteria as assets held for
the following reasons: (1) the related assets are available for immediate sale; (2) preliminary
27
negotiations with willing buyers were executed; and (3) the sale is expected to be completed within 12
months from the end of reporting period.
The Group classified as assets held for sale five of its existing vessels as at June 2012 with total carrying
values of P
=391.6 million, net of impairment losses (see Note 10).
Classification of redeemable preferred shares (RPS)
The Group has RPS which is redeemable at any time, in whole or in part, within a period not exceeding 10
years from the date of issuance. If not redeemed, the RPS may be converted to a bond over prevailing
treasury bill rate to be issued by the Parent Company. As at June 31, 2012 and December 31, 2011, the
Group classified this RPS amounting to =
P25.9 million.
Evaluation of legal contingencies
The Group is a party to certain lawsuits or claims arising from the ordinary course of business. The Group’s
management and legal counsel believe that the eventual liabilities under these lawsuits or claims, if any, will
not have material effect on the consolidated financial statements. Accordingly, no provision for probable
losses arising from legal contingencies was recognized in 2012 and 2011 (see Note 31).
Evaluation of events after the reporting period
Management exercises judgment in determining whether an event, favorable or unfavorable occurring
between the end of the reporting period and the date when the financial statements are authorized for issue,
is an adjusting event or non-adjusting event. Adjusting events provide evidence of conditions that existed at
the end of the reporting period whereas non-adjusting events are events that are indicative of conditions that
arose after the reporting period. Non-adjusting events that would require additional disclosure in the
consolidated financial statements are disclosed in Note 37.
Estimates and Assumptions
The following are the key assumptions concerning the future and other key sources of estimation
uncertainty, at the end of reporting period that have a significant risk of causing a material adjustment to the
carrying amount of assets and liabilities within the next financial year.
Determination of fair value of financial instruments
Where the fair value of financial assets and liabilities recorded in the consolidated balance sheet cannot be
derived from active markets, they are determined using valuation techniques including
the discounted cash flows model. The inputs to the models are taken from observable markets where
possible, but where this is not feasible, a degree of judgment is required in establishing the fair values. The
judgments include considerations of inputs such as liquidity risk and credit risk. Changes in assumptions
about these factors could affect the reported fair value of financial instruments.
The carrying values and corresponding fair values of financial assets and financial liabilities and the manner
in which fair values were determined are described in Note 36.
Estimation of allowance for doubtful receivables
The Group maintains an allowance for impairment losses on trade and other receivables at a level
considered adequate to provide for potential uncollectible receivables. The level of this allowance
is evaluated by the Group on the basis of factors that affect the collectibility of the accounts.
These factors include, but are not limited to, the length of the Group’s relationship with debtors,
their payment behavior and other known market factors. The Group reviews the age and status of
28
the receivables, and identifies accounts that are to be provided with allowance on a continuous basis. The
amount and timing of recorded expenses for any period would differ if the Group made different judgment
or utilized different estimates. An increase in the Group’s allowance for impairment losses would increase
the Group’s recorded expenses and decrease current assets.
The main considerations for impairment assessment include whether any payments are overdue or if there
are any known difficulties in the cash flows of the counterparties. The Group assesses impairment in two
levels: individually assessed allowances and collectively assessed allowances.
The Group determines allowance for each significant receivable on an individual basis. Among the items
that the Group considers in assessing impairment is the inability to collect from the counterparty based on
the contractual terms of the receivables. Receivables included in the specific assessment are the accounts
that have been endorsed to the legal department, non-moving account receivables, accounts of defaulted
agents and accounts from closed stations.
For collective assessment, allowances are assessed for receivables that are not individually significant and
for individually significant receivables where there is no objective evidence of individual impairment.
Impairment losses are estimated by taking into consideration the age of the receivables, past collection
experience and other factors that may affect collectibility.
As at June 30, 2012 and December 31, 2011, trade and other receivables amounted to P
= 3,389.78 million
and 2,898.2 million, respectively, net of allowance for doubtful receivables of =
P318.5 million and =
P308.1
million, respectively (see Note 7).
Determination of net realizable value of inventories
The Group provides an allowance for inventories whenever the value of inventories becomes lower than its
cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes. The
allowance account is reviewed on an annual basis. Inventory items identified to be obsolete and unusable
are written off and charged as expense for the period.
As at June 30, 2012 and December 31, 2011, the carrying values of inventories amounted to
=434.4 million and =
P
P407.4 million, net of allowance for inventory obsolescence of P
=70.7 million (see Note
8).
Estimation of useful lives of property and equipment
The useful life of each of the Group’s item of property and equipment is estimated based on the period over
which the asset is expected to be available for use until it is derecognized. Such estimation is based on a
collective assessment of similar businesses, internal technical evaluation and experience with similar assets.
The estimated useful life of each asset is reviewed periodically and updated if expectations differ from
previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other
limits on the use of the asset. It is possible, however, that future results of operations could be materially
affected by changes in the amounts and timing ofrecorded expenses brought about by changes in the factors
mentioned above. A reduction in the estimated useful life of any item of property and equipment would
increase the recorded depreciation expenses and decrease the carrying value of property and equipment.
As at June 30, 2012 and December 31, 2011 property and equipment amounted to P
=4,599.5 million and =
P
4,651.1 million, net of accumulated depreciation, amortization and impairment loss of =
P5,916.5 million
andP
=5,527.9 million, respectively (see Note 14).
29
Estimation of residual value of property and equipment
The residual value of the Group’s property and equipment is estimated based on the amount that would be
obtained from disposal of the asset, after deducting estimated costs of disposal, if the assets are already of
the age and in the condition expected at the end of its useful life. Such estimation is based on the prevailing
price of scrap steel. The estimated residual value of each asset is reviewed periodically and updated if
expectations differ from previous estimates due to changes in the prevailing price of scrap steel.
There is no change in the estimated residual value of property and equipment in 2012 and 2011.
Estimation of useful life of software development costs
The estimated useful life used as a basis for amortizing software development costs was determined on the
basis of management’s assessment of the period within which the benefits of these costs are expected to be
realized by the Group.
As at June 30, 2012 and December 31, 2011, the carrying value of software development costs amounted to
=10.4 million and =
P
P13.8 million, respectively (see Note 16).
Impairment of AFS investments
The Group considers AFS financial assets as impaired when there has been a significant or prolonged
decline in the fair value of such investments below their cost or where other objective evidence of
impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The
Group treats “significant” generally as 20% or more and “prolonged” as greater than 12 months. In
addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and
future cash flows and discount factors for unquoted equities in determining the amount to be impaired.
At June 30, 2012 and December 31, 2011, the carrying value of AFS investments amounted to =
P9.4 million
(see Note 11). No impairment loss was recognized in 2012, 2011 and 2010.
Assessment of impairment of nonfinancial assets and estimation of recoverable amount
The Group assesses at the end of each reporting period whether there is any indication that the nonfinancial
assets listed below may be impaired. If such indication exists, the entity shall estimate the recoverable
amount of the asset, which is the higher of an asset’s fair value less costs
to sell and its value-in-use. In determining fair value less costs to sell, an appropriate valuation model is
used, which can be based on quoted prices or other available fair value indicators. In estimating the value-inuse, the Group is required to make an estimate of the expected future cash flows from the cash generating
unit and also to choose an appropriate discount rate in order to calculate the present value of those cash
flows.
Determining the recoverable amounts of the nonfinancial assets listed below, which involves the
determination of future cash flows expected to be generated from the continued use and ultimate disposition
of such assets, requires the use of estimates and assumptions that can materially affect
the consolidated financial statements. Future events could indicate that these nonfinancial assets are
impaired. Any resulting impairment loss could have a material adverse impact on the financial condition
and results of operations of the Group.
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:
Jun-12
Dec-11
(In Thousands)
Property and equipment - net (Note 14)
Investment property (Note 15)
4,599,492
4,651,107
9,763
9,763
Investments in associates (Notes 12)
103,550
99,777
Software development cost (Note 16)
10,393
13,826
The Group recognized impairment loss on assets held for sale amounting to =
P223.6 million in 2011 and on
property and equipment amounting to =
P778.8 million in 2010 (see Notes 10 and 14). The significant
assumptions used in the estimation of the value in use are disclosed in Note 14.
As of June 30, 2012 and December 31, 2011, no impairment loss was recognized on the investment
property, as its carrying value is higher than its fair value, which was determined based on the valuation
performed by a qualified and independent appraiser. The valuation undertaken considered the sale of
similar property and related market data.
As of June 30, 2012 and December 31, 2011, no impairment loss was recognized on other nonfinancial
assets.
Estimation of probable losses
The Group makes an estimate of the provision for probable losses on its creditable withholding tax (CWT)
and input VAT. Management’s assessment is based on historical experience and other developments that
indicate that the carrying value may no longer be recoverable. The aggregate carrying values of CWT, input
VAT and deferred input VAT amounting to P
=1,342.1 and P
=1,013.6 million as of June 30, 2012 and
December 31, 2011, respectively, is fully recoverable (see Notes 9 and 17).
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation
of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in
use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit
and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The
significant assumptions used in the estimation of the recoverable amount of goodwill are described in Note
5.
As at June 30, 2012 and December 31, 2011, the carrying amount of goodwill amounted to =
P 250.4 million
net of impairment loss of =
P6.0 million on goodwill in 2010 (see Note 5).
Estimation of retirement benefit
The determination of the obligation and cost for pension and other retirement benefits is dependent on the
selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions were
described in Note 32 and include among others, discount rate, expectedreturn 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
31
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 discount rate and the expected rate of return on plan assets are determined based on the market prices
prevailing on that date, applicable to the period over which the obligation is to be settled.
4. Operating Segment Information
Operating segments are components of the Group: (a) that engage in business activities from which
they may earn revenue and incur expenses (including revenues and expenses relating to transactions
with other components of the Group); (b) whose operating results are regularly reviewed by the
Group’s BOD to make decisions about resources to be allocated to the segment
and assess its performance; and (c) for which discrete financial information is available. The Group’s
Chief Operation Decision Maker is the Parent Company’s BOD.
For purposes of management reporting, the Group is organized into business units based on their
products and services. The Group has the following segments:
a. The shipping segment renders passage transportation and cargo freight services.
b. The supply chain segment provides logistics services and supply chain management.
c. The manpower services segment renders manning and personnel, particularly crew management
services.
The segment results for the year ended December 31, 2011 pertain to the shipping and supply chain
segments. Segment results of the manpower services segment were included until the date of its
disposal in 2010 and presented as discontinued operations in the 2010 and 2009 segment information
(see Note 30).
The Parent Company’s BOD regularly review the operating results of its business units separately for
the purpose of making decisions about resource allocation and performance assessment. Segment
performance is evaluated based on operating profit or loss and is measured consistently with operating
profit or loss in the consolidated financial statements. The Group financing (including finance costs
and finance income) and income taxes are managed on a group basis and are not allocated to operating
segments.
The Group has only one geographical segment as all its assets are located in the Philippines. The
Group operates and devices principally all its revenue from domestic operations. Thus, geographical
business information is not required.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to
transactions with third parties. Segment revenue includes transfer of goods and services between
operating segments. Such transfers are eliminated in the consolidation. Further, there were no revenue
transactions with single customer accounts to 10% of total revenue.
Further, the measurement of the segments is the same as those described in the summary of significant
accounting and financial reporting policies, except for NENACO retirement benefits where the related
actuarial gains or losses are recognized in the parent company financial statements.
32
Financial information about business segments follows:
Shipping
Supply chain
Revenue
4,956,313
Fuel, oil and lubricants
Operating expenses
Terminal expenses
2,255,298
1,596,145
482,616
Cost of goods sold
Overhead
Eliminations/
Consolidated
adjustments
balances
(In Thousands)
2,127,178
353,246
(120,031)
6,963,460
(81,147)
(26,626)
2,263,451
2,480,288
455,990
831,386
172,742
(19,511)
831,386
506,477
8,153
965,291
Depreciation and amortization
Operating expenses
Terminal expenses
420,722
339,287
51,287
25,355
9,889
-
Overhead
Interest and financing charges
30,147
(177,666)
15,465
(18,857)
-
45,613
(196,523)
337
11,560,485
3,773
38,900
2,486,717
(1,798,541)
3,773
39,238
12,248,661
8,781,346
1,930,170
(1,370,577)
9,340,939
Share in equity earnings (losses) of
associates
Provision for (benefit from) income
tax
Segment
assets
Segment liabilities
446,076
349,671
51,287
Jun-11
Shipping
Supply chain
Eliminations/
Consolidated
adjustments
balances
(In Thousands)
Revenue
3,795,531
2,603,628
Fuel, oil and lubricants
1,659,668
1,834
Operating expenses
581,398
883,676
(97,875)
1,367,198
Terminal expenses
Cost of goods sold
613,204
17,370
1,395,772
(856)
629,718
1,395,772
158,855
(47,908)
110,947
Overhead
-
6,399,159
1,661,502
Depreciation and amortization
-
Operating expenses
387,865
27,842
415,707
Terminal expenses
Overhead
45,510
52,177
17,370
45,510
69,547
Interest and financing charges
(29,492)
(24,559)
Share in equity earnings (losses) of associates
(32,048)
10,128
Provision for (benefit from) income tax
Segment assets
Segment liabilities
29,492
(24,559)
(21,920)
20,156
11,634,528
(117,913)
2,664,706
(1,498,214)
(97,757)
12,801,019
7,994,800
2,092,371
(1,136,036)
8,951,135
33
5. Business Combinations
Acquisition of SOI
On June 3, 2008, 2GO Express Inc. (formerly ATS Express Inc.) acquired 100% ownership in SOI in
line with the Group’s business strategy to provide total supply chain solutions to clients and to further
improve the effectiveness and efficiency of its delivery services. Goodwill resulting from this
acquisition amounted to =
P250.5 million.
Impairment testing of goodwill
The amount of goodwill acquired from the acquisition of SOI has been attributed to each cashgenerating unit. The recoverable amount of goodwill has been determined based on a VIU calculation
using cash flow projections based on financial budgets approved by senior management covering a
five-year period. The discount rate applied to cash flow projections is 15.20% in 2011 and 2010.
Cash flows beyond the five-year period are extrapolated using a zero percent growth rate.
Key assumptions used in value in use calculations
The following describes each key assumption on which management has based its cash flow
projections to undertake impairment testing of goodwill.
a. Budgeted EBITDA has been based on past experience adjusted for the following:
 Revenue growth rate. Management expects a 7% decline in revenue in 2012 and a 5%
constant growth in subsequent years. The decline in revenue is in line with the ongoing
integration of the Group’s supply chain segment and the expected growth from the second
year is based on management’s strategic plan to expand its supply chain operation.
 Variable expenses. Management expects variable expenses to decrease by 9% in 2012 due to
the decline in revenue. Budgeted increase in variable expenses in 2013 is 10% and 5% in
subsequent years.
 Fixed operating expenses. Management expects an increase in fixed operating expenses of
17% in 2012 and 4% to 5% increase in subsequent years.
 Foreign exchange rates. The assumption used to determine foreign exchange rate is a
fluctuating Philippine peso exchange rate of P
=43 to a dollar starting 2012 until the fifth year.
 Materials price inflation. The assumption used to determine the value assigned to the
materials price inflation is 4.45%, which then increased by 0.20% on the second year, another
increase of 0.40% on the third year and remains steady until the fifth year. The starting point
of 2011 is consistent with external information sources.
b. Budgeted capital expenditure is based on management’s plan to expand the Group’s supply chain
segment.
c. Sensitivity to changes in assumptions
Other than as disclosed above, management believes that any reasonably possible change in any
of the above key assumptions would not cause the carrying value of any cash generating unit to
exceed its recoverable amount.
As at June 30, 2012 and December 31, 2011, the Group has not recognized any impairment in
goodwill on SOI.
34
Mergers of ZIP, RVSI and the Parent Company
On July 7, 2010, the SEC approved the merger of ZIP and the Parent Company, with the latter as the
surviving entity, effective July 7, 2010. ZIP is a wholly owned subsidiary of the Parent Company.
Consequently, by operation of law, the separate corporate existence of ZIP ceased as provided under
the Corporation Code. Thus, upon the implementation of the merger, all outstanding shares of capital
stocks of ZIP were cancelled.
On August 16, 2010, the SEC approved the merger of RVSI and the Parent Company, with the latter
as the surviving entity, effective September 1, 2010. RVSI is a wholly owned subsidiary of 2GO
Group Inc. Consequently, by operation of law, the separate corporate existence of RVSI ceased as
provided under the Corporation Code. Thus, upon the implementation of the merger, all outstanding
shares of capital stocks of RVSI were cancelled. Goodwill arising from the acquisition of RVSI
amounting to P
=6.0 million fully was impaired in 2010.
The mergers of ZIP and RVSI with the Parent Company are part of the integration of the 2GO
business to further improve the effectiveness and efficiency of the delivery of the Group’s services to
their customers.
Sale of KLN Investment Holdings Philippines, Inc.
On January 22, 2009, 2GO Express Inc. entered into an Investor’s Agreement (the Agreement) with
Kerry Logistics Network Limited (KLN), a Hong-Kong based logistics company. In accordance with
the Agreement, 2GO Express Inc. invested P
=4.8 million in a wholly owned subsidiary, KLN
Investment Holdings Philippines, Inc. (KLN Investment) on February 26, 2009.
On August 1, 2009, 2GO Express Inc. subsequently sold its investment in KLN Investment to Kerry
Freight Services (Far East) Pte. Ltd (Kerry freight), a subsidiary of KLN, which resulted in a gain of P
=
52.5 million.
6. Cash and Cash Equivalents
Cash and Cash Equivalents
Jun-12
Cash on hand and in banks
Cash equivalents
Dec-11
638,722
61,764
775,542
130,721
700,486
906,263
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are made for
varying periods of up to three months depending on the immediate cash requirements of the Group,
and earn interest at the respective short-term investment rates.
Total interest income earned by the Group from cash in banks and cash equivalents amounted to
=
P2.3 million and P
=6.7 million in 2012 and 2011 respectively.
35
7. Trade and Other Receivables
Receivables
Jun-12
Dec-11
Trade
Service fees
374,246
131,161
1,269,768
1,228,008
86,908
87,988
Distribution
555,744
390,329
Others
748,545
271,009
Nontrade
512,247
975,775
Advances to officers and employees
Insurance and Other Claims
26,067
134,764
18,171
104,817
Less allowance for doubtful accounts
3,708,289
(318,505)
3,207,258
(309,065)
3,389,784
2,898,193
Freight
Passage
Trade receivables are non-interest bearing and are generally on 30 days’ terms. Insurance and other
claims pertain to the Group’s claims for reimbursement of losses against insurance coverages for hull
and machinery, cargo and personal accidents.
Trade and other receivables that are individually determined to be impaired at the end of reporting
period relate to debtors that are in significant financial difficulties and have defaulted on payments
and whose accounts are under dispute and legal proceedings. These receivables are not secured by
any collateral or credit enhancements.
Freight and passage receivables amounting to P
=1,116.2 million as of December 31, 2011 were
assigned to secure long-term debt obtained by the Company under the omnibus loan and securities
agreement (see Note 20).
8. Inventories
Inventories
Jun-12
Fuel and lubricants (at cost)
Dec-11
119,861
108,122
215,903
151,726
98,650
147,593
At Net Realizable Value
Trading goods
Materials, parts and supplies
At cost
Total inventories at lower of cost or
net realizable value
303,736
218,511
36
Inventories included in the
disposal group classified as held
for sale
434,414
407,441
The allowance for inventory obsolescence as at June 30, 2012 and December 31, 2011 is P
=70.7
million.
The cost of inventories recognized as “Cost of goods sold” in the consolidated statements of income
amounted to P
=831.4 million and P
=2,601.5 million in June 30, 2012 and December 2011, respectively.
9. Other Current Assets
Other Current Assets
Jun-12
Dec-11
Prepaid Expenses
116,447
103,736
Creditable Withholding Tax
809,959
748,264
Input value-added tax
Others
212,721
17,441
130,594
13,635
1,156,568
996,229
Outstanding CWT pertains mainly to the amounts withheld from income derived from freight, sale of
goods and service fees for logistics and other services.
10. Assets Held for Sale
On December 5, 2011, as a result of the Group’s integration and vessels’ route rationalization,
the Group’s BOD approved the sale of certain vessels within the next 12 months, namely SuperFerry
1, SuperFerry 5, 2GO1, 2GO2 and SuperCat 23. Accordingly, the net carrying values of these vessels
amounting to P
=916.2 million were reclassified from property and equipment (see Note 14). The
recoverable values of these vessels based on quotations obtained from prospective
buyers, net of estimated costs to sell, amounted to P
=692.6 million December 31, 2011. As a result, the
Group recognized impairment losses amounting to P
=223.6 million for 2GO1 and 2GO2, representing
the excess of carrying value over the fair value less cost to sell of the vessels.
In June 2012, 2GO1 and 2GO2 were eventually sold for cash proceeds of =
P154.6 million, which
resulted to loss on sale of asset amounting P
=146.4 million included under Other income (Charges) in
the consolidated statement of income.
11. AFS Investments
June 2012 and
December 2011
(In Thousands)
37
Quoted equity investments - listed shares of stocks
Unquoted equity investments - at cost
=
P
486
9,311
9,797
420
=
P 9,377
Classified as part of Other current assets (Note 9)
Listed shares of stocks are carried at market value. Unrealized gains or losses on AFS investments are
recognized in the consolidated statement of comprehensive income and included in the “Equity” section
of the consolidated balance sheet.
Unquoted shares of stocks pertain to fixed number of shares that are subject to mandatory redemption
every year.
12. Investments in Associates
The Group has the following investments in associates which are accounted for under equity method:
Investments in Assoiciates
Jun-12
Dec-11
MCCP
45,102
41,328
HATS
58,449
103,550
58,449
99,777
In 2010, the Parent Company sold its 50% ownership in Jebsen People Solutions AS (JPS) and this
formed part of discontinued operations (see note 30). MCCP and HATS are both incorporated in the
Philippines while JPS is incorporated in Norway.
Acquisition cost:
Balances at beginning of year
Discontinued operations (Note 30)
Balances at end of year
Accumulated equity in net earnings:
Balances at beginning of year
Equity in net earnings (losses) during the year
Discontinued operations (Note 30)
Balances at end of year
Share in cumulative translation adjustment of associates
Changes in cumulative translation adjustment
2012
2011
=
P 20,649
20,649
=20,649
P
–
20,649
73,834
3,773
77,607
5,294
=
P 103,550
88,359
(14,525)
–
73,834
5,294
=99,777
P
-
(=647)
P
13. Interests in Joint Ventures
On March 18, 2009, 2GO Express Inc. and KLN Investments formed KLN Holdings, a jointly
controlled entity. In accordance with the Agreement, 2GO Express Inc. and KLN Investments (the
venturers) will hold ownership interests of 78.4% and 21.6%, respectively, in KLN Holdings.
38
However, the venturers have the power to govern the financial and operating policies of KLN
Holdings unanimously. As at December 31, 2011 and 2010, 2GO Express Inc.’s investment in KLN
Holdings amounted to P
=7.5 million.
On March 30, 2009, KLN Holdings and KLN Investments formed another jointly controlled entity,
Kerry-ATS Logistics, Inc. (KALI, formerly Kerry-Aboitiz Logistics, Inc.), to engage in the business
of international freight and cargo forwarding. In accordance with the Agreement, KLN Holdings and
KLN Investments will hold 62.5% and 37.5% interest in KALI, respectively. However, the
Agreement also requires unanimous consent over decisions concerning financial and operating
policies of KALI. As at December 31, 2011 and 2010, KLN Holdings’ investment in KALI amounted
to =
P9.6 million.
On August 1, 2009, 2GO Express Inc. sold all of its investments in KLN Investments to Kerry Freight
(see Note 5)
In accordance with the Agreement, 2GO Express Inc. indirectly holds a 49% interest in KALI. To
account for this, KALI is proportionately consolidated by KLN Holdings using the latter’s 62.5%
share. The consolidated balances of KLN Holdings are then proportionately consolidated by 2GO
EXPRESS INC. using the latter’s 78.4% share.
The Group’s share of the assets and liabilities of KALI and KLN Holdings as at
December 31, 2011 and 2010 and the income and expenses in the jointly controlled entities for
the years ended December 31, 2011 and 2010, which are proportionately consolidated in the
consolidated financial statements, are as follows:
Amounts consolidated in the consolidated balance sheets:
2011
2010
(In Thousands)
Assets
Cash and cash equivalents
=
P 12,741
=2,667
P
45,532
2,203
42,485
2,738
Property and equipment
Deferred tax assets - net
Total Assets
1,489
770
=
P 62,735
896
640
49,426
Liabilities and Equity
Trade and other payables
Retirement benefit liability
=
P 41,284
1,022
=36,596
P
315
42,306
36,911
7,557
12,872
7,557
4,958
Trade and other receivables
Other current assets
Share capital
Retained earnings
Total Liabilities and Equity
20,429
12,515
=
P 62,735
=49,426
P
39
Amounts consolidated in the consolidated statements of income:
2011
Service fees
Cost and Expenses
Operating
Overhead
Other income (charges)
Income before income tax
Provision for income tax
Net income (loss)
=
P 183,053
2010
(In Thousands)
=132,941
P
146,322
24,954
449
171,725
11,328
3,394
=
P 7,934
103,554
22,806
321
126,681
6,260
3,394
=2,866
P
39
14. Property and Equipment
41
Vessels in
Operation
(Notes 20
and 21)
Containers Terminal and
(Note 21)
Handling
Equipment
Flight
Equipment
Furniture and
Other
Equipment
2011
Land and Buildings and
Improvements
Warehouses
Leasehold Transportatio
Improvements n
Equipment
Vessels Under
Total
Refurbishment
and December 2011
Construction
in Progress
(In Thousands)
Cost
Beginning
Additions
Disposals
Retirements/reclassifications
Reclassification to assets held for sale
(Note 10)
Ending
Accumulated
Depreciation
and Amortization
Beginning
Depreciation and amortization (Note 25)
Disposals
Retirements/Reclassifications
Reclassification to assets held for sale
(Note 10)
Ending
Impairment Loss
Beginning
Disposal
Reclassification to assets held for sale
Ending
Net Book Value
= 5,481,092
P
478,673
(1,052,577)
(204,414)
(2,465,258)
= 1,564,773
P
10,399
(85,436)
12,813
–
= 1,278,953
P
18,326
(27,029)
1,574
–
= 62,813
P
= 630,746
P
75
(37,790)
123
–
33,750
(41,044)
118,009
–
=421,089
P
7,582
–
(188)
–
=258,472
P
12,721
(1,046)
(15,496)
–
=361,445
P
1,490
(2,606)
3,004
–
=245,141
P
18,908
(51,599)
(102,081)
–
= 2,873
P
(14,534)
–
11,661
–
= 13,550,973
P
567,390
(1,299,127)
(174,995)
(2,465,258)
5,481,092
1,502,549
1,271,824
25,221
741,461
428,483
254,651
363,333
110,369
–
10,178,983
2,789,680
836,894
(582,250)
(122,987)
(1,140,573)
1,395,445
17,629
(84,692)
(14,619)
–
1,141,554
44,606
(18,013)
(8,828)
–
28,659
346
(21,475)
30
–
534,421
55,092
(20,846)
68,929
–
89,781
11,936
–
–
–
163,644
15,018
(672)
(450)
–
242,376
31,957
(2,582)
(7)
–
156,884
32,710
(49,010)
(80,053)
–
–
–
–
–
–
6,542,444
1,046,188
(779,540)
(157,985)
(1,140,573)
1,780,764
1,313,763
1,159,319
7,560
637,596
101,717
177,540
271,744
60,531
778,830
(370,406)
(408,424)
–
= 3,700,328
P
–
–
–
–
= 188,786
P
–
–
–
–
= 112,505
P
33,606
(16,264)
–
17,342
= 319
P
–
–
–
–
= 103,865
P
–
–
–
–
=326,766
P
–
–
–
–
=77,111
P
–
–
–
–
=91,589
P
–
–
–
–
=49,838
P
–
–
–
–
–
–
=–
P
5,510,534
812,436
(386,670)
(408,424)
17,342
= 4,651,107
P
Noncash additions - property and equipment under finance lease
Vessels in operations and containers include units acquired under finance lease arrangements
(see Note 21). In 2011, noncash additions include costs of those leased assets amounting to
=169.4 million. The related depreciation of the leased containers amounting to P
P
=16.3 million in 2011,
=5.4 million in 2010 and =
P
P24.4 million in 2009 were computed on the basis of the Group’s
depreciation policy for owned assets.
Disposal and retirement of property and equipment
In 2011, the Parent Company sold passenger/cargo vessels for a net cash proceeds of
=103.7 million, resulting to a gain from sale amounting to P
P
=4.6 million. The Group also disposed
certain property and equipment which includes vessel parts, containers, freight equipment, and
transportation and handling equipment for net proceeds of P
=58.2 million, resulting to gain from sales of P
=
6.8 million (see Note 26).
In 2010, the Parent Company’s disposal of Our Lady of Good Voyage, Our Lady of Rule and Our
Lady of Mt. Carmel resulted to a net loss of =
P39.1 million (see Note 26).
In 2009, the Parent Company’s disposal of Our Lady of Medjugorje and containers resulted in a net
gain of P
=19.7 million. The retirement of SuperFerry 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 profit or loss (see Note 26). The net book value of SuperFerry 9 that
was retired amounted to =
P255.5 million.
Capitalization of drydocking costs
Vessels in operation include capitalized dry docking costs in 2010 amounting to =
P1,033.9 million. No
drydrocking cost was incurred and capitalized in 2011.
Impairment of property and equipment
In 2010, based on internal reporting indications on the economic performance of certain vessels and
their ultimate disposal proceeds, the Parent Company recorded impairment loss on vessels in
operations amounting to P
=778.8 million with corresponding deferred income tax effect of
=233.6 million (see Note 29). The estimated recoverable amounts were based on fair value less cost
P
to sell on the basis of a third party offer to buy, as well as the value in use. Significant assumptions
used in estimating value in use includes discount rate of 10.64%, passage and cargo volume of 3% to
5%, freight rate increase of 12%, and fuel price increase of 5% each year.
Depreciation and amortization
Depreciation and amortization were recognized and presented in the following accounts in the
consolidated statements of income (see Note 25):
Depreciation And Amortization
Jun-12
Jun-12
(In Thousands)
Operating Expense
349,671
415,707
Terminal Expense
51,287
45,510
45,118
446,076
69,547
530,765
General Admin Expense
43
Property and equipment as collateral
As of December 31, 2011, the Group’s vessels in operations and assets held for sale with total
carrying value of P
=4,327.2 million are mortgaged to secure certain obligations (see Note 20). As of
December 31, 2011 and 2010, containers held as collateral for finance lease amounted to
=91.9 million and =
P
P54.3 million, respectively (see Note 21).
Fair value of vessels in operation
The Group’s vessels in operation were appraised for the purpose of determining their market values.
Based on the latest appraisal with various dates from December 2010 to January 2011 made by Eagle
Marine Consultants Inc., the related vessels in operation have an aggregate market value of =
P5,785.0
million against net book value of =
P5,116.8 million.
15. Investment Property
The Group’s investment property amounting to =
P9.8 million pertains to a parcel of land not currently
being used in operations. As of December 31, 2011, the fair value of the investment property
amounted to =
P66.9 million. This was determined based on valuation performed by a qualified and
independent appraiser. The valuation undertaken considered the sale of similar properties and related
market data.
16. Software Development Cost
Jun-12
Dec-11
Cost:
Balances at beg of the year
Additions
Disposal/reclassifications
Balances at end of the year
575,348
3,119
-
569,041
6,333
(26)
578,467
575,348
561,522
523,818
6,552
-
37,683
21
Balances at end of the year
568,074
561,522
Net Book Values
10,393
13,826
Accum amortization:
Balances at beg of the year
Amortization
Disposals and Reclassifications
17. Other Noncurrent Assets
Other Noncurrent Asset
Jun-12
Deferred Input Vat
Pension assets
Rental Deposits/Others
185,579
7,303
35,782
228,664
Dec-11
134,708
7,082
91,150
232,940
Deferred input VAT relates mainly to the acquisition of vessels and related parts.
44
18. Loans Payable
As at June 30, 2012 and December 31, 2011, the peso loans amounting to P
=1,345.1 million and =
P
1,215.4 million, respectively, pertain to unsecured short-term notes payable obtained by the Group
from local banks with annual interest rates ranging from 5.0% to 7.0% in 2011 and 4.50% to 7.92% in
2010.
19. Trade and Other Payables
Jun-12
Dec-11
Trade
1,844,697
1,307,798
Accrued expenses
1,296,315
1,226,541
824,700
815,373
75,022
-
80,456
2,040
4,040,734
3,432,208
Nontrade
Unearned revenue- net of deferred discounts
Dividends payable
Trade and other payables are non-interest bearing and are normally on 30 days’ term.
Accrued expenses include accrual for fuel and lube, drydocking costs and freight expenses.
20. Long-term Debt
Jun-12
Omnibus Loan and Security Agreement
Banco de Oro Unibank, Inc. (BDO)
Unamortized debt arrangement fees
Current portion
3,750,000
(28,391)
Dec-11
4,000,000
(36,257)
3,721,609
3,963,743
(985,716)
2,735,893
(785,716)
3,178,027
As at June 30, 2012, 2GO paid P250 million principal of the loan.
Notes Facility Agreement
On May 6, 2010, the Parent Company signed a Notes Facility Agreement with SB Capital Investment
(SBCI) and BPI Capital Corporation (BCC) as Joint Lead Managers for the issuance of five-year
peso-denominated corporate fixed rate notes (“Notes”) in the aggregate amount of
=2.0 billion.
P
The Notes were issued through a private placement to several financial institutions. The proceeds of
the notes issuance were used to finance vessel acquisitions as well as for working capital purposes.
45
The loan agreement with SBCI and BCC requires the Parent Company among others, to seek prior
approval for any merger, consolidation, change in ownership, suspension of business operations,
disposal of assets, and maintenance of financial ratios. They also prohibit the Parent Company to
purchase, redeem, retire or otherwise acquire for value any of its capital stock now or hereafter
outstanding (other than as a result of the conversion of any share of capital stock into any other class
of capital stock), return any capital to the stockholders (other than distributions payable in shares of its
capital stock), declare or pay dividends to its stockholders if payment of any sum due to SBCI and
BCC is in arrears.
Parent Company breached the negative covenant on “Ownership” with the sale of ACO’s and Aboitiz
Equity Venture’s equity ownership in Parent Company on December 28, 2010. Thus, the noncurrent
portion of long-term debt amounting to P
=1,782.6 million was presented as current liabilities since the
Note Holders have the right to call the Notes as at December 31, 2010 and thereafter.
Omnibus Loan and Security Agreement
On February 24, 2011, the Parent Company, NENACO, SFFC, and HLP entered into an Omnibus
Loan and Security Agreement (OLSA) with BDO, which consists of term loans of P
=4.0 billion and
omnibus line of =
P400.0 million. In March 2011, Parent Company availed the =
P4.0 billion term loans,
which was used for the refinancing of its short-term loans payable (see Note 18) and the early
redemption of its long-term debt on March 15, 2011 in accordance with the provision of the OLSA.
The omnibus line, on the other hand, amounting to P
=400.0 million shall be used by Parent Company
and HLP for working capital requirements and to secure their obligations with BDO.
The P
=4.0 billion term loans consist of Series A and Series B Term Loans amounting to =
P2.0 billion
each. The interest on each of the Series A and Series B Term Loans is a combination of fixed and
floating rates. Fifty percent (50%) of the principal amount of each of the Series A Term Loan and
Series B Term Loan, respectively, have a fixed interest rate, and the remaining fifty percent (50%)
have a quarterly floating annual interest rate, provided, such floating interest rate shall have a
minimum of 5.0% per annum. The principal of the loans is subject to 26 quarterly amortizations
which commenced at the end of the third quarter from the drawdown date until March 2018.
Suretyship agreement, mortgage trust indenture and assignment of receivables
In accordance with the OLSA dated February 24, 2011, the Parent Company and NENACO executed a
Continuing Suretyship in favor of BDO. As a result, upon the happening of an event of default, the
creditor shall have the right to set-off or apply to payment of the credit facility any and all moneys of the
sureties which may be in possession or control of the creditor bank. Further, the creditor bank shall
likewise have the full power against all the sureties’ properties upon which the creditor bank has a
lien. The Continuing Suretyship also applies with respect to the Facility Agreement entered by
NENACO and the creditor bank on January 26, 2011.
The Parent Company, NENACO and SFFC also executed a Mortgage Trust Indenture (MTI) under
the OLSA whereby the Group creates and constitutes a first ranking mortgage on the collaterals for
the benefit of BDO. The Group shall at all times maintain the required collateral value, which is
equivalent to 200% of the obligations.
Further, as required by the OLSA, the Parent Company, NENACO and SFFC shall assigned customer
receivables sufficient to cover the availed credit facility in excess of P
=3.66 billion. Notwithstanding such
assignment, the Parent Company, NENACO and SFFC shall have the right to collect the assigned
46
customer receivables and appropriate the proceeds therefrom for their benefit, provided that the
assignors shall replace the collected receivables in accordance with the required terms and condition
and there is no happening of an event of default under the OLSA. The customer receivables shall
refer to all outstanding receivables of the assignors as of the date of the execution of the OLSA, and
the future customer receivables of the assignors, which shall be valued at 50% of their face value
expressed in Philippine Peso.
As of December 31, 2011, the total carrying values of the vessels under MTI and outstanding
customer receivables of the Parent Company, NENACO and SFFC, held as collateral amounted to =
P
4,826.7 million and =
P1,302.5 million, respectively (see Notes 7 and 14).
Loan covenants
The OLSA are subject to certain covenants such as but not limited to:
a. Maintenance of the following required financial ratios of the Parent Company: minimum quarterly
current ratio of 1:1; maximum quarterly debt-to-equity ratio of 2.5:1 for the first year and 2:1 for
the succeeding years; and, minimum yearly debt service coverage ratio (DSCR) of 1.2:1 for first
and second years and 1.5:1 for the succeeding years, provided, however, that the consolidated
yearly DSCR of ATSC and NENACO shall not fall below 1.5:1 for the first and second years, and
1.75:1 for the succeeding years;
b. Prohibition on any change in control in the Parent Company or its business or majority ownership
of its capital stock (except with respect to the majority investors in the case of NENACO) or a
change in the Chief Executive Officer;
c. Prohibition to declare or pay any dividends to its common and preferred stockholder or make any
other capital or asset distribution to its stockholders, unless the financial ratios above are fully
satisfied;
d. Prohibition to sell, lease, transfer or otherwise dispose of its properties and assets, divest any of its
existing investments therein, or acquire all or substantially all of the properties or assets of any
other third party, except those in the ordinary course of business.
As of December 31, 2011, the Parent Company did not meet the maximum debt-to-equity ratio
required under OLSA. This constitutes an event of default on the long-term debt in accordance with
the loan facilities.
The Parent Company obtained a letter from BDO dated December 28, 2011 which states that the
Parent Company shall not be declared in default by BDO should there be breach in maximum debt to
equity ratio of 2.5 and that the Parent Company is given 12 months from December 31, 2012 to
remedy the default. In view of this, the noncurrent portion of the loans remains as noncurrent liability
in the consolidated balance sheet as of December 31, 2011.
Borrowing costs and debt transaction costs
Interests from long-term borrowings of the Parent Company recognized as expense amounted to P
=
141.2 million for June 2012 and =
P266.2 million in 2011 (see Note 26)
As of December 31, 2011, unamortized transaction cost relating to the Parent Company’s long-term
debt amounted to P
=33.6 million, which was recognized as a reduction in the value of long-term debt.
In June 2012, ATSC incurred additional debt transaction costs amounting to P
=6.9 million (see Note
26).
47
21. Obligations under Finance Lease
The Group has various finance lease arrangements with third parties for the lease of a vessels,
containers and reefer vans denominated in US dollars. The lease agreements provide for the transfer
of ownership to the Group at the end of the lease term, which among other considerations met the
criteria for a finance lease. Therefore, the leased assets were capitalized.
The future minimum lease payments under finance lease, together with the present value of minimum
lease payments as at June 30, 2012 and December 31 2011, are as follows:
Jun-12
Dec-11
Minimum lease payments due within 1 year
23,300
36,407
Beyond 1 year but not later than 5 years
More than 5 years
97,605
-
95,374
2,492
Total minimum lease obligation
Less: amount representing interest
120,906
10,110
134,273
12,163
Present value of minimum lease payment
Less: current portion
110,796
19,120
122,110
30,174
91,676
91,936
22. Redeemable Preferred Shares (RPS)
On January 7, 2003, the Parent Company issued 374,520,487 RPS in the form of stock dividends out
of capital in excess of par value at the rate of one share for every four common shares held by the
shareholders.
The RPS has the following features:
a. non-voting;
b. preference on dividends at the same rate as common share;
c. 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 =
P6 per share as may be
determined by the BOD.
The shares must be redeemed in the amount of at least
=250,000 per calendar year;
P
d. 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
e. preference over assets in the event of liquidation.
On June 15, 2006, the SEC approved the ATSC’s application for the amendment of its Articles of
Incorporation to add a convertibility feature to the RPS so as to allow holders of RPS, at their option,
to convert every RPS into two (2) common shares of the ATSC. During the Conversion Period from
September 1 to October 13, 2006, a total of 70,343,670 preferred shares or 93.91% were converted to
common shares.
48
As at June 30, 2012 and December 31, 2011, 4,560,417 outstanding RPS with remaining carrying
value of P
=25.9 million are shown under “Current liabilities” and “Noncurrent liabilities” section of the
consolidated balance sheets, respectively, which are carried at amortized cost.
23. Equity
a. Capital stock
Authorized capital stocks
Date
May 26, 1949
December 10, 1971
October 21, 1975
September 3, 1982
August 18, 1989
December 29, 1993
September 8, 1994
November 21, 1994
October 26, 1998
December 6, 2002
November 18, 2003
September 6, 2004
November 22, 2004
October 24, 2005
October 24, 2005
August 7, 2008
Activity
Authorized capital stocks as of
incorporation date
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Increase in authorized capital stocks
Reclassification of common shares to
preferred shares
Redemption of preferred shares
Increase in authorized capital stocks
Redemption of preferred shares
Increase in authorized capital stocks
Reclassification of preferred shares to
common shares
Reclassification of preferred shares to
common shares
Common
shares
Number of shares
Preferred shares
(Note 22)
Total
5,000
5,000
4,990,000
5,000,000
10,000,000
20,000,000
60,000,000
900,000,000
1,000,000,000
–
–
–
–
–
–
–
–
–
5,000
5,000
4,990,000
5,000,000
10,000,000
20,000,000
60,000,000
900,000,000
1,000,000,000
(375,000,000)
–
750,000,000
–
1,624,524,400
375,000,000
(224,712,374)
–
(74,904,026)
–
–
(224,712,374)
750,000,000
(74,904,026)
1,624,524,400
475,600
(475,600)
–
70,343,670
(70,343,670)
–
4,070,343,670
4,564,330
4,074,908,000
Issued and outstanding capital stocks
Date
May 26, 1949
December 10, 1971 to
October 26, 1998
December 6, 2002
(Forward)
Activity
Issued capital stocks as of
incorporation date
Increase in issued capital stocks
Reclassification of common
shares to preferred shares
Issue
price
Number of shares
Preferred
Common
shares
shares
(Note 22)
Total
P1,000.00
=
1,000.00
1,002
1,496,597,636
–
–
1,002
1,496,597,636
1.00
40,000,000
374,520,535
414,520,535
49
Date
February 10, 2003
November 18, 2003
September 6, 2004
November 22, 2004
December 31, 2004
October 24, 2005
August 22 to
13, 2006
October
December 31, 2001
Activity
Issuance of preferred shares
before redemption
Redemption of preferred shares
Issuance of common shares by
way of stock dividends
Redemption of preferred shares
Issuance of common shares
prior to reorganization
Issuance of common shares
through share swap
transactions
Conversion of redeemable
preferred shares to common
shares
Issue
price
Number of shares
Preferred
Common
shares
shares
(Note 22)
Total
P1.00
=
6.67
–
(48)
– (224,712,374)
(48)
(224,712,374)
Treasury shares*
1.00
6.67
393,246,555
–
–
(74,904,026)
393,246,555
(74,904,026)
1.00
(756)
–
(756)
1.76
414,121,123
–
414,121,123
3.20
140,687,340
2,484,652,900
(38,516,500)
2,446,136,400
(70,343,670)
4,560,417
–
4,560,417
70,343,670
2,489,213,317
(38,516,500)
2,450,696,817
1.50
* The carrying value of treasury shares is inclusive of =
P0.9 million transaction cost.
Issued and outstanding common shares are held by 1,974 and 1,976 equity holders as of June 30, 2012
and December 31, 2011, respectively.
a. Retained earnings (deficit)
Retained earnings include undistributed earnings amounting to P
=247.6 million in March 31, 2012 P
=
508.1 million in 2011 and =
P427.7 million in 2010 representing accumulated equity in net earnings of
subsidiaries and associates, which are not available for dividend declaration until received in the form of
dividends from such subsidiaries and associates. Retained earnings are further restricted for the
payment of dividends to the extent of the cost of the shares held in treasury and deferred tax asset
recognized as of December 31, 2011 and 2010..
On December 1, 2010, the Parent Company’s BOD approved the declaration of a cash dividend
amounting to fifteen centavos (P
=0.15) for every common and preferred share outstanding as of
December 15, 2010 or a total dividend declaration of =
P367.6 million. The dividends were fully paid on
January 12, 2011.
b. Excess of cost over net asset value of investments – net
The pooling of interest method was applied to account for the following acquisition since these involves
entities under common control:
a. On August 30, 2007, the Parent Company acquired SFFC from its affiliate, Accuria, Inc. for a total
consideration of =
P13.7 million. The excess of cost over SFFC’s net assets during the time of
acquisition, amounting to P
=11.7 million is recorded in equity as “Excess of cost over net asset value
of investments – net”.
b. On December 1, 2011, NALHMCI acquired from NENACO, six of its subsidiaries for a total
consideration of =
P29.4 million. These subsidiaries are JASC, RDC, NHTC, STI, SGF and SSI.
The excess of the combined net assets of NENACO’s subsidiaries at the time of acquisition over
50
the total cost of the investment amounted to P
=0.8 million and is presented under equity as
“Excess of cost over net assets value of investments – net”. Accordingly, the 2010
consolidated balance sheet was restated to reflect the balances of these entities as if they had
always been consolidated. The excess of the combined net assets of NENACO’s subsidiaries
as of December 31, 2011 is net of dividend declaration of P
=2.0 million by SGF to NENACO
in 2011.
24. Related Party Disclosures
In the normal course of business, the Group has transacted with the following related party:
Related Party
Relationship
NENACO1
Immediate parent
Negrense Marine Integrated Services, Inc. (Negrense)
Brisk Nautilus Dock Integrated Services, Inc. (Brisk)
1
1
Under common control
Under common control
Sea Merchants Inc. (SMI)
Under common control
Bluemarine Inc. (BMI)
Under common control
Astir Engineering Works Inc. (AEWI)
Associate of NENACO
KALI
Joint venture of 2GO Express, Inc.
HATS
Associate
MCCP
Associate
1
related parties from December 28, 2010 onwards
Transactions with NENACO
a. Transactions with NENACO in 2011 include joint services and co-loading arrangements whereby
the Parent Company and NENACO share vessel space for the shipment of customer cargoes. Each
of the parties, whoever is the actual vessel-operating carrier, charged the other party for the shared
space on a per container basis. As of June 30, 2012, total co-loading revenue and expense
recognized by the Parent Company is nil and as of December 2011 amounted to P
=200.1 million ,
respectively.
b. Effective December 1, 2011, the Parent Company entered into time charter arrangements with
NENACO involving five of NENACO’s vessels at a fixed daily rate for a period of one year.
c. In 2011, the Parent Company recognized charter hire expense amounting to P
=403.5 million
(see Note 25)
d. In 2011, the Parent Company has granted NENACO an interest-bearing loan amounting to
=657.5 million. In June 2012 and December 2011, total interest income charged by the Parent
P
Company to NENACO amounted to P
=29.18 million and P
=49.9 million respectively, of which P
=64
million is still outstanding as of June 30, 2012.
Transactions with associates and other related parties
a. Negrense charge agency fee to the Parent Company based on an agreed rate for its manpower
services and for its management of the Parent Company’s food and beverage business effective
August 2011. Negrense also provides housekeeping and manpower pooling services to the Parent
Company and SFFC. In June 30, 2012, total fees charged by Negrense to the Parent Company
and SFFC amounted to P
=53.7 million and P
=14.93 million, respectively.
51
b. Transactions with other associates and related companies consist of shipping services,
management services, ship management services, purchases of steward supplies, availment of
stevedoring, arrastre, trucking, and repair services and rental.
The consolidated balance sheets include the following amounts with respect to the transactions with the above
related parties:
Transactions and balances with related parties eliminated during consolidation
a. The Parent Company’s transactions with 2GO Express Inc. include shipping and forwarding
services, commission and trucking services. Total freight and service revenue charged by 2GO
= 10.7 million and P
= 98.2 million in June 30, 2012 and 2011,
Express Inc. amounted to P
respectively.
b. The Parent Company provided management services to SFFC, 2GO EXPRESS INC., 2GO
Logistics, Inc., HLP, KALI and SOI at fees based on agreed rates. Management and other
services provided by the Parent Company amounted to P
=20.76 million, P
=71.1 million, =
P55.8
million in June 30, 2012, 2011, 2010, respectively.
c. 2GO Express Inc. provides management services to the Parent Company’s loose cargo business at
fees based on an agreed rate. Management service fees provided by 2GO Express Inc. to the
Parent Company amounted to P
=6.02 million, =
P7.6 million and P
=10.9 million in 2012, 2012 and
2010, respectively.
52
25. Costs and Expenses
Operating Expenses
Jun-12
Fuel and Lubricants
2,263,451
Jun-11
1,661,502
Charter Hire
403,462
0
Depreciation and amortization
349,671
415,707
Outside Services
891,108
856,165
Personnel
227,076
231,799
Repairs and maintenance
214,222
175,184
Insurance
80,476
102,690
Food and subsistence
44,754
74,048
Commissions
42,875
17,284
Steward supplies
37,598
Rentals
Communication, light and water
Sales Concession
Others
135,176
58,394
25,202
319,946
5,093,410
23,853
112,292
41,907
20,069
182,385
3,914,885
Terminal Expenses
Jun-12
Outside Services
137,728
Jun-11
181,331
Depreciation and amortization
51,287
45,510
Transportation and delivery
79,893
197,436
Repairs and maintenance
57,519
48,932
Personnel
55,470
67,437
Rent
62,107
30,162
Fuel and Lubricants
Others
27,027
36,247
23,102
48,683
507,277
642,593
Overhead Expenses
Jun-12
Personnel
234,294
Jun-11
291,232
Depreciation and amortization
45,613
69,547
Outside Services
43,354
19,935
Advertising
62,161
37,461
Communication, light and water
40,442
27,531
Rent
20,923
18,162
Provision for doubtful accounts
5,601
4,994
Entertainment, amusement and recreation
7,290
4,446
Transportation and travel
5,150
Taxes and licenses
20,025
4,683
15,159
Repairs and maintenance
6,965
5,654
Office Supplies
4,696
3,579
Computer charges
Others
6,295
49,283
552,090
8,856
58,267
569,505
53
26. Personnel Costs
Personnel Expenses
Jun-12
Salaries and wages
Jun-11
331,950
383,677
Crewing costs
61,973
128,916
Retirement benefits
Other employee benefits
41,567
67,249
23,412
54,463
502,739
590,468
In 2011, redundancy and retirement benefit cost included as part of integration cost amounted to =
P97.2
million. The remaining =
P25.8 pertains to the professional fees incurred relating to the integration of the
Group.
27. Retirement Benefits
The Group has funded defined benefit pension plans covering all regular and permanent employees. The
benefits are based on employees’ projected salaries and number of years of service.
The following tables summarize the funded (unfunded) status and amounts as included in the consolidated
balance sheet and the components of retirement benefit costs recognized by the Group as included in profit
and loss in 2011, 2010 and 2009, respectively.
The funded status and amounts recognized in the consolidated balance sheets include the retirement benefits
of 2GO Logistics, Inc., HLP and SGF as at December 31, 2011 and of the Parent Company, 2GO Logistics,
Inc. and SOI as at December 31, 2010.
2010
(As restated)
(In Thousands)
2011
Accrued retirement benefits
Pension asset
(P
=52,182)
7,082
(P
=45,100)
(P
=19,715)
61,005
=
P41,290
Retirement Plan Asset (Liability) – net
2010
(As restated)
(In Thousands)
2011
Beginning
Defined benefit obligation
Unfunded obligation
Unrecognized net actuarial gains
Attributable to discontinued operations (Note 30)
=70,145
P
(224,121)
(153,976)
108,876
(45,100)
–
(P
=45,100)
P224,602
=
(285,954)
(61,352)
119,992
58,640
(17,350)
=41,290
P
54
Movement in the present value of the defined benefit obligation is as follows:
2010
(As restated)
(In Thousands)
2011
Beginning
Interest cost
Current service cost
Separation cost
Transfers
Actuarial loss (gain)
Curtailment gain
Benefits paid
Balance from acquired subsidiaries
Attributable to discontinued operations (Note 30)
=285,954
P
25,562
30,034
–
(4,396)
28,689
(102,106)
(39,616)
–
224,121
–
=224,121
P
=412,204
P
41,954
40,963
16,995
198
(50,001)
(4,051)
(37,889)
991
421,364
(135,410)
=285,954
P
Movement in the fair value of plan assets is as follows:
2010
(As restated)
(In Thousands)
2011
Fair value of plan assets at January 1
Actuarial gain (loss) on plan assets
Actual contributions
Expected return
Transfers
Benefits paid
Balance from acquired subsidiaries
Attributable to discontinued operations (Note 30)
=224,602
P
(16,970)
22,735
15,354
(4,623)
(170,953)
–
70,145
–
=70,145
P
=224,299
P
69,147
68,142
23,068
198
(37,359)
886
348,381
123,779
=224,602
P
The major categories of plan assets are as follows:
2010
(As restated)
(In Thousands)
2011
Investments in:
Shares of stocks
Cash and cash equivalents
Common trust fund
Government securities and other debt securities
Others
P38,860
=
30,602
–
–
683
=70,145
P
=44,920
P
–
128,023
51,659
–
=224,602
P
55
The principal assumptions as of January 1 used in determining pension benefit obligations for the
Group’s plans are shown below:
Discount rate
Expected rate of return on assets
Future salary increases
2011
8.29% to 10.53%
7.00%
6.00% to 8.00%
2010
9.00% to 10.55%
7.00% to 10.00%
6.00% to 8.00%
2009
8.25 to 11.0%
8.53 to 11.0%
6.00 to 9.00%
As of December 31, 2011, the discount rate, expected rate of return on assets and future salary
increases are 7.9% to 8.19%, 4.0% to 7% and 6.0% to 8.0%, respectively.
Retirement Benefit Costs
2011
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial loss recognized
(Forward)
2010
(In Thousands)
P
=30,034
25,562
(15,354)
4,391
2011
Curtailment loss (gain) (Note 27)
Separation cost
Income recognized due to asset limit
Past service cost – nonvested benefits
Total net benefit expense
Net benefit expense attributable
to discontinued operations (Note 30)
P
=75,817
–
–
–
120,450
–
=40,963
P
41,954
(22,530)
8,700
2010
(In Thousands)
(P
=4,766)
16,995
–
–
81,316
(17,773)
P
=120,450
Actual return on plan assets
(P
=1,616)
2009
=34,021
P
37,399
(19,084)
2,456
2009
P–
=
–
(5,856)
2,001
50,937
(24,814)
=63,543
P
=26,123
P
=91,458
P
(P
=11,603)
Amounts for the current and prior periods are as follows:
2011
Defined benefit obligation
Fair value of plan assets
Deficit
Experience adjustments
on plan liabilities
Experience adjustments on
plan assets
2010
(As restated)
2008
2009
(In Millions)
= 224.1
P
70.1
154.0
(29.6)
P285.0
=
223.7
61.3
(9.7)
P412.2
=
224.3
187.9
18.3
P242.5
=
194.2
48.3
(69.8)
P220.9
=
216.8
4.1
(64.1)
(17.0)
68.9
(30.1)
(0.5)
12.7
56
The Group expects to contribute approximately P
=87.9 million to the defined benefit pension plan in 2011.
28. Income Tax
a. The components of provisions for (benefit from) income tax are as follows:
2011
2012
2010
(In Thousands)
Current
RCIT
MCIT
Deferred
P
=39,238
P
=39,238
=42,221
P
11,687
(249,208)
(P
=195,300)
=49,624
P
1,606
(472,697)
(P
=421,467)
b. The components of the Group’s recognized net deferred tax assets and liabilities are as
follows:
2010
2011
Net Deferred Net Deferred Net Deferred Net Deferred
Tax Assets Tax Liabilities
Tax
Tax
Assets
Liabilities (As restated) (As restated)
(In Thousands)
Deferred income tax assets on:
Allowances for:
Fixed assets writedown
Impairment of receivables
Inventory obsolescence
Provision for integration cost
Investment in stock
NOLCO
MCIT
Accrued retirement costs and
others
Unrealized foreign exchange loss
Others
Deferred income tax liabilities:
Pension asset
Others
=91,045
P
P82,377
=
21,210
–
75
732,308
624
27,792
=–
P
P47
=
–
–
–
–
–
863
P233,649
=
=73,353
P
21,979
10,500
75
351,069
624
276
=–
P
P44
=
–
–
–
–
–
978
145
19,877
975,453
–
262
1,172
1,471
39,440
732,436
–
124
1,146
(11,352)
–
(11,352)
=964,101
P
(1,437)
(4)
(1,441)
(P
=269)
(10,633)
(2,830)
(13,463)
=718,973
P
(1,716)
(3,778)
(5,494)
(P
=4,348)
57
c. Details of the Group’s NOLCO and MCIT which can be carried forward and claimed as tax credit
against regular taxable income and regular income tax due, respectively, are as follows:
NOLCO
Incurred in
2011
2010
2008
Available
Until
Amount
Applied
2014
2013
2011
P1,378,454
=
1,168,925
245,916
=2,793,295
P
P–
=
–
–
=–
P
Available
Until
Amount
Balances as of
December 31,
Tax Effect
2011
Expired
(In Thousands)
=–
P
–
(245,916)
(P
=245,916)
P1,378,454
=
1,168,925
–
=2,547,379
P
P413,536
=
350,678
–
=764,214
P
MCIT
Incurred in
2011
2010
2009
2008
2014
2013
2012
2011
(In Thousands)
=11,740
P
1,606
23,073
11,594
=48,013
P
Applied
Expired
Balances as of
December 31,
2011
(In Thousands)
=–
P
=–
P
=–
P
=–
P
–
–
–
–
–
(11,594)
=–
P
(P
=11,594)
P11,740
=
=11,740
P
1,606
23,073
–
=36,419
P
d. The following are the Group’s NOLCO and MCIT for which no deferred income tax assets have
been recognized because management believes that it is not probable that sufficient future taxable
income will be available against which the deferred tax assets can be utilized:
2011
NOLCO
MCIT
P
=106,351
35,795
2010
(In Thousands)
=247,003
P
37,620
e. Reconciliation between the income tax expense computed at statutory income tax rates of 30.0%
in 2011, 2010 and 2009 and the provision for income tax expense as shown in profit or loss is as
follows:
2011
Provision for (benefit from) income
tax at statutory tax rate
Income tax effects of:
Changes in unrecognized DTA
Income tax holiday (ITH)
incentive on registered
activities (Note 33)
Gain on sale of investment
already subjected to
final tax
(P
=246,271)
2010
(In Thousands)
(P
=460,767)
46,571
7,093
–
(32,318)
(5,299)
(22,807)
2009
=203,693
P
3,187
(25,125)
–
58
Equity in net (earnings) losses of
associates
Interest income already
subjected to a lower
final tax
Dividend income
Changes in enacted tax rates
NOLCO derecognized
MCIT derecognized
Others
4,358
(12,062)
(17,138)
(1,944)
(1,360)
(18,473)
(84)
–
–
–
276
(P
=195,300)
(398)
–
73,775
59,093
(24,623)
(P
=421,467)
(1,984)
2,025
16,730
9,161
(4,739)
=167,337
P
In computing deferred income tax assets and liabilities as at December 31, 2011 and 2010, the rate
used was 30% which is the rate expected to apply to taxable income in the years in which the
deferred tax assets and liabilities are expected to be recovered or settled.
29. Provisions and Contingencies
There are certain legal cases filed against the Group in the normal course of business. Management
and its legal counsel believe that the Group has substantial legal and factual bases for its position and
are of the opinion that losses arising from these cases, if any, will not have a material adverse impact
on the consolidated financial statements.
Also, the Parent Company has pending insurance claims (presented as part of Insurance and other
claims) amounting to P
=150.6 million as at December 31, 2009. The collection of which is virtually
certain. As of December 31, 2011, proceeds from this claim amounted to P
=33.6 million and 117.0
million.
As at December 31, 2011 and 2010, the Parent Company has provided guarantees on the bank loans of
= 183.3 million and P
= 38.4 million, respectively.
AOI, AODI, RVSI and ZIP amounting to P
30. Earnings Per Common Share
Basic and diluted earnings per common share were computed as follows:
There are no potentially dilutive common shares as at December 31, 2011, 2010 and 2009.
Basic Earning Per Share
Jun-12
Net income attributable to equity holders
of the parent (a)
Jun-11
(439,886)
Weighted average number of common shares outstanding
for the year (b):
2,446,136
Basic Earnings per share (a/b)
(0.18)
(58,715)
2,446,136
(0.02)
59
31. Registration with the Board of Investments (BOI)
a. With the effectivity of the merger of the Parent Company and ZIP, the Parent Company assumed
ZIP’s outstanding BOI registration as an expanding operator of logistics service facility on a nonpioneer status under Certificate of Registration No. 2008-179. The ITH incentive for a period of
three years, which expired in July 2011, provided that for purpose of availment, a base figure of P
=
924.1 million will be used in the computation of the ITH for the said expansion.
b. On January 27, 2011, BOI approved the Parent Company’s application for registration of the
modernization of two (2) second-hand RORO vessels, St. Gregory the Great (formerly SuperFerry
20) and St. Leo the Great (formerly SuperFerry 21). The Parent Company was granted ITH
incentive for a period of three years from March 2011 or actual start of operations. The ITH
incentive shall be limited only to the sales/revenues generated by the registered project.
c. SFFC is registered with BOI as a New Operator of Domestic Shipping (Passenger Vessel) on a
Non-Pioneer status. The Company is entitled to four years ITH from date of registration until
February 2012.
32. Commitments and Other Matters
a. The Parent Company has a Memorandum of Agreement (Agreement) with Asian Terminals, Inc.
(ATI) for the use of ATI’s facilities and services at the South Harbor for the embarkation and
disembarkation of the Parent Company’s domestic passengers, as well as loading, unloading and
storage of cargoes. The Agreement shall be for a period of five years, which shall commence
from the first scheduled service of the Parent Company at the South Harbor. The Agreement is
renewable for another five years under such terms as may be agreed by the parties in writing. If
the total term of the Agreement is less than ten years, then the Parent Company shall pay the
penalty equivalent to the unamortized reimbursement of capital expenditures and other related
costs incurred by ATI in the development of South Harbor. The Agreement became effective on
January 14, 2003.
Under the terms and conditions of the Agreement, the Parent Company shall avail of the terminal
services of ATI, which include, among others, stevedoring, arrastre, storage, warehousing and
passenger terminal. Domestic tariff for such services (at various rates per type of service as
enumerated in the Agreement) shall be subject to an escalation of 5% every year. Total service
fees charged to operations amounted to, P
=197.5 million, P
=196.3 million and P
=128.8 million in
2011, 2010 and 2009, respectively (see Note 25).
b. AJBTC, JMI and AJMSI (Agents) have outstanding agreements with foreign shipping principals,
wherein the Agents render manning and crew management services consisting primarily of the
employment of crew for the principals’ vessels. As such, the principals have authorized the
Agents to act on their behalf with respect to all matters relating to the manning of the vessels.
Total service fees revenues recognized in the consolidated statements of income from these
agreements amounted to =
P437.4 million in 2010 and P
=400.0 million in 2009.
60
c. JMBVI and Subsidiaries have outstanding Charter Party Agreements with vessels’ owners for the use of
the vessels or for sublease to third parties within the specified periods of one (1) to three (3) years under
the terms and conditions covered in the agreements. In consideration thereof, JMBVI recognized
charter hire expense amounting to P
=1,001.1 million and =
P529.4 million in 2010 and 2009, respectively.
d. The Group has entered into various operating lease agreements for its office spaces. The future
minimum rentals payable under the noncancellable operating leases are as follows:
Within one year
After one year but not more than five years
More than five years
2011
P172,682
=
320,857
1,366
=494,905
P
2010
P79,804
=
171,877
5,947
=257,628
P
e. The Parent Company entered into several vessel chartering agreements for a period ranging from three to 15
months. Charter fees are based on an agreed daily rate of $3,125 to $9,400.
33. Financial Risk Management Objectives and Policies
Risk Management Structure
The Group’s overall risk management program focuses on the unpredictability of financial markets and
seeks to minimize potential adverse effects on the Groups financial performance. It is, and has been
throughout the year under review, the Group’s policy that no trading in financial instruments shall be
undertaken.
Financial Risk Management
The Group’s principal financial instruments comprise of cash and cash equivalents, loans payable, long-term
debt, obligations under finance lease, restructured debts and redeemable preferred shares. The main purpose
of these financial instruments is to raise financing for the Groups operations. The Group has other various
financial assets and liabilities such as trade and other receivables and trade and other payables, which arise
directly from operations.
The main risks arising from the Group’s financial instruments are credit risk involving possible exposure to
counter-party default, primarily, on its short-term investments and trade and other receivables; liquidity risk
in terms of the proper matching of the type of financing required for specific investments and maturing
obligations; foreign exchange risk in terms of foreign exchange fluctuations that may significantly affect its
foreign currency denominated placements and borrowings; and interest rate risk resulting from movements
in interest rates that may have an impact on interest bearing financial instruments.
Credit risk
To manage credit risk, the Group has policies in place to ensure that all customers that wish to trade on
credit terms are subject to credit verification procedures and approval of the Credit Committee. In addition,
receivable balances are monitored on an ongoing basis to reduce the Group’s exposure to bad debts. The
Group has policies that limit the amount of credit exposure to any particular customer.
The Group does not have any significant credit risk exposure to any single counterparty. The Group’s
exposures to credit risks are primarily attributable to cash and collection of trade and other receivables with
a maximum exposure equal to the carrying amount of these financial instruments.
61
The credit quality per class of financial assets that are neither past due nor impaired is as follows:
As at December 31, 2011
Neither past due nor impaired
Loans and receivables
Cash in banks
Cash equivalents
Trade and other receivables:
Freight
Service fees
Passage
Distribution
Others
Nontrade receivables
Due from related parties
Insurance and other claims
Advances to officers and
Employees
AFS investments
Past due or
individually
impaired
Total
High
Medium
Low
(In Thousands)
P754,151
=
130,721
P–
=
–
P–
=
–
P–
=
–
P754,151
=
130,721
372,778
45,144
87,988
238,793
186,396
178,045
92,437
35,468
–
18,250
–
–
–
–
–
–
17,925
9,797
= 2,149,643
P
–
–
= 18,250
P
–
2,751
–
–
–
–
–
–
–
–
–
= 2,751
P
855,230
65,016
–
151,536
84,613
–
705,293
69,349
–
246
–
= 1,931,283
P
1,228,008
131,161
87,988
390,329
271,009
178,045
797,730
104,817
–
18,171
9,797
= 4,101,927
P
Past due or
individually
impaired
Total
=–
P
=566,564
P
As at December 31, 2010
Neither past due nor impaired
High
Loans and receivables
Cash in banks
Cash equivalents
Trade receivables
Freight
Service fees
Passage
Distribution
Others
Nontrade receivables
Due from related parties
Insurance and other claims
Advances to officers and
employees
AFS investments
Total
=566,564
P
Medium
Low
(In Thousands)
=–
P
=–
P
196,656
–
–
–
196,656
176,464
10,908
25,826
285,921
157,466
646,695
14,118
9,819
24,335
155,210
697
–
–
–
2,508
–
1,050
427,725
11,042
–
–
–
481
–
–
–
488,467
39,618
312
148,076
52,528
12,830
–
109,640
4,750
1,247,866
62,265
26,138
433,997
209,994
662,514
14,118
120,509
29,085
–
=439,248
P
–
=856,221
P
29,838
=3,599,544
P
29,838
=2,144,610
P
–
–
=159,465
P
High quality receivables pertain to receivables from related parties and customers with good favorable
credit standing. Medium quality receivables pertain to receivables from customers that slide beyond
the credit terms but pay a week after being past due are classified under medium quality. Low quality
receivables are accounts from new customers and forwarders. For new customers, the Group has no
basis yet as far payment habit is concerned. With regards to the forwarders, most of them are either
under legal or suspended. In addition, their payment habits extend beyond the approved credit terms
because their funds are not sufficient to conduct their operations.
62
The Group evaluated its cash in bank and cash equivalents as high quality financial assets since these are placed
in financial institutions of high credit standing. It also evaluated its advances to officers and employees as high
grade since these are deductible from their salaries.
The aging per class of financial assets that were past due but not impaired is as follows:
As at December 31, 2011
Neither
past
due nor
impaired
Past due but not impaired
Less than 30
days
Loans and receivables:
Cash in banks
Cash equivalents
Loans and receivables:
Trade receivables:
Freight
Passage
Service fees
Distribution
Others
Nontrade receivables
Due from related
parties
Insurance and other claims
Advances to officers and
employees
AFS investments
Total
31 to 60
days
61 to 90
days
(In Thousands)
P754,151
=
130,721
P–
=
–
P–
=
–
P–
=
–
372,778
87,988
66,145
238,793
186,396
178,045
92,437
147,777
–
25,682
118,471
25,742
–
2,242
33,426
–
8,630
4,562
20,860
–
2,484
26,770
–
6,251
5,151
25,190
–
99,071
35,468
17,925
–
–
–
45
22,753
201
9,797
= 2,170,644
P
–
= 319,914
P
–
= 70,007
P
–
= 185,387
P
Impaired
financial
assets
Total
Over 90
days
P–
=
–
P–
=
–
P754,151
=
130,721
206,375
–
21,351
16,689
12,821
–
5,233
1,228,008
87,988
131,161
390,329
271,009
178,045
797,730
–
–
46,596
–
104,817
18,171
–
= 1,046,910
P
–
= 309,065
P
9,797
= 4,101,927
P
440,882
–
3,102
6,663
–
–
596,263
As at December 31, 2010
Neither
past
due nor
impaired
Past due but not impaired
Less than 30
days
Loans and receivables:
Cash in banks
Cash equivalents
Trade receivables:
Freight
Service fees
Passage
Distribution
Others
Nontrade receivables
Due from related parties
Insurance and other
claims
Advances to officers and
employees
AFS investments
Total
31 to 60
days
61 to 90
days
(In Thousands)
Impaired
financial
assets
Total
Over 90
days
=566,564
P
196,656
=–
P
–
=–
P
–
=–
P
–
=–
P
–
=–
P
–
=566,564
P
196,656
759,399
22,647
25,826
285,921
157,466
649,684
14,118
10,869
133,736
12,162
–
98,207
35,475
571
–
–
65,917
6,191
162
20,504
7,250
153
–
–
34,858
2,078
46
6,908
4,132
243
–
72,990
44,389
4,464
104
7,823
4,724
5,313
–
–
209,567
14,723
–
14,634
947
6,550
–
36,650
1,247,866
62,265
26,138
433,997
209,994
662,514
14,118
120,509
24,335
501
317
3,360
572
29,838
=2,743,323
P
–
=280,652
P
–
=100,494
P
–
=124,615
P
–
=67,389
P
29,085
–
–
=283,071
P
29,838
=3,599,544
P
63
Liquidity risk
The Group manages its liquidity profile to be able to finance its capital expenditures and service its
maturing debt by maintaining sufficient cash during the peak season of the passage business. The
Group regularly evaluates its projected and actual cash flow generated from operations.
The Group’s existing credit facilities with various banks are covered by the Continuing Suretyship for
the accounts of the Group.
The liability of the Surety is primary and solidary and is not contingent upon the pursuit by the bank
of whatever remedies it may have against the debtor or collaterals/liens it may possess. If any of the
secured obligations is not paid or performed on due date (at stated maturity or by acceleration), the
Surety shall, without need for any notice, demand or any other account or deed, immediately be liable
therefore and the Surety shall pay and perform the same.
The following table summarizes the maturity profile of the Group’s financial assets and financial
liabilities based on contractual repayment obligations and the Group’s cash to be generated from
operations and the Group’s financial assets as at December 31:
2010
2011
Less than
1 year
Financial assets
Cash and cash
equivalents
Trade and other
receivables
Total undiscounted
financial assets
Financial liabilities
Trade and other
payables*
Loans payable
Redeemable preferred
shares
Long-term debt
Obligation under
finance lease
Other noncurrent
liabilities
Total undiscounted
financial liabilities
Total net
undiscounted
financial liabilities
1 to 5 years
More than
5 years
Total
Less than
1 year
(In Thousands)
1 to 5 years
More than
5 years
Total
= 884,872
P
=–
P
=–
P
884,872
=763,220
P
=–
P
=–
P
=763,220
P
2,898,193
–
–
2,898,193
2,523,415
–
–
2,523,415
3,783,065
–
–
3,783,065
3,286,635
–
–
3,286,635
2,971,510
–
–
2,971,510
4,471,976
–
–
4,471,976
1,220,454
27,363
–
–
–
–
1,220,454
27,363
2,011,594
–
–
27,363
–
–
2,011,594
27,363
1,185,628
36,407
3,639,897
95,374
2,492
4,825,525
134,273
2,414,767
12,511
–
39,823
–
6,778
2,414,767
59,112
–
8,409
–
8,409
–
6,041
–
6,041
5,441,362
3,743,680
2,492
9,187,534
8,910,848
73,227
6,778
8,990,853
(P
= 1,658,297) (P
= 3,743,680)
–
(P
= 2,492) (P
= 5,404,469) (P
= 5,624,213)
(P
= 73,227)
(P
= 6,778) (P
= 5,704,218)
*Excudes nonfinancial liabilities amounting toP
=460,698 and =
P70,570 as of December 31, 2011 and 2010.
Foreign exchange risk
Foreign currency risk arises when the Group enters into transactions denominated in currencies other
than their functional currency. Management closely monitors the fluctuations in exchange rates so as
to anticipate the impact of foreign currency risks associated with the financial instruments. To
mitigate the risk of incurring foreign exchange losses, the Group maintains cash in banks in foreign
currency to match its financial liabilities.
64
The Group’s significant foreign currency-denominated financial assets and financial liabilities as of
December 31 are as follows:
Financial Asset
Cash in bank
Trade receivables
Financial Liabilities
Trade payables
Obligations under finance lease
Net foreign currency denominated
assets (liabilities)
1
4
$1 = P
=44.3234
€1 = P
=33.7752
2
5
Kr = P
=7.6471
$1 = P
=43.84
3
$1 = P
=56.8428
AUD1
DKK2
$2
–
2
Krl
–
1
372
–
372
($372)
2011
EUR3
1,757
–
1,757
(Kr1,757)
NZD4
USD5
Total Peso
Equivalent
€2
–
2
$1
–
1
$434
251
685
P19,270
=
11,004
30,274
313
–
313
(€311)
83
–
83
($82)
83
882
965
($280)
(54,158)
(38,667)
(92,825)
(P
= 62,551)
2010
Financial Assets
Cash
Trade receivables
Total Financial Assets
Financial Liabilities
Trade payables
Obligations under finance lease
Total Financial Liabilities
Net foreign currency
denominated assets
(liabilities)
1
3
$1 = P
=44.6398
$1 = P
=33.5281
2
4
€1 = P
=58.0335
$1 = P
=43.8400
AUD1
EUR2
NZD3
USD4
Total Peso
Equivalent
$–
–
–
€2
–
2
$2
–
2
1,034
2,193
3,227
=45,523
P
96,126
141,649
347
–
347
(345)
27
–
27
($25)
1,211
1,042
2,253
$974
90,873
45,686
136,559
=5,090
P
374
–
374
($374)
The Group has recognized in its other income, foreign exchange revaluation gain amounting to P
=5.3 million
in 2011 and losses of P
=12.9 million and =
P9.1 million in 2010 and 2009, respectively.
The following table demonstrates the sensitivity to a reasonably possible change in the foreign currency
exchange rates, with all other variables held constant, of the Group’s profit before tax as at December 31,
2011 and 2010.
Appreciation/
(Depreciation) of
Foreign
Currency
Effect on Income Before Tax
2012
Australian Dollar (AUD)
Euro (EUR)
New Zealand Dollar (NZD)
+5%
-5%
+5%
-5%
+5%
-5%
(P
=)
()
()
2011
(In Thousands)
(P
=835)
823
(886)
886
(140)
140
65
Appreciation/
(Depreciation) of
Foreign
Currency
Effect on Income Before Tax
2012
US Dollar (USD)
Danish Kroner (DKK)
+5%
-5%
+5%
-5%
2011
(613)
613
(672)
672
There is no other impact on the Group’s equity other than those already affecting profit or loss.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments
will fluctuate because of changes in market interest rates.
The Group has no borrowings issued at variable rates, thus, the Group is not subject to cash flow
interest rate risk. However, borrowings issued at fixed rates exposes the Group to fair value interest
rate risk. The Group’s borrowings are subject to fixed interest rates ranging from 2.5% to 10.25% for
10 years in 2011 and 2.5% to 10.0% for 10 years in 2010.
In March 2011, as a result of the availments of the =
P4.0 billion loan under the OLSA, =
P2.0 billion of
the outstanding loans of the Group which carries variable interest rates are exposed to cash flow
interest rate risk.
The sensitivity of the consolidated statement of income is the effect of the assumed changes in interest
rates on the consolidated income before income tax for one year, based on the floating rate nontrading financial liabilities held at December 31, 2011 with other variables held constant:
For more than one year
Changes in
Effect on income
interest rates
before tax
(In Thousands)
+80 basis points
(P
=15,710)
-80 basis points
15,710
As at December 31, 2010, the Group has no borrowings issued at variable rates, thus, the Group is not
subject to cash flow interest rate risk.
66
Shown below are the carrying amounts, by maturity, of the Group’s interest bearing financial
instruments:
Within
one year
2012
1 to 5 years
Over 5 years
Total
(In Thousands)
Financial Assets
Cash in banks and cash equivalents
AFS investments
Financial Liabilities
Loans payable
Long-term debt
Obligation under finance lease
Redeemable preferred shares
P
=884,872
–
P
=884,872
P
=–
9,797
P
=9,797
P
=–
–
P
=
P
=884,872
9,797
P
=894,669
P
=1,215,440
785,716
30,174
25,938
P
=2,057,268
P
=–
3,178,027
89,444
–
P
=3,267,471
P
=–
–
2,492
–
P
=2,492
P
=1,215,440
3,963,743
122,110
25,938
P
=5,327,231
2011
1 to 5 years
Over 5 years
Total
Within
one year
(In Thousands)
Financial Assets
Cash in banks and cash equivalents
AFS investments
=763,220
P
–
=763,220
P
Within
one year
=–
P
29,838
=29,838
P
P–
=
–
=–
P
=763,220
P
29,838
=793,058
P
2010
1 to 5 years
Over 5 years
Total
(In Thousands)
Financial Liabilities
Loans payable
Long-term debt
Obligation under finance lease
Redeemable preferred shares
P1,992,900
=
1,979,107
8,229
–
=3,980,236
P
P–
=
–
30,679
22,882
=53,561
P
P–
=
–
6,778
–
=6,778
P
P1,992,900
=
1,979,107
45,686
22,882
=4,040,575
P
Equity price risk
Equity price risk is the risk that the fair value of traded equity instruments decreases as the result of
the changes in the levels of equity indices and the value of the individual stocks.
As at December 31, 2011 and 2010, the Group’s exposure to equity price risk is minimal.
The effect on equity (as a result of a change in fair value of equity instruments held as AFS
investments as of December 31, 2011 and 2010) due to reasonably possible change in equity indices,
with all other variables held constant, follows:
The impact on the Group’s equity excludes the impact of transactions affecting the consolidated
statements of comprehensive income.
67
Increase (decrease)
in PSE index
Effect on equity
2012
AFS investments
32%
(32%)
P
=156
(156)
2011
P156
(156)
The impact on the Group’s equity excludes the impact of transactions affecting the consolidated
statements of comprehensive income.
Capital Risk Management Objectives and Procedures
The Group’s capital management objectives are to ensure the Group’s ability to continue as a going
concern, so that it can continue to provide returns for shareholders and benefits for others stakeholders
and produce adequate and continuous opportunities to its employees; and to provide an adequate
return to shareholders by pricing products/services commensurately with the level of risk.
The Group sets the amount of capital in proportion to risk. It manages the capital structure and makes
adjustments in the light of changes in economic conditions and the risk characteristics of the
underlying assets, the Group may adjust the amount of dividends paid to shareholders, return capital
to shareholders, issue new shares, or sell assets to reduce debt.
The Group monitors capital on the basis of the carrying amount of equity as presented on the face of
the balance sheet.
34. Fair Value of Financial Instruments
The table below presents a comparison by category of the carrying amounts and fair values of the
Group’s financial instruments as at December 31, 2011 and 2010. Financial instruments with carrying
amounts reasonably approximating their fair values are no longer included in the comparison.
Carrying
Amount
Financial Liabilities
Other financial liabilities:
Long-term debt
Obligations under finance
lease
Redeemable preferred shares
2011
2012
Fair Value
Carrying
Amount
(In Thousands)
Fair Value
=3,963,743
P
122,110
=3,590,354
P
117,427
=1,979,107
P
45,686
=1,979,107
P
51,400
25,938
=4,111,791
P
25,938
=3,733,719
P
22,882
=2,047,675
P
26,190
=2,056,697
P
Fair value is defined as the amount at which the financial instrument could be exchanged in a current
transaction between knowledgeable willing parties in an arm’s-length transaction, other than in a
forced 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:
68
Cash and cash equivalents and trade and other receivable and trade and other payables
The carrying amounts of cash and cash equivalents, trade and other receivables and trade and other payables
approximate fair value due to the relatively short-term maturity of these financial instruments.
Loans payable
Loans payable that reprice every three (3) months, the carrying value approximates the fair value on current
market rate. For fixed rate loans, the carrying value approximates fair value due to its short term maturities,
ranging from three months to twelve months.
Redeemable preferred shares
As of December 31, 2011, the carrying value of the RPS approximates its fair value since the entire balance
is due for redemption within one year. As of December 31, 2010, the fair values of the redeemable
preferred shares are based on the discounted value of future cash flows using the applicable market interest
rates. Discount rates ranging from 4.8% to 5.6% were used in calculating the fair value of the Group’s in
2010.
Refundable deposits
As of December 31, 2011, the carrying value of refundable deposits approximates fair value due to the
relatively short-term maturity of this financial statement.
AFS investments
The fair values of AFS investments are based on quoted market prices, except for unquoted equity shares
which are carried at cost since fair values are not readily determinable.
Long term debt
As of December 31, 2011, discount rate of 4.7% was used in calculating the FV of the long-term debt. As of
December 31, 2010, the carrying amounts of long-term debt approximate fair value as the debt is already
due and demandable due to breach of loan covenants.
Obligations under finance lease
The fair values of obligation under finance lease are based on the discounted net present value of cash flows
using discount rates of 1.75% to 5.27% as at December 31, 2011 and 6.79% to 9.03% as at December 31,
2010.
Fair Value Hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not
based on observable market data.
Only the Group’s AFS investments, which are classified under Level 1, are measured at fair value. During
the reporting period ending December 31, 2011 and 2010, there were no transfers between Level 1 and
Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
2GO Group, Inc. and Subsidiaries
AGING OF RECEIVABLES
June 30, 2012
In Thousands
30 Days
60 Days
90 Days
Over 90 Days
ADA/Under Litigation
Total
A/R - Trade
1,542,223
174,553
108,906
1,209,529
0
3,035,211
A/R - Non Trade/Affiliates
1,394,772
7,312
175,331
(1,048,780)
0
528,635
0
0
0
0
0
0
Advances to Officers/Employees
(2,022)
203
4,392
7,107
0
9,680
Receivable from insurance and other claims
18,765
0
0
115,999
0
134,764
(647)
(42)
(66)
(192,597)
0
(193,353)
0
0
0
0
(125,152)
(125,152)
A/R - Others
Allowance for Doubful Accounts
Items Under Litigation
0
TOTAL
2,953,090
182,026
288,563
91,258
(125,152)
3,389,784
2GO GROUP, INC. [FORMERLY ATS CONSOLIDATED (ATSC), INC.] AND SUBSIDIARIES
FINANCIAL SOUNDNESS INDICATORS
JUNE 30, 2012 and DECEMBER 31, 2011
June 2012
December 2011
1 Debt-to-Equity
Total Liabilities
Total Stockholders' Equity
Debt-to-Equity Ratio
9,372,571
2,907,722
3.22
8,825,800
3,306,284
2.67
2 Current Ratio
Total Current Assets
Total Current Liabilities
Current Ratio
6,104,501
6,484,167
0.94
5,900,743
5,494,977
1.07
3 Equity-to-Asset Ratio
Total Stockholders' Equity
Total Assets
Equity-to-Asset Ratio
2,907,722
12,280,293
0.24
3,306,284
12,132,084
0.27
4 Return On Assets or "ROA"
Operating Income
Average Total Assets
ROA
(20,703)
12,206,188
(0.00)
(352,030)
12,353,726
(0.03)
(20,703)
3,107,003
(0.01)
(352,030)
3,631,197
(0.10)
(178,282)
196,523
(0.91)
(413,356)
407,548
(1.01)
5 Return on Equity or "ROE"
Operating Income
Average Total Stockholders' Equity
ROE
6 Interest Coverage Ratio
EBIT
Interest Expense
Interest Coverage Ratio