COVER SHEET C S 2 0 0 9 0 1 2 6 9 S,E.C Registration Number C A L A P A N V E N T U R E S , I N C . B E R G H A V E . Q U E (Company's Full Name) 4 T H F L O O R 2 0 1 7 0 T O M A S M O S C O C A S O R U T T R L A N A T O S T . S , Z P L A C O R . O N C C E I T Y ( Business address: No. Street City / Town / Province ) 1 2 3 ORTRUD T. YAO 373-30-38 Contact Person Company Telephone Number 1 Month Day (Fiscal Year) 1 7 - Q 1st Qtr 2013 0 FORM TYPE 6 Month Day (Annual Meeting) Secondary License Type, If Applicable Amended Articles Number/Section Dept. Requiring this Doc. Total amount of borrowings Domestic Total No. of Stockholders complished by SEC Personnel concerned File Number LCU Document I.D. Cashier STAMPS Foreign - CALAPAN VENTURES, INC. SEC FORM 17-Q QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(b)(2) THEREUNDER 1. For the quarterly period ended: March 31, 2013 2. SEC Identification No. CS200901269 3. BIR Tax Identification No. 007-236-853-000 4. Exact name of registrant as specified in its charter : CALAPAN VENTURES, INC. 5. Province, Country or other jurisdiction of incorporation or organization: PHILIPPINES 6. Industry Classification Code : _________ (SEC Use Only) 7. Address of principal office and Postal Code: 4th Floor 20 Lansbergh Place, Tomas Morato Ave. cor. Scout Castor St., 1103 Quezon City 8. Registrant’s telephone no. and area code: (632) 373-3038 9. Former name, address, and fiscal year, if changed since last report: Not applicable 10. Securities registered pursuant to Sections 4 & 8 of the RSA: Title of Each Class Common Stock, P 1 par value No. of Shares of Common Stock Outstanding &/or Amount of Outstanding 162,161,000 shares Debt 11. Are any or all of these securities listed on the Philippine Stock Exchange? Yes [x] No [ ] 12. Indicate by check mark whether the registrant: (a) has filed all reports required to be filed by Section 17 of the Securities Regulation Code and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports): Yes [x] No [ ] (b) has been subject to such filing requirements for the past 90 days: Yes [x] No [ ] TABLE OF CONTENTS FINANCIAL INFORMATION Section 1 Page No. Financial Statements Consolidated Balance Sheets Consolidated Statements of Income and Expenses Consolidated Statements of Changes in Shareholder’s Equity Consolidated Statements of Cash Flows 2 3 4 5 Section 2 Notes to Financial Statements 6 Section 3 Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Section 4 Aging of Accounts Receivable 30 Section 5 Summary of Adoption of Philippine Financial Reporting Standards 31 Section 6 Schedule of Retained Earnings Available for Dividends 36 CALAPAN VENTURES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Philippine Pesos) March 31, 2013 (Unaudited) December 31, 2012 (Audited) ASSETS Current Assets Cash and cash equivalents Receivables – net Due from related parties Other current assets Total Current Assets 84,795,575 20,620,234 8,876,427 4,014,446 118,306,683 86,413,856 22,258,607 9,485,592 3,248,306 121,406,361 Noncurrent Assets Available-for-sale investments Investment property Property and equipment – net Deferred tax assets (Note 5) Other noncurrent assets – net Total Noncurrent Assets 1,371,776 80,357,000 314,783,103 2,397,385 11,939,346 410,848,610 1,371,776 80,357,000 316,738,180 2,397,385 11,937,346 412,801,687 529,155,293 534,208,048 88,632,008 11,137,360 99,769,368 101,410,645 7,934,834 109,345,479 78,134,152 2,566,750 11,866,221 7,651,215 100,218,338 80,137,592 2,566,750 11,866,221 7,600,215 102,170,778 162,161,000 58,073,612 9,444,169 370,522 98,133,661 328,182,964 162,161,000 58,073,612 9,444,169 370,522 91,688,123 321,737,426 984,623 954,365 529,155,293 534,208,048 LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued expenses Income tax payable Total Current Liabilities Noncurrent Liabilities Loan payable (Note 4) Retirement benefit obligation Deferred tax liability (Note 5) Customers' deposits Total Noncurrent Liabilities Equity Attributable to Equity Holders of Parent Company Share capital – 1 par value Authorized – 200,000,000 shares Subscribed and issued – 120,000,000 shares Additional paid-in capital Revaluation surplus in property and equipment Gain on available-for-sale investments Accumulated profit Minority Interest See accompanying Notes to Consolidated Financial Statements. 2 CALAPAN VENTURES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Philippine Pesos) Quarters Ended September 30 2010 2009 REVENUES Water services Sales of goods Quarter Ended March 31 2013 2012 (5,423,131) (7,861,692) (46,239,893) 16,210,162 33,599,186 34,552,386 5,012,644 39,565,030 32,274,291 4,696,104 36,970,395 COST OF SALES AND SERVICES (26,659,291) 14,157,204 16,688,217 15,162,824 GROSS PROFIT (19,580,602) 19,441,982 22,876,814 21,807,570 (7,393,997) 9,011,079 11,946,235 11,309,375 (12,186,605) 10,430,903 10,930,579 10,498,195 (2,031,028) (1,148,196) (1,094,819) (12,738,094) 8,399,875 9,782,383 9,403,376 (3,344,578) 2,752,156 3,306,586 2,926,490 9,393,517) 5,647,719 6,475,796 6,476,886 (18,973,987) (8,716,038) 5,647,046 673 6,445,538 30,258 6,450,229 26,656 27,690,025) 5,647,719 6,475,796 6,476,886 0.0201 0.0397 0.0398 OPERATING EXPENSES PROFIT FROM OPERATIONS OTHER INCOME (CHARGES) - NET (551,489) PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE – Net (Note 5) Current TOTAL COMPREHENSIVE INCOME ( TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Equity holders of the parent Minority interest ( EARNINGS PER SHARE (Note 6) ( 0.0674) See accompanying Notes to Consolidated Financial Statements. 3 CALAPAN VENTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE UNAUDITED THREE MONTHS ENDED MARCH 31 (Amounts in Philippine Pesos) Attributable to Equity Holders of Parent Company Revaluation Gain on surplus in available property and for-sale Accumulated equipment investments profit Balance at December 31, 2011 9,438,247 256,068 Profit for the period Total Minority interest 89,885,673 319,814,600 822,323 6,450,229 6,450,229 26,656 Balance at March 31, 2012 9,438,247 256,068 96,335,902 326,264,829 848,979 Balance at December 31, 2012 9,444,169 370,522 91,688,123 321,737,426 954,365 6,445,538 6,445,538 30,258 98,133,661 328,182,964 984,623 Profit for the period Balance at March 31, 2013 9,444,169 370,522 See accompanying Notes to Consolidated Financial Statements. 4 CALAPAN VENTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE UNAUDITED THREE MONTHS ENDED MARCH 31 (Amounts in Philippine Pesos) 2013 2012 6,445,538 6,450,229 4,054,943 3,306,586 13,807,067 3,595,171 2,926,490 12,971,891 CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax and minority interest Adjustments for: Depreciation and amortization Provision for income tax Operating profit before working capital changes Increase in: Receivables Other current assets Increase (decrease) in: Accounts payable and accrued expenses Customers' deposits Cash generated from operations Income tax paid Net cash provided by operating activities 1,638,373 (766,140) (2,705,746) (37,216) (12,778,637) 51,000 1,951,663 (104,061) 1,847,602 (1,608,621) 60,100 8,680,407 (208,630) 8,471,777 CASH FLOWS FROM INVESTING ACTIVITIES Additions to: Due from related parties Property and equipment Minority interest Decrease (increase) in other noncurrent assets Net cash used in investing activities 609,165 (2,099,867) 30,258 (2,000) (1,462,443) (1,373,997) (2,737,401) 26,656 2,250,000 (1,834,741) CASH FLOWS FROM FINANCING ACTIVITIES Additional loan loan payments (2,003,440) (1,335,627) NET INCREASE IN CASH (1,618,281) 5,301,409 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 86,413,856 86,413,856 CASH AND CASH EQUIVALENTS AT END OF PERIOD 84,795,575 91,715,265 See accompanying Notes to Consolidated Financial Statements. 5 CALAPAN VENTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Philippine Pesos) 1. Corporate Information Calapan Ventures, Inc. (“CVI” or “the Parent Company” formerly Calapan Equity Ventures Inc.) and subsidiaries, collectively referred to as “the Group”, were incorporated in the Philippines and were registered with the Securities and Exchange Commission (SEC) on January 30, 2009. The consolidated financial statements include the accounts of the Parent Company and the following subsidiaries: Name of Subsidiary Calapan Waterworks Corporation (CWC) Metro Agoo Waterworks Inc. (MAWI) Parent Company’s ownership through CWC Tabuk Water Corp. (Tabuk Water)* Dates of Incorporation May 23, 1991 Percentage of Ownership 99.61 September 17, 2012 August 14, 2006 84.55 100.00 * preoperating stage The Parent Company was incorporated primarily to engage in, operate, conduct and maintain the business of trading, processing, assembling, manufacturing, and/or fabricating and exporting, importing, buying, acquiring, holding, or otherwise disposing of and dealing in goods, wares, supplies, materials, articles, merchandise, commodities, equipment, hardware, appliances, minerals, metals, timber, lumber and real and personal properties of every kind, class and description, whether natural or artificial which may become articles of commerce. On July 8, 2009, Jolliville Holdings Corporation (JOH), CVI’s Parent Company, passed a resolution declaring 32% property dividends corresponding to 90,080,000 shares of the Parent Company. The declaration was approved by JOH’s stockholders during the annual stockholders’ meeting on August 18, 2009. On January 28, 2010, the SEC approved the notice of property dividend declaration of JOH amounting to P = 90,080,000 payable to JOH’s stockholders of record as of December 15, 2009. Subsequently on December 22, 2009, a stockholder of JOH executed a deed of assignment of shares of stocks of the Parent Company equivalent to 40 million shares in favor of certain subsidiaries of JOH. On December 16, 2009, Elgeete Holdings, Inc. assigned its 100% ownership in Kristal Water to the Parent Company amounting to P = 250,000 equal to 250,000 shares. Also in December 16, 2009, CWC and Ormina Realty and Development Corporation (ORDC) assigned their 67% and 33% ownership, respectively, in Tabuk Water to the Parent Company amounting to P = 6.7 million and P = 3.3 million, respectively. The principal activities of the subsidiaries are as follows: Name of subsidiary CWC Tabuk Water* Principal activity Operates, manages and maintains the general business of development and utilization of water resources to harness, produce and supply water for domestic, municipal, agricultural, industrial, commercial or recreational purposes. Will engage in the operation, management and maintenance of development and utilization of water resources. Also, will acquire, own, lease, construct, install, equip, operate, manage and maintain plants. 6 -2- MAWI* Will engage in the operation, management and maintenance of development and utilization of water resources. Also, will acquire, own, lease, construct, install, equip, operate, manage and maintain plants. * preoperating stage On October 23, 2002, the 12th Congress of the Republic of the Philippines enacted Republic Act No. 9185 whereby CWC was granted a franchise to construct, install, operate, and maintain for commercial purposes and in the public interest, a water supply and sewerage system for the purpose of distributing water for sale and for sanitation in the City of Calapan, province of Oriental Mindoro. The franchise is for a period of 25 years from the date of enactment. The act took effect on February 9, 2003. CWC was also granted a certificate of public convenience by the National Water Resources Board on December 18, 2002 and will expire on January 16, 2028. The registered address of the Parent Company is at 4 Tomas Morato, Quezon City. th Floor 20 Lansbergh Place Bldg., 170 2. Summary of Significant Accounting and Financial Reporting Policies Basis of Preparation of Financial Statements The accompanying consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS) including interpretations issued by Financial Reporting Standards Council (FRSC). The accompanying consolidated financial statements have been prepared on the historical cost basis except for revaluation for certain property. Reporting Currency The financial statements are presented in Philippine pesos, which is the Group’s functional and presentation currency under PFRS. Basis of Consolidation The consolidated financial statements include the accounts of the Parent Company and subsidiaries. Subsidiaries are consolidated from the date on which control is transferred to the Parent Company and cease to be consolidated from the date on which control is transferred out of the Parent Company. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. All significant intercompany accounts, transactions, and income, expenses and losses are eliminated upon consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Group. Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interest of the Parent Company except to the extent 7 -3- that the minority has a binding obligation and is able to make an additional investment to cover losses. Disposals of equity investments to minority interests result in gains and losses for the Group are recorded in the consolidated statement of comprehensive income. Purchase of equity shares from minority interests results in goodwill, being the difference between any consideration paid and the relevant share acquired in the fair value of the net assets of the subsidiary. Changes in Accounting Policies The Group adopted the amendment to PFRS, which became effective on or before January 1, 2010 as follow: Revised PFRS 3, Business Combinations and PAS 27, Consolidated and Separate Financial Statements. The revised PFRS 3 introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs, and future reported results. The revised PAS 27 requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as an equity transaction. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. Other consequential amendments were made to PAS 7, Statement of Cash Flows, PAS 12, Income Taxes, PAS 21, The Effects of Changes in Foreign Exchange Rates, PAS 28, Investment in Associates and PAS 31, Interests in Joint Ventures. The changes introduced by the revised PFRS 3 must be applied prospectively, while changes introduced by the revised PAS 27 must be applied retrospectively with a few exceptions. The changes by PFRS 3 and PAS 27 will affect future acquisitions or loss of control and transactions with minority interests. However, the Group did not intend to take advantage of this possibility. Also, the following revised PFRS, amended PAS and interpretations issued by IFRIC became effective in 2010 but are not relevant to the Group: Amendment to PFRS 2, Share-based Payment: Group Cash-settled Share-based Payment Transactions. This Amendment clarifies the scope and the accounting for group cash-settled share-based payment transactions. This Amendment will have no impact on the consolidated financial position or performance of the Group, as the Group is not involved in any similar transaction. Amendment to PAS 39, Financial Instruments: Recognition and Measurement – Eligible Hedged Items. This Amendment addresses only the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. The Group has not entered into transactions involving hedges and as such the amendment is unlikely to impact the financial position or performance of the Group. Philippine Interpretation IFRIC 17, Distributions of Non-Cash Assets to Owners. This Philippine Interpretation covers accounting for two types of non-reciprocal distributions of assets by an entity to its owners acting in their capacity as owners. The two types of distribution are: 8 -4- a. distributions of non-cash assets (e.g., items of property, plant and equipment, businesses as defined in PFRS 3, ownership interests in another entity or disposal groups as defined in PFRS 5); and b. distributions that give owners a choice of receiving either non-cash assets or a cash alternative. This Philippine Interpretation addresses only the accounting by an entity that makes a non-cash asset distribution. It does not address the accounting by shareholders who receive such a distribution. Philippine Interpretation IFRIC 18, Transfers of Assets from Customers. This Philippine Interpretation covers accounting for transfers of items of property, plant and equipment by entities that receive such transfers from their customers. Agreements within the scope of this Interpretation are agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both. This Philippine Interpretation also applies to agreements in which an entity receives cash from a customer when that amount of cash must be used only to construct or acquire an item of property, plant and equipment and the entity must then use the item of property, plant and equipment either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both. Improvements to Existing Standards On April 2009, IASB issued amendments to certain standards, primarily with a view to removing inconsistencies and clarifying wordings. There are separate transitional provisions for each standard. PFRS 2, Scope of PFRS 2 and Revised PFRS 3, clarifies that the contribution of a business on formation of a joint venture and combinations under common control are not within the scope of PFRS 2 even though they are out of scope of PFRS 3. PFRS 5, Disclosures of Noncurrent Assets Classified as Held for Sale or Discontinued Operations, clarifies that the disclosures required in respect of non-current assets and disposal groups classified as held for sale or discontinued operations are only those set out in PFRS 5. The disclosure requirements of other PFRS only apply if specifically required for such non-current assets or discontinued operations. PFRS 8, Disclosure of Information About Segment Assets, clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. PAS 1, Current/Noncurrent Classification of Convertible Instruments, clarifies that the terms of a liability that could result, at anytime, in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its classification. PAS 7, Classification of Expenditures on Unrecognised Assets, explicitly states that only expenditure that results in a recognized asset can be classified as a cash flow from investing activities. 9 -5 PAS 17, Classification of Leases of Land and Buildings, removes the specific guidance on classifying land as a lease. Prior to the amendment, leases of land were classified as operating leases. The amendment now requires that leases of land are classified as either “finance” or “operating” in accordance with the general principles of PAS 17. The amendments will be applied retrospectively. PAS 18, Determining Whether an Entity is Acting as a Principal or as an Agent, adds guidance (which accompanies the standard) to determine whether an entity is acting as a principal or as an agent. The features to consider are whether the entity: (a) has primary responsibility for providing the goods or service; (b) has inventory risk; (c) has discretion in establishing prices; and (d) bears the credit risk. PAS 36, Unit of Accounting for Goodwill Impairment Test, clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in PFRS 8 before aggregation for reporting purposes. PAS 38, Additional Consequential Amendments Arising from Revised PFRS 3 – Measuring the fair value of an intangible asset acquired in a business combination, clarifies that if an intangible asset acquired in a business combination is identifiable only with another intangible asset, the acquirer may recognize the group of intangible assets as a single asset provided the individual assets have similar useful lives; also clarifies that the valuation techniques presented for determining the fair value of intangible assets acquired in a business combination that are not traded in active markets are only examples and are not restrictive on the methods that can be used. PAS 39, Treating Loan Prepayment Penalties as Closely Related Embedded Derivatives – Scope exemption for business combination contracts - Cash flow hedge accounting, clarifies the following: a. that a prepayment option is considered closely related to the host contract when the exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract. b. that the scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date applies only to binding forward contracts, and not derivative contracts where further actions by either party are still to be taken. c. that gains or losses on cash flow hedges of a forecast transaction that subsequently results in the recognition of a financial instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged forecast cash flows affect profit or loss. IFRIC 9, Scope of Philippine Interpretation IFRIC 9 and Revised PFRS 3, clarifies that it does not apply to possible reassessment at the date of acquisition, to embedded derivatives in contracts acquired in a business combination between entities or businesses under common control or the formation of joint venture. 10 -6 IFRIC 16, Amendment to the Restriction on the Entity that Can Hold Hedging Instruments, states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of PAS 39 that relate to a net investment hedge are satisfied. Future Changes in Accounting Policies The Group did not early adopt the following standards and Philippine Interpretations that have been approved but are not yet effective: Effective in 2012 Philippine Interpretation IFRIC-15, Agreements for the Construction of Real Estate Effective in 2013 PFRS 9 Financial Instruments The Group is currently assessing the relevance and impact of the above standards, amendment to standards and interpretations. The revised disclosures on the financial statements required by the above standards and interpretations will be included in the Group’s financial statements when these are adopted. Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of acquisition and that are subject to an insignificant risk of change in value. Receivables Trade and other receivables are carried at original invoice amount less any allowance for impairment in value. Financial Assets and Liabilities Financial assets and financial liabilities are recognized initially at fair value. Transaction costs are included in the initial measurement of all financial assets and liabilities, except for financial instruments measured at fair value through profit and loss. Fair value is determined by preference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rates of interest for a similar instrument with similar maturities. The Group recognizes a financial asset or liability in the statement of financial position when it becomes a party to the contractual provisions of the instrument. A financial liability (or a part of a financial liability) is derecognized when the obligation is extinguished. In the case of a regular purchase or sale of financial assets, recognition and derecognition, as applicable, is done using settlement date accounting. 11 -7- Financial assets are classified into the following categories: financial assets at fair value through profit or loss (FVPL), loans and receivables, held-to-maturity investments, and available-for-sale investments as appropriate. Financial liabilities are classified into the following categories: financial liabilities at FVPL and other financial liabilities. The Group determines the classification at initial recognition and, where allowance is appropriate, re-evaluates this designation at every reporting date. As of September 30, 2012, the Group has financial assets and liabilities under loans and receivables, available-for-sale financial assets and other financial liabilities. Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments and are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Such assets are carried at cost or amortized cost in the statement of financial position. Amortization is determined using the effective interest method. Loans and receivables are included in current assets if maturity is within 12 months from the end of financial reporting period. Otherwise, these are classified as noncurrent assets. This category includes cash and cash equivalents, receivables, due from related parties and special bank deposits. Available-for-sale investments Available-for-sale (AFS) investments are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the preceding categories. After initial recognition, AFS financial assets are measured at fair value with gains or losses being recognized as separate component of stockholders’ equity until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the statement of comprehensive income. The fair value of investments that are actively traded in organized financial market is determined by reference to quoted market bid prices at the close of business at the end of each financial reporting period. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include recent arm’s length market transaction; reference to the current market value of another instrument which is substantially the same; discounted cash flows analysis and option pricing models. This category includes investment in mutual fund managed by an insurance company. Other Financial Liabilities Other financial liabilities pertain to liabilities that are not held for trading or not designated as at FVPL upon inception of the liability. A financial liability at FVPL is acquired principally for the purpose of repurchasing in the near term or upon initial recognition, it is designated by management as at fair value through profit or loss. Other financial liabilities are initially recorded at fair value less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using effective interest method. These include liabilities arising from operations and borrowings. This category includes accounts payable and accrued expenses, due to related parties, loan payable and customers’ deposits. 12 -8- Impairment of Financial Assets The Group assesses at each end of financial reporting period whether a financial asset or group of financial assets is impaired. Assets carried at amortized cost If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost 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 credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognized in the Group’s consolidated statement of comprehensive income. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial asset 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, in a subsequent period, the amount of the impairment loss decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of comprehensive income 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 has been incurred in an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of 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. Available-for-Sale investments. If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to the statements of income. Reversals in respect of equity instruments classified as available-forsale are not recognized in profit. Reversals of impairment losses on debt instruments are reversed through profit or loss; if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss. 13 -9- Derecognition of Financial Assets and Liabilities Financial assets A financial asset is derecognized when (1) the rights to receive cash flows from the financial instruments expire, (2) the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “passthrough” arrangement, or (3) the Group has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of an asset nor transferred control of the assets, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial Liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Where the 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 consolidated statement of comprehensive income. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated statement of financial position. Investment Property Investment property, which is property held to earn rentals and/or for capital appreciation, is carried at fair value at end of financial reporting period. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise. A company-occupied property classified under property and equipment account becomes an investment property when it ends company-occupation. Decrease in the carrying amount is recognized in statement of comprehensive income. However, to the extent that an amount is included in its revaluation surplus, the decrease is charged against that revaluation surplus. Increase in carrying amount is recognized in statement of comprehensive income to the extent that the increase reverses a previous impairment loss for such property. The amount recognized in statement of comprehensive income does not exceed the amount needed to restore the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized. Any remaining part of the increase is credited directly to equity in revaluation surplus. Revaluation surplus included in equity maybe transferred to accumulated profits. The transfer from revaluation surplus to accumulated profits is not made through profit or loss. 14 - 10 - Investment property is derecognized on disposal, or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the statement of comprehensive income in the year of retirement or disposal. Where there is clear evidence that the fair value of an investment property is not reliably determinable on a continuing basis, the cost model under PAS 16 “Property, Plant and Equipment”, shall be used. The Company’s investment property consists of parcels of land located in Calapan, Oriental Mindoro. Property and Equipment Property and equipment are carried at cost less accumulated depreciation, amortization and any allowance for impairment in value except for land. Land is carried at appraised values as determined by an independent firm of appraisers on December 22, 2009. The appraisal increment resulting from the revaluation was credited to “Revaluation surplus in land” shown under “Equity” section in the consolidated statement of financial position and consolidated statement of changes in equity. Initial cost of property and equipment comprises its construction cost or purchase price and any directly attributable cost of bringing the assets to its working condition and location for its intended use. Expenses incurred and paid after the property and equipment have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to income when the costs are incurred. In situation where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment. Depreciation and amortization commence once the assets are available for use and is computed using the straight-line method over the following estimated useful lives: Years 20 5 – 50 5 5 5 Land improvements Water utilities and distribution system Office furniture and equipment Service vehicles Staffhouse, warehouse and office The useful life and depreciation and amortization methods are reviewed periodically to ensure that the method and period of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. Construction in progress and equipment for installation, included in the property and equipment, are stated at cost. These include cost of construction, equipments and other direct costs. Construction in progress and equipment for installation are not depreciated until such time as the relevant assets are completed or installed and put into operational use. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are eliminated from the accounts, and any gain or loss resulting from their disposal is credited or charged to current operations. 15 - 11 - Goodwill Goodwill arising from the acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently, if events of changes in circumstances indicate that the carrying value may be impaired. An impairment loss recognized for goodwill is not reversed in a subsequent period. Negative goodwill, which is the excess of net fair value of subsidiaries’ identifiable assets, liabilities and contingent liabilities over the cost of business combination, is immediately recognized as income. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Impairment of Non-financial Assets The carrying values of long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of the asset is the greater of net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less cost to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the smallest cash-generating unit to which the asset belongs. Impairment losses are recognized in the statement of comprehensive income in the period in which it arises unless the asset is carried at a revalued amount in which case the impairment is charged to the revaluation surplus of the said asset. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however, not to an amount higher than the carrying amount that would have been determined (net of any depreciation and amortization) had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited to current operations. Related Party Transactions Transactions between related parties are based on terms similar to those offered to non-related parties. 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 and the parties are subject to common control or common significant influence. Related parties may be individuals or corporate entities. 16 - 12 - Revenue and Cost Recognition Revenue is recognized when it is probable that the economic benefit associated with the transactions will flow to the Group and the amount can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Water revenues are recognized when the related water services are rendered. Sales are recognized upon delivery of goods sold, and the transfer of risks and rewards to the customer has been completed. Interest income is recognized on a time proportion basis that reflects the effective yield on the asset. Other income is recorded when the related income/service is earned. Cost and expenses are recognized upon receipt of goods, utilization of the service or at the date they are incurred. Except for borrowing costs attributable to qualifying assets, all finance costs are reported on an accrual basis. Leases Leases are classified as finance leases whenever the term of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Retirement Benefit Costs The Group’s retirement cost is actuarially determined using the projected unit credit method. This method reflects service rendered by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity with option to accelerate when significant changes to underlying assumptions occur. Retirement expense includes current service cost, interest cost and amortization of unrecognized past service cost and recognition of actuarial gains or losses. The current service cost is a level annual amount or a fixed percentage of salary which, when invested at the rate of interest assumed in the actuarial valuation, is sufficient to provide the required retirement benefit at the employee’s retirement. Past service cost is the present value of the excess of the projected retirement benefits over the amount expected to be provided by future contributions based on the service cost. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested. Actuarial gains and losses that exceed 10% of the greater of the present value of the Group’s defined benefit obligation and the fair value of plan assets are amortized over the expected average remaining working lives of the participating employees. The retirement benefit obligation recognized in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value of plan assets, if any. Any assets resulting from this calculation is limited to unrecognized actuarial losses and past service costs, plus the present value of available refunds and reductions in future contributions to the plan. 17 - 13 - Borrowing Costs Borrowing costs incurred during the construction period on loans and advances used to finance construction and property development are capitalized as part of construction and development costs included under “Property and Equipment” account in the statement of financial position. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalization of borrowing costs ceases when substantially all the activities necessary to prepare the asset for its intended use are complete. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. Capitalized borrowing cost is based on applicable weighted average borrowing rate. All other borrowing costs are charged to operation in the period in which they are incurred. Rental expenses under operating leases are charged to profit or loss on a straight-line basis over the term of the lease. The Group determines whether an arrangement is, or contains a lease based on the substance of the arrangement. It makes an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Income Taxes Income taxes represent the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable income for the year. Taxable income differs from income as reported in the statement of comprehensive income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current income tax is calculated using tax rates that have been enacted or substantively enacted at the end of financial reporting period. Deferred tax is provided, using the liability method, on all temporary differences at the end of financial reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes and carryforward benefits of net operating loss carryover (NOLCO) and minimum corporate income tax (MCIT). Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets and liabilities are measured using the tax rate that is expected to apply to the period when the asset is realized or the liability is settled. The carrying amount of deferred tax assets is reviewed at each end of financial reporting period and reduced to the extent that it is not probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilized. Deferred tax assets and liabilities are offset when there is a legally enforceable right to off-set current tax assets against current tax liabilities. Income tax relating to items recognized directly in equity is recognized in equity and in other comprehensive income in the consolidated statement of comprehensive income. 18 - 14 - Provisions Provisions are recognized only when the following conditions are met: a) there exists a present obligation (legal or constructive) as a result of past event; b) it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and, c) reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each end of financial reporting period and adjusted to reflect the current best estimate. Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefit is probable. Events after the End of Financial Reporting Period Post year-end events that provide additional information about the Group’s position at the end of financial reporting period (adjusting events) are reflected in the Group’s financial statements. Post year-end events that are not-adjusting events are disclosed in the notes to financial statements when material. Earnings per Share (EPS) EPS is determined by dividing net income for the year by the weighted average number of shares outstanding during the year including fully paid but unissued shares as of the end of the year, adjusted for any subsequent stock dividends declared. Management’s Use of Judgments and Estimates The preparation of the Group’s financial statements in accordance with PFRS requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The judgments, estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the financial statements. Actual results could differ from such estimates. The effect of any changes in estimates will be recorded in the Group’s financial statements when determinable. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations which have the most significant effect on the amounts recognized in the consolidated financial statements: Distinction between Investment Property and Owner-Occupied Property The Group determines whether a property qualifies as investment property. In making its judgments, the Group considers whether the property generates cash flows largely independent of the other assets held by an entity. Owner-occupied properties generate cash flows that are attributable not only to the property but also other assets used in the supply process. 19 - 15 - Some properties are held to earn rentals or for capital appreciation and other properties are held for use in rendering of services or for administrative purposes. If the portion cannot be sold separately, the property is accounted for as an investment property only if an insignificant portion is held for use in the production or supply of goods and services or for administrative purposes. Judgment is applied in determining whether ancillary services are so significant that a property does not qualify as investment property. The Group considers each property separately in making its judgment. Estimates The key assumptions concerning the future and other sources of estimation uncertainty at the end of financial reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Estimation of Impairment on Receivables The Group maintains allowances for impairment losses on receivables at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by the management on the basis of factors that affect the collectibility of the accounts. The factors include, but are not limited to, the length of relationship with the customer, the customer’s payment behavior and known market factors. The Group reviews the age and status of receivables, and identifies accounts that are to be provided with allowances on a continuous basis. The Group provides full allowance for receivables that it deems uncollectible. The amount and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different estimates. An increase in the allowance for impairment losses on receivables would increase recorded operating expenses and decrease current assets. Estimation of Useful Lives of Property and Equipment Useful lives of property and equipment are estimated based on the period over which these assets are expected to be available for use. Such estimation is based on a collective assessment of industry practice, 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 of recorded expenses brought about by changes in the factors mentioned above. Any reduction in the estimated useful lives of property and equipment would increase the Group’s recorded operating expenses and decrease on the related asset accounts. Judgment on classification of Financial Assets and Liabilities 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 arrangement 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 Group’s statement of financial position. The Parent Company determines the classification at initial recognition and reevaluates this designation at every reporting date. 20 - 16 - PFRS requires that certain financial assets and liabilities be carried at fair value, which requires the use of extensive accounting estimates and judgments. While significant components of fair value measurement are determined using verifiable objective evidence (i.e. interest rates, volatility rates), the timing and amount of changes in fair value would differ with the valuation methodology used. Any change in the fair value of these financial assets and liabilities would directly affect income and equity Estimation of Impairment on Non-Financial Assets Impairment review is performed when certain impairment indicators are present. Such indicators would include significant changes in asset usage, significant decline in market value and obsolescence or physical damage on an asset. If such indicators are present and where the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Determining the net recoverable value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations. Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cashgenerating unit and a suitable discount rate in order to calculate present value. Estimation of Retirement and Other Benefits The determination of the Group’s obligation and cost for pension and other retirement benefits is dependent on management’s selection of certain assumptions used by actuaries in calculating such amounts. The assumptions for pension costs and other retirement benefits are described in Note 14, and include among others, discount and salary increase rates. Actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the Group’s recognized expense and recorded obligation in such future periods. While management believes that the assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in management assumptions may materially affect the Group’s pension and other retirement obligations. The Group also estimates other employee benefits obligation and expense, including the cost of paid leaves based on historical leave availment of employees, subject to the Group’s policy. These estimates may vary depending on the future changes in salaries and actual experiences during the year. Deferred Income Tax Assets The carrying amount of deferred tax assets is reviewed at each end of financial reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Management expects future operations will generate sufficient taxable profit that will allow all or part of the deferred income tax assets to be utilized. 21 - 17 Financial Assets and Liabilities PFRS requires that certain financial assets and liabilities be carried at fair value, which requires the use of extensive accounting estimates and judgments. While significant components of fair value measurement are determined using verifiable objective evidence (i.e. interest rates, volatility rates), the timing and amount of changes in fair value would differ with the valuation methodology used. Any change in the fair value of these financial assets and liabilities would directly affect income and equity. 3. Loan Payable This account pertains to long-term loans availed from the Development Bank of the Philippines for the rehabilitation, expansion and improvements of the waterworks system of CWWC for P = 137 million payable in fifteen (15) years on a monthly basis. Interest is fixed at 10.5% per annum, reviewable and subject to adjustment annually thereafter but not to exceed 15% per annum. For 2007 and beyond, the Company was able to negotiate the interest rate at 9%. CWWC executed a deed of assignment relative to the loan, in favor of the bank of (a) a portion of CWWC’s Reserve Fund (via Savings or Other Investment Account) equivalent to two monthly interest amortization during the grace period, to increase to two monthly principal and interest amortization after the grace period onwards. The Reserve Fund shall be mainted for CWWC’s expenses for maintenance, operation and emergency fund; and (b) billed water/receivables until the amount of the loan is fully paid. Also, CWWC mortgaged its real estate and other equipment all situated in Calapan, Oriental Mindoro in favor of the bank. 4. Related Party Transactions The Group has the following transactions with related parties: a. Non-interest bearing cash advances with affiliates for investing and working capital purposes. Also, the Group availed non-interest bearing cash advances from its major stockholder and affiliate for the acquisition of operating machinery and equipment. b. Management and consultancy agreement with an affiliate renewable annually upon such terms and conditions as may be mutually agreed upon by both parties. c. Lease of office space from an affiliate for a period of one year, renewable upon mutual agreement of both parties. 5. Income Taxes The provision for income tax differs from the amount computed by applying the statutory income tax rate to income before income tax due mainly to interest income already subjected to final tax at a lower rate. The deferred tax assets represent the tax consequences of NOLCO, accrued retirement expenses, and allowances for impairment losses and parts obsolescence. 22 - 18 - The deferred tax liability pertains to tax consequences of capitalized borrowing costs and appraisal increase in land under property and equipment. 6. Earnings Per Share (EPS) Computation of EPS is as follows: Net income Divided by weighted average number of common shares 2013 P = 6,445,538 162,161,000 P = 0.0397 2012 P = 6,450,229 162,161,000 P = 0.0398 7. Other Matters On May 18, 2012, the Company’s Board of Directors approved an additional equity investment of P = 100 million in CWC to finance the latter’s zoning and expansion program. This will be taken from the recent initial public offering. On July 4, 2012, the Company completed the sale of its shares in Kristal Water. A total of 249,995 shares were sold for P = 1 per share. As a result of the sale, Kristal Water ceases to be a subsidiary. The decision to sell was reached in order for the Company to focus on its core water utility business. There are no material events subsequent to the end of the interim period that has not been reflected in the financial statements. Neither are there any material contingencies and any other events or transactions that are material to an understanding of the current interim period aside from those already included in our report. 23 MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Financial Position (Balance Sheet) Total assets decreased by 0.95% or about P = 5.1 million to P = 529,155,293 as of 31 March 2013. The decrease can be attributed to settlement of amounts due to suppliers and contractor as may be seen from the decrease in the cash and cash equivalents and accounts payable and accrued expenses accounts by 1.87% and 12.60%, respectively. Cash and cash equivalents decreased to P = 84,795,575 and accounts payable and accrued expenses decreased to P = 88,632,008 as of the end of the period. The improved collection efficiency caused receivables to decrease by 7.36% or P = 1,638,373 from P = 22,258,607 as of year-end to the present P = 20,620,234. The increases and decreases in the net receivable from related parties is dependent upon the liquidity and financial status of the concerned parties at any given point in time. None of the parties involved is in financial distress and there is no reason to believe that any accounts may be impaired in the immediate or near future. Also, these accounts have no definite call dates and do not bear interest. The purpose of these advances is for operating and investing activities. Other current assets increased by 23.59% to P = 4,014,446. The increase of P = 766,140 pertains mainly to unapplied creditable withholding taxes of CVI. The property and equipment account decreased from the additional depreciation from the acquisition of a new office building acquired by CWWC worth around P = 57.36 million located in Barangay Bayanan, Calapan City. CWWC has already moved its offices to this new building in the last quarter of 2012. Available-for-sale investments, investment property and deferred tax assets were unchanged from their balances as of December 31, 2011. Accounts payable and accrued expenses decreased by 12.60% from P = 101.41 million as of December 31, 2012 to P = 88.63 million as of March 31, 2013, a total of P = 12.8 million. Much of this could be attributed to CWWC’s settlement of amounts due to its contractor for its development projects. The income tax liability as of December 31, 2012 was due for payment on April 15, 2013. The income tax liability as of March 31, 2013 consists of the unpaid tax liability of 2012 and accrual for first quarter 2013 results. This explains why income tax payable increased by 40.36% or P = 3,202,526. Another major contributor to the increase is the improved results of operations. The retirement benefit obligation and deferred tax liability were unchanged from year-end. The loan payable of P = 82,776,810 pertains to Calapan Water’s loan with DBP mentioned earlier. The grace period on principal payments on the loan expired in 2009. The decrease in this account by 2.50% or P = 2,003,440 pertains to principal payments for the period. Minority interest pertains to Calapan Water. This represents the share of its minority shareholders in the net assets of said subsidiary. The change in this account represents the share of minority shareholders in the results of operations for this period. Results of Operations Water service revenues have been steadily increasing and this may be attributed to additional billed volume from the increase in the number of subscribers which stood at 12,873 at period-end as against 24 12,370 last year. Revenues grew by P = 2,278,095 or 7.06% from P = 32,274,291 to P = 34,552,386 for the quarter. Sales of goods of P = 5.0 million for the period pertain to the trading activity of CVI. It started operation only last December 2009 and the increase as against the same year-to-date figure is P = 316,541 (6.74%). The increase was due to the effort of the company in expanding its product lines resulting to an increase in orders from its clients. Cost of sales and services have been increasing due to higher depreciation (due to office building acquired end of last year) and power costs (due to additional booster stations put up to augment water pressure) of CWWC. This increased by 10.06% (P = 1,525,393) for this period as conscious efforts were done to keep costs at relatively the same levels. Further, the increase in sales from the trading activity also affected this account. Most of the same factors affecting year-to-date figures also apply. Operating expenses have increased due to higher salaries and taxes this period as against the same period last year. This account increased by 5.63% (P = 636,860). Net other charges increased by 4.88% or P = 53,377 for the period. The increase is attributed to interest charges on CWWC’s loan with DBP charged to expense this quarter. The interest on CWWC’s loan was capitalized as part of property and equipment in prior years. The increase or decrease in the interest income earned is dependent upon the duration of the higher-yielding placements and not necessarily on the balance as of the end of the period. The current provision for income tax increased by 12.99% to P = 3,306,586 as a result of higher profits before income tax. Minority interest represents minority stockholders’ share in the net income or loss of Calapan Water. The fluctuation in this account is tied-in to the operating results of Calapan Water and to the Company’s overall ownership in the former. Liquidity and Solvency The Company’s cash balance decreased from end-2012 of P = 86.4 million to P = 84.8 million as at 31 March 2013. A significant portion of the cash balance came from the proceeds of CVI’s IPO last 2011. The IPO proceeds are intended for CWWC’s expansion and zoning works. Meanwhile, the decrease for this period was a result of payment of obligations mentioned earlier. The Company seeks to manage its liquidity profile to be able to finance its capital expenditures and serve its maturing obligations. The objective is to maintain a balance between continuity of funding and flexibility through valuation of projected and actual cash flow information. The Company manages liquidity by maintaining adequate reserves through advances from related parties and loan facilities with local banks. The IPO proceeds improved our current ratio considerably. Nonetheless, the Company is not in danger of insolvency as it could readily draw funds from related parties and banks. Further, its strong relations with suppliers and creditors enable the Company to negotiate and stretch credit terms. It may also be worth mentioning that payment terms of accounts with related parties have no definite call dates. The retirement benefit obligation and deferred tax liabilities may also be regarded as provisions and are not due immediately. Dividends In the Board of Directors’ meeting held on June 13, 2012 a resolution was passed declaring cash dividends of P = 0.20 per share. Record date for determination of stockholders entitled to the cash dividends was the close of business on June 29, 2012. July 25, 2012 was set as the payment date. 25 Issuances, Repurchases, and Repayments of Debt and Equity Securities None Events that will trigger Direct or Contingent Financial Obligation that is Material to the Company, including any Default or Acceleration of an Obligation None Material Off-Balance Sheet Transactions, Arrangements, Obligations (including Contingent Obligations), and Other Relationships of the Company with Unconsolidated Entities or Other Persons created during the Reporting Period None Known Trends, Demands, Commitments, Events or Uncertainties that will have a Material Impact on Liquidity or that are reasonably expected to have a Material Favorable or Unfavorable Impact on Net Sales/Revenues/Income from Continuing Operations None Cause for any Material Change from period to period which shall include Vertical and Horizontal Analyses of any Material Item This is already incorporated in the discussion under “Results of Operations” and “Financial Position”. Seasonal Aspects that has a Material Effect on the Financial Statements None Material Commitments for Capital Expenditures, General Purpose of such Commitments, Expected Sources of Funds for such Expenditures Calapan Water has completed its rehabilitation, expansion and improvement plan of its waterworks system in Calapan City, Oriental Mindoro. The purpose of the plan is to bolster water pressure, improve water quality, and to increase production so as to accommodate more subscribers. A contractor was awarded the project for the total contract price of about P = 168 million. The P = 137 million-loan facilities from DBP are earmarked for the contract and the differential between the total contract price and the loan facility will be sourced from internally generated sources. Calapan Water has various projects lined up as detailed in the following table. Fifty Two Million and Five Hundred Thousand Pesos (P = 52,500,000.00) will be used for expansion of storage facilities, particularly for the construction of one (1) overhead reservoir and the installation of transmission and distribution lines from the reservoir to the water system. Ninety Two Million Eight Hundred and Fifty Thousand Pesos (P = 92,850,000.00) will be used for zoning works to be undertaken in twenty six (26) barangays, such as installation of district meters and isolation valves. Also included in zoning works is the cost of massive meter replacement that will be implemented in order to reduce non revenue water to its target level of twenty percent (20%). Cost (In P = Millions) Timeline Zoning Works 92.85 Q3 of 2013 to Q2 of 2014 Expansion 52.50 Q3 to Q4 of 2013 Grand Total 145.35 26 The stated amounts include the estimated cost of transmission and distribution pipes, district meters and isolation valves, and water meters; however, as of the date of this report no specific supplier has been identified from whom these assets will be bought. The proceeds of the recent initial public offering of CVI will be used to finance the above projects. Priority shall be given to zoning works and the development of expansion facilities, in that order. As the proceeds is below the project cost, the balance shall be funded through internally generated funds. Any Significant Elements of Income or Loss that did not arise from Continuing Operations None Financial Risk Disclosure Please refer to page 6 of the Notes to Consolidated Financial Statements for the description, classification and measurements applied for financial instruments of the Group. The Group’s principal financial instruments comprise of cash, receivables, short-term bank deposits, available-for-sale investments, bank loans, trade payables and due to related parties. The main purpose of the Group’s financial instruments is to fund the Group’s operations and to acquire and improve property and equipment. The main risks arising from the use of financial instruments are liquidity risk, interest rate risk and credit risk. The main objectives of the Group’s financial risk management areas are as follows: To identify and monitor such risks on an ongoing basis; To minimize and mitigate such risks; and To provide a degree of certainty about costs. The Group’s Board reviews and agrees with policies for managing each of these risks. These are summarized below: Liquidity risk The Group seeks to manage its liquid funds through cash planning on a weekly basis. The Group uses historical figures and experiences and forecasts from its collections and disbursements. The Group’s objective is to maintain a balance between continuity of funding and flexibility through valuation of projected and actual cash flow information. Interest rate risk The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s longterm borrowings. The Group’s policy is to minimize interest rate cash flow risk exposures. Long-term borrowings are therefore usually at agreed interest rates. Also, the Group manages its exposure to interest rate risk by closely monitoring bank interest rates with various banks and maximizing borrowing period based on market volatility of interest rates. Credit risk This risk refers to the risk that a customer/debtor will default on its contractual obligations resulting in financial loss to the Group. The Group controls this risk through monitoring procedures and regular coordination with the customers. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. The Group also controls this risk by cutting its services and refusal to reconnect until the customer’s account is cleared or paid. The Group’s credit risk is primarily attributable to its trade receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. 27 Given the Group’s diverse customer base, it is not exposed to large concentration of credit risk. Currency risk is the risk that a business' operations or an investment's value will be affected by changes in exchange rates. If Philippine pesos, the Group’s functional currency, has to be converted into another currency to buy or sell goods and services, or to make certain investments, a gain or loss may arise when these are converted back into pesos. This risk has been assessed to be insignificant given that all the Group’s transactions are made in pesos. The Group has no investments in foreign securities. Market risk is the risk of losses arising from changes in market prices. This usually affects an entire class of assets or liabilities. The value of investments may decline over a given period of time simply because of economic changes or other events that impact large portions of the market. Management has assessed this risk to be insignificant since the Group’s financial instruments are not openly traded in the open market (stock exchange, foreign exchange, commodity market, etc.) nor does it engage in exotic financial instruments such as derivatives, spot or forward contracts and the like. The fair values of the Group’s financial instruments did not change between this period and the preceding period thus no gain or loss was recognized. 28 Key Performance Indicators 2013 2012 Profitability Return on total assets (ROA) = - measures how well assets have been employed by {ni + [interest exp x (1 - tax rate)]} average total assets 7,353,033 0.0138 531,681,671 7,245,578 0.0142 510,030,688 management Return on equity (ROE) = - when compared to the ROA, net income 1,253,196 0.0038 6,450,229 0.0199 average stockholders' equity 325,929,689 323,875,366 = water revenues average no. of water subscribers 34,552,386 12,841 2,691 32,274,291 11,717 2,754 = total liabilities total assets 199,987,706 529,155,293 0.3779 186,072,177 513,185,987 0.3626 = total liabilities stockholders' equity 199,987,706 329,167,587 0.6076 186,072,177 327,113,808 0.5688 = market value per share book value per share measures the extent to which financial leverage is working for or against shareholders Water revenue per subscriber - measures how well service and facilities improvements have influenced consumer's usage Financial leverage Debt ratio - measures the share of company's liabilities to total assets Liabilities to equity - measures the amount of assets being provided by creditors for each peso of assets being provided by the stockholders Market valuation Market to book ratio - relates the Company's stock price to its book value per share 29 4.50 2.02 2.22 2.34 2.01 1.16 Below is the aging analysis of receivables: March 31, 2013 Current 31 to 60 days 61 to 90 days More than 90 days Total Trade Advances and nontrade =4,230,309 P =4,309,337 P =4,424,352 P =6,288,567 P =19,252,565 P 705,532 - - 662,137 1,367,669 Total =4,935,841 P =4,309,337 P =4,424,352 P =6,950,704 P =20,620,234 P 30 CALAPAN VENTURES, INC. SUMMARY OF EFFECTIVE STANDARDS AND INTERPRETATIONS UNDER PHILIPPINE FINANCIAL REPORTING STANDARDS AS OF MARCH 31, 2013 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Framework for the Preparation and Presentation of Financial Statements Not Not Adopted Adopted Applicable PFRSs Practice Statement Management Commentary Philippine Financial Reporting Standards Amendments to PFRS 1 and PAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Amendments to PFRS 1: Additional Exemptions for First-time Adopters Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters * * * * Conceptual Framework Phase A: Objectives and qualitative characteristics PFRS 1 (Revised) First-time Adoption of Philippine Financial Reporting Standards Amendments to PFRS 1: Government Loans PFRS 2 Share-based Payment Amendments to PFRS 2: Vesting Conditions and Cancellations Amendments to PFRS 2: Group Cash-settled Sharebased Payment Transactions PFRS 3 (Revised) Business Combinations PFRS 4 Insurance Contracts Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts PFRS 5 Non-current Assets Held for Sale and Discontinued Operations PFRS 6 Exploration for and Evaluation of Mineral Resources PFRS 7 Financial Instruments: Disclosures 31 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets Not Not Adopted Adopted Applicable * * Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition * Amendments to PFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures PFRS 8 Operating Segments PFRS 9 Financial Instruments * Amendments to PAS 1: Presentation of Items of Other Comprehensive Income PAS 2 Inventories PAS 7 Statement of Cash Flows PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors PAS 10 Events after the Reporting Period PAS 11 Construction Contracts PAS 12 Income Taxes * Amendments to PFRS 7: Improving Disclosures about Financial Instruments Amendments to PFRS 7: Disclosures - Transfers of Financial Assets Amendments to PFRS 9: Mandatory Effective Date of PFRS 9 and Transition Disclosures PFRS 10 Consolidated Financial Statements PFRS 11 Joint Arrangements PFRS 12 Disclosure of Interests in Other Entities PFRS 13 Fair Value Measurement Philippine Accounting Standards PAS 1 (Revised) Presentation of Financial Statements Amendment to PAS 1: Capital Disclosures Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation Amendment to PAS 12 - Deferred Tax: Recovery of 32 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Not Adopted Adopted Applicable Underlying Assets PAS 16 Property, Plant and Equipment PAS 17 Leases PAS 18 Revenue PAS 19 Employee Benefits Amendments to PAS 19: Actuarial Gains and Losses, Group Plans and Disclosures PAS 19 (Amended) Employee Benefits PAS 20 Accounting for Government Grants and Disclosure of Government Assistance PAS 21 The Effects of Changes in Foreign Exchange Rates * * * PAS 23 (Revised) Borrowing Costs PAS 24 (Revised) Related Party Disclosures PAS 26 Accounting and Reporting by Retirement Benefit Plans PAS 27 Consolidated and Separate Financial Statements PAS 27 (Amended) Separate Financial Statements PAS 28 Investments in Associates PAS 28 (Amended) Investments in Associates and Joint Ventures * PAS 29 Financial Reporting in Hyperinflationary Economies PAS 31 Interests in Joint Ventures PAS 32 Financial Instruments: Disclosure and Presentation * * * Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities Earnings per Share Amendment: Net Investment in a Foreign Operation Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation Amendment to PAS 32: Classification of Rights Issues PAS 33 33 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS PAS 34 Interim Financial Reporting PAS 36 Impairment of Assets PAS 37 Provisions, Contingent Liabilities and Contingent Assets PAS 38 Intangible Assets PAS 39 Financial Instruments: Recognition and Measurement Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities Not Not Adopted Adopted Applicable * * * Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions * * Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets * Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets – Effective Date and Transition * Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives * * Amendments to PAS 39: The Fair Value Option Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts Amendment to PAS 39: Eligible Hedged Items PAS 40 Investment Property PAS 41 Agriculture Philippine Interpretations IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments IFRIC 4 Determining Whether an Arrangement Contains a Lease IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment IFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 8 Scope of PFRS 2 * 34 PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Not Adopted Adopted Applicable * * * * * * Amendments to Philippine Interpretations IFRIC-14, Prepayments of a Minimum Funding Requirement * IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 18 Transfers of Assets from Customers IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments * * * * IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine SIC-7 Introduction of the Euro SIC-10 Government Assistance - No Specific Relation to Operating Activities SIC-12 Consolidation - Special Purpose Entities * * * IFRIC 9 Reassessment of Embedded Derivatives Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment IFRIC 11 PFRS 2- Group and Treasury Share Transactions IFRIC 12 Service Concession Arrangements IFRIC 13 Customer Loyalty Programmes IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Amendment to SIC - 12: Scope of SIC 12 SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers SIC-15 Operating Leases - Incentives SIC-25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease * SIC-29 Service Concession Arrangements: Disclosures. SIC-31 Revenue - Barter Transactions Involving Advertising Services * * SIC-32 Intangible Assets - Web Site Costs * 35 CALAPAN VENTURES, INC. (A Subsidiary of Jolliville Holdings Corporation) SCHEDULE OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION MARCH 31, 2013 Beginning Unappropriated Retained Earnings, as adjusted P Less net loss during the period 15,267,520 (1,232,942) TOTAL RETAINED EARNINGS, END AVAILABLE FOR DIVIDEND DECLARATION 36 P 14,034,578 SIGNATURES Pursuant to the requirements of the Securities Regulation Code, the issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Issuer: CALAPAN VENTURES, INC. Chief Executive Officer: JOLLY L. TING Signature and Title: Chief Executive Officer Chief Financial Officer: ORTRUD T. YAO Signature and Title: Chief Financial Officer Date: 14 MAY 2013 37
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