1. finance
2. accounting and auditing

2GO Group, Inc.
[formerly ATS Consolidated (ATSC), Inc.]
and Subsidiaries
Consolidated Financial Statements
As at December 31, 2013 and 2012
and Years Ended December 31, 2013, 2012 and 2011
and
Independent Auditors’ Report
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Tel: (632) 891 0307
Fax: (632) 819 0872
ey.com/ph
BOA/PRC Reg. No. 0001,
December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
2GO Group, Inc.
We have audited the accompanying consolidated financial statements of 2GO Group, Inc. [formerly
ATS Consolidated (ATSC) Inc.] and Subsidiaries, which comprise the consolidated balance sheets as at
December 31, 2013 and 2012, and the consolidated statements of income, statements of
comprehensive income, statements of changes in equity and statements of cash flows for each of the
three years in the period ended December 31, 2013, and a summary of significant accounting policies
and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
*SGVFS004446*
A member firm of Ernst & Young Global Limited
-2Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of 2GO Group, Inc. and Subsidiaries as at December 31, 2013 and 2012, and their
financial performance and their cash flows for each of the three years in the period ended
December 31, 2013, in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Josephine H. Estomo
Partner
CPA Certificate No. 46349
SEC Accreditation No. 0078-AR-3 (Group A),
February 14, 2013, valid until February 13, 2016
Tax Identification No. 102-086-208
BIR Accreditation No. 08-001998-18-2012,
April 11, 2012, valid until April 10, 2015
PTR No. 4225170, January 2, 2014, Makati City
May 14, 2014
*SGVFS004446*
A member firm of Ernst & Young Global Limited
2GO GROUP, INC.
[formerly ATS Consolidated (ATSC), Inc.]
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
December 31,
2013
December 31,
2012
(As restated,
Note 2)
January 1,
2012
(As restated,
Note 2)
ASSETS
Current Assets
Cash and cash equivalents (Note 6)
Trade and other receivables (Notes 7 and 23)
Inventories (Note 8)
Other current assets (Note 9)
Assets held for sale (Note 10)
Total Current Assets
Noncurrent Assets
Property and equipment (Notes 13 and 20)
Available-for-sale (AFS) investments (Note 11)
Investments in associates and joint ventures
(Note 12)
Investment property (Note 14)
Software development costs (Note 15)
Deferred income tax assets - net (Note 29)
Goodwill (Note 5)
Other noncurrent assets (Note 16)
Total Noncurrent Assets
TOTAL ASSETS
=918,645
P
3,949,819
421,957
1,054,409
6,344,830
–
6,344,830
=786,856
P
2,839,884
371,779
929,488
4,928,007
359,199
5,287,206
=913,574
P
2,912,565
410,230
998,932
5,235,301
692,617
5,927,918
5,054,932
6,907
4,577,306
8,735
4,652,677
9,377
181,977
9,763
15,379
477,076
250,450
180,590
6,177,074
140,515
9,763
11,317
816,201
250,450
193,446
6,007,733
117,422
9,763
14,188
996,052
250,450
227,016
6,276,945
P
=12,521,904
P
=11,294,939
P
=12,204,863
P1,344,927
=
4,189,244
5,772
6,680
P1,379,230
=
3,535,692
9,897
6,882
P1,215,440
=
3,433,013
9,141
25,938
373
993,319
785,716
28,592
5,575,588
77,724
6,002,744
30,174
5,499,422
3,597,496
2,185,297
3,179,217
89,192
167,243
–
9,369
3,863,300
44,857
131,947
339
9,030
2,371,470
91,936
153,605
81
7,578
3,432,417
9,438,888
8,374,214
8,931,839
LIABILITIES AND EQUITY
Current Liabilities
Loans payable (Note 17)
Trade and other payables (Notes 18 and 23)
Income tax payable
Redeemable preferred shares (Notes 21 and 24)
Current portions of:
Long-term debts (Note 19)
Obligations under finance lease
(Notes 13 and 20)
Total Current Liabilities
Noncurrent Liabilities
Long-term debts - net of current portion (Note 19)
Obligations under finance lease - net of current
portion (Notes 13 and 20)
Accrued retirement benefits (Note 28)
Deferred income tax liabilities - net (Note 29)
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
(Forward)
*SGVFS004446*
-2-
December 31,
2013
Equity
Attributable to the equity holders of the
Parent Company:
Share capital (Note 24)
Additional paid-in capital
Acquisitions of non-controlling interests
(Note 24)
Excess of cost over net assets (excess of net
assets over cost) of investments (Note 24)
Other comprehensive losses - net
Deficit (Note 24)
Treasury shares (Note 24)
Non-controlling interests
Total Equity
TOTAL LIABILITIES AND EQUITY
=2,484,653
P
910,901
(3,243)
(9,835)
(86,405)
(179,314)
(58,715)
3,058,042
24,974
3,083,016
P
=12,521,904
December 31,
2012
(As restated,
Note 2)
January 1,
2012
(As restated,
Note 2)
=2,484,653
P
910,901
=2,484,653
P
910,901
5,940
5,940
13,208
(71,204)
(391,358)
(58,715)
2,893,425
27,300
2,920,725
P
=11,294,939
13,208
(78,532)
(25,274)
(58,715)
3,252,181
20,843
3,273,024
P
=12,204,863
See accompanying Notes to Consolidated Financial Statements.
*SGVFS004446*
2GO GROUP, INC.
[formerly ATS Consolidated (ATSC), Inc.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Earnings (Loss) Per Common Share)
Years Ended December 31
2012
2011
(As restated,
(As restated,
Note 2)
Note 2)
2013
REVENUES
Freight (Note 23)
Passage
Service fees (Note 23)
Sale of goods
Others
OPERATING COSTS AND EXPENSES (Note 25)
Operating
Terminal
Cost of goods sold (Note 8)
Overhead
OTHER INCOME (CHARGES)
Reversal of (provision for) impairment loss on assets
held for sale and property and equipment - net
(Notes 10 and 13)
Equity in net earnings (losses) of associates (Note 12)
Financing charges (Note 26)
Others - net (Note 26)
INCOME (LOSS) BEFORE INTEGRATION
COSTS
INTEGRATION COSTS (Note 27)
P
=4,891,953
3,108,127
3,045,597
2,050,835
276,681
13,373,193
=5,880,775
P
3,190,366
2,293,305
2,128,009
161,176
13,653,631
=4,906,245
P
2,918,466
1,908,693
3,028,658
132,663
12,894,725
8,574,141
1,356,859
1,720,991
1,231,108
12,883,099
9,598,108
1,065,765
1,761,564
1,106,706
13,532,143
8,028,976
1,441,586
2,677,921
1,080,285
13,228,768
60,606
44,846
(369,014)
486,241
222,679
–
37,694
(400,472)
143,434
(219,344)
(223,644)
(6,590)
(407,366)
296,782
(340,818)
712,773
(97,856)
(674,861)
–
–
(123,025)
INCOME (LOSS) BEFORE INCOME TAX
712,773
(97,856)
(797,886)
PROVISION FOR (BENEFIT FROM)
INCOME TAX (Note 29)
485,692
257,899
(192,037)
NET INCOME (LOSS)
P
=227,081
(P
=355,755)
(P
=605,849)
Attributable to:
Equity holders of the Parent Company
Non-controlling interests
P
=212,044
15,037
(P
=366,084)
10,329
(P
=614,512)
8,663
P
=227,081
(P
=355,755)
(P
=605,849)
P
=0.0867
(P
=0.1497)
(P
=0.2512)
Basic/Diluted Earnings (Loss) Per Share (Note 30)
See accompanying Notes to Consolidated Financial Statements.
*SGVFS004446*
2GO GROUP, INC.
[formerly ATS Consolidated (ATSC), Inc.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Years Ended December 31
2012
2011
(As restated,
(As restated,
Note 2)
Note 2)
2013
NET INCOME (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) to be reclassified to
profit or loss in subsequent periods:
Net changes in unrealized gain on AFS investments
(Note 11)
Realized loss on sale of AFS investments
Cumulative translation adjustment of an associate
Other comprehensive income (loss) not to be
reclassified to profit or loss in subsequent periods:
Re-measurement gains (losses) on accrued
retirement benefits (Note 28)
Income tax effect
Share in re-measurement gains (losses) on
retirement benefits of associates and joint
ventures
P
=227,081
38
–
–
38
(24,949)
7,485
(17,464)
2,225
(15,201)
TOTAL COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR
Attributable to:
Equity holders of the Parent Company
Non-controlling interests
(P
=355,755)
137
–
–
137
9,860
(2,958)
6,902
(P
=605,849)
337
(17,662)
(647)
(17,972)
(38,330)
11,499
(26,831)
309
(2,783)
7,348
(47,586)
P
=211,880
(P
=348,407)
(P
=653,435)
P
=196,843
15,037
P
=211,880
(P
=358,756)
10,349
(P
=348,407)
(P
=659,742)
6,307
(P
=653,435)
See accompanying Notes to Consolidated Financial Statements.
*SGVFS004446*
2GO GROUP, INC.
[formerly ATS Consolidated (ATSC), Inc.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
(Amounts in Thousands)
Share
Capital
(Note 24)
BALANCES AT JANUARY 1, 2011,
AS PREVIOUSLY REPORTED P
= 2,484,653
Effect of change in accounting policies
(Note 2)
–
BALANCES AT JANUARY 1, 2011,
AS RESTATED
2,484,653
Total comprehensive loss,
–
as previously reported
Effect of change in accounting policies
–
(Note 2)
Total comprehensive loss, as restated
Dividend declaration by subsidiary to
Parent Company
Dividend distribution to noncontrolling
interests (Note 24)
Excess of net asset over cost of
investments (Note 24)
BALANCES AT DECEMBER 31,
2011, AS RESTATED
BALANCES AT DECEMBER 31,
2011, AS PREVIOUSLY
REPORTED
Effect of change in accounting policies
(Note 2)
BALANCES AT DECEMBER 31,
2011, AS RESTATED
Attributable to Equity Holders of the Parent Company
Other Comprehensive Income (Loss)
Share in ReRemeasurement
measurement
Gains (Losses) Gains (Losses)
on Accrued
on Accrued
Retirement
Retirement
Unrealized
Share in
Benefits of
Gain (Loss)
Cumulative Benefits, net of
Deferred Associates and
on AFS
Translation
Income Tax Joint Ventures
Investments Adjustment of
Effect
an Associate
(Note 11)
(Note 12)
Additional
Paid-in
Capital
Acquisition
of Noncontrolling
Interests
(Note 24)
Excess of Cost
Over Net
Assets
(Excess of Net
Assets Over
Cost) of
Investments
(Note 24)
P
= 910,901
P
= 5,940
(P
=8,866)
P
= 15,248
P
= 5,941
=
P–
–
–
24,114
–
–
910,901
5,940
15,248
15,248
–
–
–
(14,969)
Subtotal
Retained
Earnings
(Deficit)
(Note 24)
Treasury
Shares
(Note 24)
Total
Non-controlling
Interests
Total Equity
=
P–
P
= 21,189
P
= 584,569
(P
=58,715)
P
= 3,939,671
P
= 16,439
P
= 3,956,110
(54,491)
–
(54,491)
9,669
–
(20,708)
2,307
(18,401)
5,941
(54,491)
–
(33,302)
594,238
(58,715)
3,918,963
18,746
3,937,709
(647)
–
–
(15,616)
(634,267)
–
(649,883)
6,307
(643,576)
–
–
–
–
–
(26,831)
(2,783)
(29,614)
19,755
–
(9,859)
–
(9,859)
–
–
–
–
(14,969)
(647)
(26,831)
(2,783)
(45,230)
(614,512)
–
(659,742)
6,307
(653,435)
–
–
–
–
–
–
–
–
–
(5,000)
–
(5,000)
–
(5,000)
–
–
–
–
–
–
–
–
–
–
–
–
(4,210)
(4,210)
–
–
–
(2,040)
–
–
–
–
–
–
–
(2,040)
–
(2,040)
P
= 2,484,653
P
= 910,901
P
= 5,940
P
= 13,208
P
= 279
P
= 5,294
(P
=81,322)
(P
=2,783)
(P
=78,532)
(P
=25,274)
(P
=58,715)
P
= 3,252,181
P
= 20,843
P
= 3,273,024
P
= 2,484,653
P
= 910,901
P
= 5,940
(P
=10,906)
P
= 279
P
= 5,294
=
P–
=
P–
P
= 5,573
(P
=49,698)
(P
=58,715)
P
= 3,287,748
P
= 18,536
P
= 3,306,284
–
–
–
24,114
–
–
(81,322)
(2,783)
(84,105)
24,424
–
(35,567)
2,307
(33,260)
2,484,653
910,901
5,940
13,208
279
5,294
(81,322)
(2,783)
(78,532)
(25,274)
(58,715)
3,252,181
20,843
3,273,024
(Forward)
*SGVFS004446*
-2-
Share
Capital
(Note 24)
BALANCES AT DECEMBER 31,
2011, AS RESTATED
P
= 2,484,653
Total comprehensive loss for the year,
as previously reported
–
Effect of change in accounting policies
(Note 2)
–
Total comprehensive loss for the year,
–
as restated
Changes in ownership interest resulting
in the decrease of non-controlling
interest
–
Dividend distribution to noncontrolling interests
–
BALANCES AT DECEMBER 31,
2,484,653
2012, AS RESTATED
BALANCES AT DECEMBER 31,
2012, AS PREVIOUSLY
2,484,653
REPORTED
Effect of change in accounting policies
–
(Note 2)
BALANCES AT DECEMBER 31,
2,484,653
2012, AS RESTATED
–
Total comprehensive loss for the year
Changes in ownership interest resulting
in the decrease of acquisition of
non-controlling interest
–
Dividends declared
–
BALANCES AT DECEMBER 31,
2013
P
= 2,484,653
Attributable to Equity Holders of the Parent Company
Other Comprehensive Income (Loss)
Share in ReRemeasurement
measurement
Gains (Losses) Gains (Losses)
on Accrued
on Accrued
Retirement
Retirement
Unrealized
Share in
Benefits of
Gain (Loss)
Cumulative Benefits, net of
Deferred Associates and
Translation
on AFS
Income Tax Joint Ventures
Investments Adjustment of
Effect
an Associate
(Note 11)
(Note 12)
Additional
Paid-in
Capital
Acquisition
of Noncontrolling
Interests
(Note 24)
Excess of Cost
Over Net
Assets
(Excess of Net
Assets Over
Cost) of
Investments
(Note 24)
P
= 910,901
P
= 5,940
P
= 13,208
P
= 279
P
= 5,294
(P
=81,322)
–
–
–
117
–
–
–
–
–
–
–
–
–
117
–
–
–
–
–
–
–
910,901
5,940
910,901
Subtotal
Retained
Earnings
(Deficit)
(Note 24)
Treasury
Shares
(Note 24)
Total
Non-controlling
Interests
Total Equity
(P
=2,783)
(P
=78,532)
(P
=25,274)
(P
=58,715)
P
= 3,252,181
P
= 20,843
P
= 3,273,024
–
–
117
(396,543)
–
(396,426)
10,349
(386,077)
6,902
309
7,211
30,459
–
37,670
–
37,670
6,902
309
7,328
(366,084)
–
(358,756)
10,349
(348,407)
–
–
–
–
–
–
–
(3,292)
(3,292)
–
–
–
–
–
–
–
–
(600)
(600)
13,208
396
5,294
(74,420)
(2,474)
(71,204)
(391,358)
(58,715)
2,893,425
27,300
2,920,725
5,940
(10,906)
396
5,294
–
–
5,690
(446,241)
(58,715)
2,891,322
28,286
2,919,608
–
–
24,114
–
–
(74,420)
(2,474)
(76,894)
54,883
–
2,103
(986)
1,117
910,901
–
5,940
–
13,208
–
396
38
5,294
–
(74,420)
(17,464)
(2,474)
2,225
(71,204)
(15,201)
(391,358)
212,044
(58,715)
–
2,893,425
196,843
27,300
15,037
2,920,725
211,880
–
–
(9,183)
–
(23,043)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(32,226)
–
(5,142)
(12,221)
(37,368)
(12,221)
P
= 910,901
(P
=3,243)
(P
=9,835)
P
= 434
P
= 5,294
(P
=91,884)
(P
=249)
(P
=86,405)
(P
=179,314)
(P
=58,715)
P
= 3,058,042
P
= 24,974
P
= 3,083,016
See accompanying Notes to Consolidated Financial Statements.
*SGVFS004446*
2GO GROUP, INC.
[formerly ATS Consolidated (ATSC), Inc.]
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31
2012
2011
(As restated,
(As restated,
Note 2)
Note 2)
2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before income tax
Adjustments for:
Depreciation and amortization of property and
equipment and software development cost
(Notes 13 and 15)
Interest and financing charges (Note 26)
Interest income (Note 26)
Dividend income (Note 26)
Equity in net loss (earnings) of associates and joint
ventures (Note 12)
Unrealized foreign exchange gains
Provision for (reversal of) impairment loss on vessels
in operation - net (Notes 10 and 13)
Write-off of carrying value of sunk vessel (Note 26)
Writedown of vessel engine and related parts
(Note 26)
Recovery from insurance claims (Note 26)
Provision for cargo losses and damages (Note 25)
Loss (gain) on disposals of:
Assets held for sale (Notes 10 and 26)
Property and equipment (Notes 13 and 26)
AFS investments (Note 26)
Gain from other insurance claims
Income from reversal of liabilities (Note 26)
Movement in accrued retirement (Note 28)
Operating cash flows before working capital changes
Decrease (increase) in:
Trade and other receivables
Inventories
Other current assets
Increase (decrease) in trade and other payables
Net cash from (used in) operations
Income taxes paid, including creditable withholding taxes
Net cash flows from (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to:
Property and equipment (Note 13)
Software development costs (Note 15)
Proceeds from:
Disposal of assets held for sale (Note 10)
Sale of property and equipment (Note 13)
Insurance claims (Note 26)
Redemption of AFS investments (Note 11)
Sale of a subsidiary
=712,773
P
(P
=97,856)
(P
=797,886)
1,042,231
369,014
(1,690)
–
935,930
400,472
(59,843)
(3,009)
1,084,783
407,366
(61,361)
(281)
(44,846)
(666)
(37,694)
(4,343)
6,590
–
(60,606)
227,743
–
–
223,644
–
221,900
(943,315)
22,697
–
–
24,946
–
–
41,316
51,041
–
–
–
(24,130)
34,403
1,606,549
201,715
(98,978)
–
(2,086)
(182,984)
(21,411)
1,054,859
–
(11,326)
(17,662)
(34,568)
(127,070)
21,780
735,325
(534,577)
(50,178)
(124,921)
685,607
1,582,480
(168,031)
1,414,449
99,500
(15,305)
155,426
257,387
1,551,867
(163,162)
1,388,705
(755,797)
156,718
142,969
(642,653)
(363,438)
(152,918)
(516,356)
(1,696,880)
(7,157)
(861,428)
(7,929)
(397,992)
(6,333)
151,950
160,785
–
1,200
–
–
161,374
50,260
20,378
399,908
85,260
4,780
367,957
–
–
(Forward)
*SGVFS004446*
-2-
Interest received
Dividends received (Notes 12 and 26)
Receipts of (payments for) various deposits
Net cash flows from (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from availments of:
Loans payable (Note 17)
Long-term debts (Note 19)
Payments of:
Loans payable (Note 17)
Long-term debts (Note 19)
Obligations under finance lease (Note 20)
Interest and financing charges (Notes 17, 20 and 21)
Debt transaction costs (Note 19)
Redemption of preferred shares (Note 21)
Dividends paid (Note 24)
Dividends paid to non-controlling interests
Net cash flows from (used in) financing activities
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH AND CASH
EQUIVALENTS
Years Ended December 31
2012
2011
(As restated,
(As restated,
Note 2)
Note 2)
2013
=59,698
P
=61,108
P
=1,690
P
15,822
281
–
33,091
(3,246)
22,959
(446,811)
285,738
(1,221,391)
2,143,080
3,619,952
1,121,343
–
930,440
4,000,000
(2,222,292)
(3,203,325)
(24,243)
(346,309)
(26,607)
(202)
–
–
(59,946)
(952,653)
(800,000)
(37,830)
(378,034)
–
(20,481)
(2,040)
(600)
(1,070,295)
(1,707,900)
(2,000,000)
(100,633)
(363,282)
(48,915)
–
(365,976)
(4,210)
339,524
(1,323)
1,683
–
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
131,789
(126,718)
108,906
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
786,856
913,574
804,668
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 6)
P
=918,645
P
=786,856
P
=913,574
See accompanying Notes to Consolidated Financial Statements.
*SGVFS004446*
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, Status of Operations and Management Action Plans and Approval
of the Consolidated Financial Statements
Corporate Information
2GO Group, Inc. [2GO or the Company, formerly ATS Consolidated (ATSC), Inc.] 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 Company’s shares of stocks are listed in the Philippine
Stock Exchange (PSE). The 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 Company’s registered office address is 15th Floor,
Times Plaza Building, United Nations Avenue corner Taft Avenue, Ermita, Manila.
As of December 31, 2013 and 2012, the Company is 88.3%-owned subsidiary of Negros
Navigation Co., Inc (NN or the Parent Company). Its ultimate parent is Negros Holdings &
Management Corporation (NHMC). NN and NHMC are both incorporated and domiciled in the
Philippines.
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 NN in accordance with the securities and purchase agreements executed among AEV,
ACO and NN. On December 28, 2010, the sale was finalized at =
P1.8813 per share. AEV sold its
entire shareholdings in the Company comprising of 1,889,489,607 common shares for
P
=3.6 billion. ACO, on the other hand, sold its entire shareholdings in the Company comprising of
390,322,384 common shares for =
P734.0 million. This resulted to 93.20% NN ownership of the
outstanding common shares of the Company, along with all the Company’s non-controlling shares
that may be tendered to NN subsequent to December 31, 2010.
On February 22, 2011, in relation to the tender offer issued by NN for the outstanding common
shares held by public shareholders of the Company, NN acquired 120,330,004 common shares
from the Company’s non-controlling shareholders equivalent to 4.9% additional ownership
interest in the Company for a total purchase price of P
=226.8 million. As a result, NN’s ownership
interest in the Company increased to 98.12%. On December 21, 2012, NN sold 240,000,000
common shares of the Company at a price of P
=1.65 per share to the public shareholders. The sale
of shares resulted to a reduction in the ownership of NN in the Company from 98.12% to 88.31%.
In February and March 2012, the Philippine SEC approved the application of the Company and its
subsidiaries to amend their Articles of Incorporation and By-laws, which include, among others,
the change in their corporate names to 2GO Group, Inc. (formerly ATSC), 2GO Express, Inc.
[formerly ATS Express, Inc. (ATSEI)], and 2GO Logistics, Inc. [formerly ATS Distribution, Inc.
(ATSDI)].
*SGVFS004446*
-2On August 24, 2011, the Philippine SEC also approved the amendment to the Company’s
secondary purpose to include rendering technical services requirement to customers for
refrigerated marine container vans and related equipment or accessories. This amendment was
previously approved by the BOD on April 28, 2011 and ratified by the stockholders on
June 22, 2011.
Status of Operations and Management Action Plans
As of December 31, 2011, NN and its subsidiaries (collectively referred to as “NN Group”) has
reported a consolidated deficit amounting to P
=1,498.7 million due to the consolidated net losses
incurred in 2011 and 2010 amounting to =
P1,382.7 million and =
P107.1 million, respectively. The
consolidated net loss in 2010 (pre-integration year) included the net operating income of NN but
was reduced by the transaction costs incurred in acquiring 2GO and subsidiaries. The 2011
performance was significantly affected by the integration activities that are primarily geared
towards achieving economies of scale and realizing the synergies in both the shipping and nonshipping operations of NN and 2GO. NN Group incurred additional costs and expenses in view of
these integration activities, which include, among others, the consolidation of facilities and the
right-sizing of the manpower complement.
As a result, NN did not meet the minimum debt service coverage ratio (DSCR) and minimum
current ratio and 2GO breached the maximum debt to equity ratio required under the Group’s
long-term loan agreements with the creditor bank as of December 31, 2011 (see Note 19). This,
however, did not affect the status of the loan because the creditor bank issued a waiver on the
breach of the loan covenants in its letters to NN and 2GO dated December 28, 2011.
In 2012 (2nd phase of the integration), NN Group incurred consolidated net loss amounting to
=
P89.0 million (after non-controlling interest), which is 93.2% lower compared to the consolidated
net loss reported in 2011. This net loss increased the deficit to =
P1,591.6 million as of
December 31, 2012. Despite the improvement in operations, and higher consolidated net cash
inflow from operating activities of =
P627.2 million in 2012 and =
P625.6 million in 2011, 2GO
remained in breach of the maximum debt to equity ratio, including the minimum DSCR and
minimum current ratio. This, however, again did not affect the status of the loan because the
creditor bank has issued a waiver on the breach of the loan covenants in its letters to 2GO dated
December 28, 2012.
In 2013, NN Group’s net loss after tax amounted to =
P255.4 million from a loss of =
P89.0 million in
2012. In June 2013, the Group refinanced its original long-term debt with counter-party bank with
a new loan agreement having revised terms and conditions such as: (1) two years grace period, (2)
with fixed and variable interest rate components that are based on market and (3) ballooned
principal repayments in 2017 and 2018. With this, the Group was able to meet the minimum
current ratio, maximum debt to equity ratio and minimum DSCR as required in the debt covenant.
In 2013, NN’s shareholders infused $41.7 million (of which $28.3 million has been remitted in
2012) as additional capital to NN primarily to support working capital requirements and to pay off
certain maturing obligations of the Group.
With the groundworks now in place, management is optimistic that the positive performance of
the Group will be sustainable in ensuing years. Serious steps are now being undertaken to further
solidify the Group’s competitive position by rapidly expanding the Group’s logistics arm with the
objective of increasing customer traffic and solidifying the Group’s leading position within the
*SGVFS004446*
-3areas where the Group operates. NN Group is implementing certain strategies and action plans to
achieve positive results on the financial performance, financial condition and cash flows for 2014.
Among others, these are:
a. Continued fleet and route rationalization for the Shipping business and implementation of
more aggressive sales and marketing strategies for the Non-Shipping business.
b. Comprehensive review and implementation of cost saving initiatives, including that of the One
Port Project and the maximization of the takeover of the ship management.
c. Implementation of a more robust management reporting systems to closely monitor the
financial results and operating performance of the business units and ensure that they are all
working to attain the revenue and collection targets and the savings from cost containment
measures.
Approval of the Consolidated Financial Statements
The consolidated financial statements of the Group as at December 31, 2013 and 2012 and for
each of the three years in the period ended December 31, 2013 were authorized for issue by the
BOD on May 14, 2014.
2. Summary of Significant Accounting and Financial Reporting Policies
Basis of Preparation
The consolidated financial statements of the Group are prepared on a historical cost basis, except
for quoted available-for-sale (AFS) investments which are measured at fair value. The
consolidated financial statements are presented in Philippine peso (Peso), which is the Parent
Company’s functional and presentation currency. All amounts are presented to the nearest
thousands, except when otherwise indicated.
The consolidated financial statements provide comparative information in respect of the previous
period. In addition, the Group presents an additional consolidated balance sheet at the beginning of
the earliest period presented when there is a retrospective application of an accounting policy, a
retrospective restatement, or a reclassification of items in the consolidated financial statements. An
additional consolidated balance sheet as at January 1, 2012 is presented in the consolidated financial
statements due to retrospective application of certain accounting policies (see Changes in Accounting
Policies and Disclosures).
Statement of Compliance
The consolidated financial statements of the Group are prepared in accordance 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 PFRS, Philippine Accounting Standards (PAS) and Philippine
Interpretations based on the Interpretations of the International Financial Reporting Standards
Interpretation Committee (IFRIC) which were adopted as of January 1, 2013.
·
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 Standard Interpretations Committee (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
*SGVFS004446*
-4require management to exercise significant judgment to determine which entities are controlled,
and therefore, are required to be consolidated by a parent, compared with the requirements that
were in PAS 27.
A reassessment of control was performed by the Company on all its subsidiaries, associates
and joint ventures in accordance with the provisions of PFRS 10. Following the reassessment,
the Company determined that there are no additional entities that need to be fully consolidated
nor are there subsidiaries that need to be deconsolidated.
·
Amendments to PAS 27, Separate Financial Statements. As a consequence of the issuance of
the new PFRS 10 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
the separate financial statements. The adoption of the amended PAS 27 has no significant
impact on the separate financial statements of the Company.
·
PFRS 11, Joint Arrangements, replaces PAS 31, Interests in Joint Ventures, and SIC 13,
Jointly-controlled Entities - Non-monetary Contributions by Venturers. PFRS 11 removes the
option to account for jointly controlled entities (JCEs) using proportionate consolidation.
Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity
method.
Interest in Joint Ventures
The application of PFRS 11 affected the accounting for the Group’s interests in KLN
Holdings (KLN). As disclosed in Note 12, the Group entered into an Investors’Agreement
(Agreement) with a third-party to form KLN. Prior to transition to PFRS 11, KLN was
classified as a jointly controlled entity and the Group’s share of the assets, liabilities, revenue,
income and expenses was proportionately consolidated in the consolidated financial
statements. Upon adoption of PFRS 11, the Group has determined that its interest in KLN
should be classified as a joint venture under PFRS 11 and it is, therefore, required to be
accounted for using the equity method (see Note 12). The transition was applied
retrospectively as required by PFRS 11 and the opening balances at January 1, 2012 and the
comparative information for the years ended December 31, 2013 and 2012 have been restated.
The effect of applying PFRS 11 on the Group’s consolidated financial statements is as
follows:
Consolidated Balance Sheets
December 31,
2012
January 1,
2012
(In Thousands)
Increase (Decrease) in Assets
Cash and cash equivalents
Trade and other receivable
Other current assets
Property and equipment
Investment in associates and joint ventures
Deferred income tax assets - net
Total assets
(P
=4,100)
(58,656)
(2,233)
(2,811)
23,052
(1,352)
(P
=46,100)
(P
=12,741)
(45,753)
(1,982)
(1,489)
20,428
(770)
(P
=42,307)
(Forward)
*SGVFS004446*
-5December 31,
2012
January 1,
2012
(In Thousands)
Decrease in Liabilities
Loans payable
Trade and other payables
Accrued retirement benefits
(P
=4,900)
(39,388)
(1,812)
(P
=46,100)
=–
P
(41,285)
(1,022)
(P
=42,307)
December 31,
2012
January 1,
2012
Consolidated Statements of Income
(In Thousands)
Impact on Profit or Loss
Service fees
Operating expenses
Overhead expenses
Other income (charges)
Equity in net earnings of associates and
joint ventures
Income before income tax
Provision for income tax
Net income
P
=219,105
(192,130)
(22,467)
569
P183,053
=
(148,642)
(22,634)
(449)
2,624
2,453
(2,453)
P
=–
7,934
3,394
(3,394)
=–
P
Consolidated Statements of Cash Flows
December 31,
2012
January 1,
2012
(In Thousands)
Impact on Cash Flows
Cash and cash equivalents at beginning of period
Operating
Investing
Financing
Net effect on cash
(P
=12,741)
10,949
2,314
(4,622)
(P
=4,100)
(P
=2,667)
(11,433)
1,164
195
(P
=12,741)
The transition did not have a significant impact on the basic/diluted earnings per share for the
years ended December 31, 2012 and 2011.
Interest in Joint Operations
The Group also assessed its existing ownership in United South Dockhandlers, Inc. (USDI).
The Group has a 48% interest in USDI. Prior to transition to PFRS 11, the Group considered
USDI as an associate and accounted for its ownership in USDI under the equity method. Upon
adoption of PFRS 11, the Group has determined that it has control over USDI’s specific assets
and liabilities. As a result, the assets and liabilities that were identified as being controlled by
the Group, as well as the resulting revenues and expenses, were consolidated and such
consolidation have been retrospectively recognized in the consolidated financial statements of
the Group.
*SGVFS004446*
-6The effect of applying PFRS 11 on the Group’s consolidated financial statements is as
follows:
Consolidated Balance Sheets
January 1,
2012
December 31,
2012
(In Thousands)
Increase (Decrease) in Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Property and equipment
Investment in associates and joint ventures
P1,959
=
50,901
446
6,601
443
(22,909)
37,441
P6,251
=
23,836
109
3,775
680
(13,623)
21,028
Net Increase in Equity
27,148
1,041
28,189
=9,252
P
9,980
–
9,980
=11,048
P
Equity attributable to:
Parent company
Non-controlling interest
P8,170
=
1,082
P9,757
=
1,291
Increase in Liabilities
Trade and other payables
Accrued retirement benefits
Consolidated Statements of Income
Impact on Profit or Loss
Service fees
Operating expenses
Overhead expenses
Equity in net earnings of associates and joint ventures
Net income
Net income attributable to:
Parent company
Non-controlling interest
Increase in basic/diluted earnings per share
December 31
2011
2012
(In Thousands)
=40,055
P
=65,325
P
(23,278)
(43,589)
(9,206)
(10,815)
(2,566)
(9,286)
=5,005
P
=1,635
P
=1,443
P
192
0.0005
=4,420
P
585
0.0014
2012
December 31
2011
Consolidated Statements of Cash Flows
Impact on Statements of Cash Flows
Operating
Investing
Net effect on cash and cash equivalents
·
(In Thousands)
=6,556
P
=2,160
P
(305)
(201)
=6,251
P
=1,959
P
PFRS 12, Disclosure of Interests in Other Entities, sets out the requirements for disclosures
relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured
entities. The requirements in PFRS 12 are more comprehensive than the previously existing
disclosure requirements for subsidiaries (for example, where a subsidiary is controlled with
less than a majority of voting rights).
*SGVFS004446*
-7The adoption of PFRS 12 affects disclosures only and has no impact on the Group’s financial
position or performance. The additional disclosures required are presented in Note 12 to the
consolidated financial statements.
·
Amendments to PAS 28, Investments in Associates and Joint Ventures. As a consequence of
the new PFRS 11 and PFRS 12, PAS 28, Investment in Associates, has been renamed PAS 28,
Investments in Associates and Joint Ventures, and describes the application of the equity
method to investments in joint ventures in addition to associates. The adoption of this
amendment has no impact on the Group’s consolidated financial statements.
·
Amendments to PAS 19, Employee Benefits, requires all actuarial gains and losses for the
defined benefits plan to be recognized in other comprehensive income (OCI) and unvested
past service costs previously recognized over the average vesting period to be recognized
immediately in the statement of income when incurred.
Prior to adoption of the revised standard, the Group followed a systematic method that
resulted in faster recognition of actuarial gains and losses, which were recognized in profit or
loss in the period they occur. Further, past service cost was recognized as an expense on a
straight-line basis over the average period until the benefits become vested. Upon adoption of
the revised standard, the Group changed its accounting policy to recognize all actuarial gains
and losses in OCI and all past service costs in the consolidated statement of income in the
period they occur.
In addition, the Revised PAS 19 replaced the interest cost and expected return on plan assets
with the concept of net interest on defined benefit liability or asset, which is calculated by
multiplying the net defined benefit liability or asset at the beginning of the year by the
discount rate used to measure the defined benefit obligation, each at the beginning of the
annual period.
The revised standard also amended the definition of short-term employee benefits and requires
employee benefits to be classified as short-term based on expected timing of settlement rather
than the employee’s entitlement to the benefits. It also modifies the timing of recognition for
termination benefits, where termination benefits are recognized at the earlier of when the offer
cannot be withdrawn or when the related restructuring costs are recognized.
The changes in the definition of short-term employee benefits did not have any impact to the
Group’s financial position and performance.
The opening balance sheet of the earliest comparative period presented (January 1, 2012) and
the comparative figures have been restated accordingly. The effects of adoption on the
consolidated financial statements follow:
Consolidated Balance Sheets
December 31
Increase (decrease) in:
Accrued retirement benefits
Deferred income tax assets net
January 1,
2012
2013
2012
(In Thousands)
P
=58,853
=78,613
P
=109,443
P
23,716
32,833
(11,630)
(Forward)
*SGVFS004446*
-8January 1,
2012
December 31
2012
(In Thousands)
2013
Other comprehensive loss, net
of deferred income tax
effect
Deficit
P
=74,420
(19,523)
P
=91,884
(21,401)
P
=81,322
(4,712)
Consolidated Statements of Comprehensive Income
Years Ended December 31
2012
2013
(In Thousands)
Impact on profit or loss:
Operating expenses
Terminal expenses
Overhead expenses
Income before income tax
Benefit from income tax
Increase in net income
Impact on other comprehensive loss:
Remeasurement gains (losses) on accrued
retirement benefits
Income tax effect
Other comprehensive loss for the year, net of
deferred income tax effect
Increase (decrease) in total comprehensive
income
2011
(P
=213)
(744)
(1,727)
2,684
806
1,878
(P
=4,228)
(6,069)
(10,862)
21,159
6,348
14,811
(P
=1,238)
(3,088)
(2,761)
7,087
2,126
4,961
(24,949)
7,485
9,860
(2,958)
(38,330)
11,499
(17,464)
6,902
(26,831)
(P
=15,586)
P
=21,713
(P
=21,870)
The transition did not have a significant impact on the consolidated statements of cash flows
and earnings per share for the years ended December 31, 2012 and 2011.
Remeasurement losses on accrued retirement benefits are presented separately under other
comprehensive loss. The Revised PAS 19 also requires more extensive disclosures which are
presented in Note 28 to the consolidated financial statements.
·
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. PFRS 13 also requires additional disclosures.
As a result of the guidance in PFRS 13, the Group reassessed its policies for measuring fair
values. The Group has assessed that the application of PFRS 13 did not materially impact its
fair value measurement. Additional disclosures, where required, are provided in the individual
notes relating to the assets and liabilities whose fair values were determined.
·
PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial
Liabilities, these amendments require an entity to disclose information about rights of set-off and
related arrangements (such as collateral agreements). The new disclosures are required for all
recognized financial instruments that are set-off in accordance with PAS 32, Financial
Instruments: Presentation and Disclosures. 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
*SGVFS004446*
-9appropriate, the following minimum quantitative information. This is presented separately for
financial assets and financial liabilities recognized at the end of the reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities;
b) The amounts that are set off in accordance with the criteria in PAS 32 when determining
the net amounts presented in the consolidated balance sheet;
c) The net amounts presented in the consolidated 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 amendment affects disclosures only and has no impact on the Group’s financial position
or performance.
·
Amendments to PAS 1, Financial Statement Presentation - Presentation of Items of Other
Comprehensive Income, change the grouping of items presented in 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 amendments affect presentation only and therefore have no impact on the
Group’s financial position or 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. This interpretation is not relevant to the Group as the Group is not involved in any
mining activities.
·
Amendments to PFRS 1, First-time Adoption of International Financial Reporting StandardGovernment Loans, require first-time adopters to apply the requirements of PAS 20,
Accounting for Government Grants and Disclosure of Government Assistance, prospectively
to government loans existing at the date of transition of PFRS. However, entities may choose
to apply the requirements of PAS 39, Financial Instruments: Recognition and Measurement,
and PAS 20 to government loans restrospectively if the information needed to do so had been
obtained at the time of initially accounting for those loans. These amendments are not
relevant to the Group as the Group is not a first time adopter of PFRS.
Annual Improvements to PFRSs (2009-2011 cycle)
The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary
amendments to PFRSs. The amendments are effective for annual periods beginning on or after
January 1, 2013 and are applied retrospectively.
·
PFRS 1, First-time Adoption of PFRS - Borrowing Costs, clarifies that, upon adoption of
PFRS, an entity that capitalized borrowing costs inaccordance with its previous generally
accepted accounting principle, may carry forward, without any adjustment, the amount
previously capitalized in its opening statement of financial position at the date of transition.
Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with
PAS 23, Borrowing Cost. The amendment does not apply to the Group as it is not a first-time
adopter of PFRS.
*SGVFS004446*
- 10 ·
PAS 1, Presentation of Financial Statements - Clarification of the Requirements for
Comparative Information, clarifies the requirements for comparative information that are
disclosed voluntarily and those that are mandatory due to retrospective application of an
accounting policy, or retrospective restatement or reclassification of items in the financial
statements. An entity must include comparative information in the related notes to the
financial statements when it voluntarily provides comparative information beyond the
minimum required comparative period. The additional comparative period does not need to
contain a complete set of financial statements. On the other hand, supporting notes for the
third balance sheet (mandatory when there is a retrospective application of an accounting
policy, or retrospective restatement or reclassification of items in the financial statements) are
not required. The amendments affect disclosures only and have no impact on the Group’s
financial position or performance.
·
PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment, clarifies that
spare parts, stand-by equipment and servicing equipment should be recognized as property,
plant and equipment when they meet the definition of property, plant and equipment and
should be recognized as inventory if otherwise. The amendment has no impact on thr Group’s
financial position or performance.
·
PAS 32, Financial Instruments: Presentation - Tax Effect of Distribution to Holders of Equity
Instruments, clarifies that income taxes relating to distributions to equity holders and to
transaction costs of an equity transaction are accounted for in accordance with
PAS 12, Income Taxes. The Group assessed that this amendment has no impact on its
financial position or performance.
·
PAS 34, Interim Financial Reporting - Interim Financial Reporting and Segment Information
for Total Assets and Liabilities, clarifies that the total assets and liabilities for a particular
reportable segment need to be disclosed only when the amounts are regularly provided to the
chief operating decision maker and there has been a material change from the amount
disclosed in the entity’s previous annual financial statements for that reportable segment. The
amendment affects the interim financial reporting disclosures only and has no impact on the
Group’s financial position or performance.
New Accounting Standards, Amendments and Interpretations to
Existing Standards Effective Subsequent to December 31, 2013 .
The Group will adopt the standards, interpretations and amendments enumerated below when
these become effective. The Group continues to assess the impact of the following new and
amended accounting standards and interpretations. 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 consolidated financial statements. The relevant disclosures will be
included in the notes to the consolidated financial statements when these become effective.
Effective in 2014
· Amendments to PFRS 10, PFRS 12 and PAS 27 - Investment Entities, provide an exception to
the consolidation requirement for entities that meet the definition of an investment entity
under PFRS 10. The exception to consolidation requires investment entities to account for
subsidiaries at fair value through profit or loss. It is not expected that this amendment will be
relevant to the Group since none of the entities in the Group will qualify as an investment
entity under PFRS 10.
*SGVFS004446*
- 11 ·
Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets
and Financial Liabilities, clarify the meaning of “currently has a legally enforceable right to
set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems
(such as central clearing house systems) which apply gross settlement mechanisms that are not
simultaneous. The amendments will affect presentation only and will have no impact on the
Group’s financial position or performance.
·
Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for
Nonfinancial Assets, remove the unintended consequence of PFRS 13 on the disclosures
required under PAS 36. In addition, these amendments require disclosure of the recoverable
amounts for the assets or cash-generating units (CGUs) for which impairment loss has been
recognized or reversed during the period. The Group did not early adopt these amendments.
These amendments will affect disclosures only and will have no impact on the Group’s
financial position or performance.
·
PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and
Continuation of Hedge Accounting, provides relief from discontinuing hedge accounting when
novation of a derivative designated as a hedging instrument meets certain criteria. These
amendments are effective for annual periods beginning on or after January 1, 2014. The
amendments are not expected to have an impact on the Group’s financial position or
performance.
·
Philippine Interpretation IFRIC 21, Levies, clarifies that an entity recognizes a liability for a
levy when the activity that triggers payment, as identified by the relevant legislation, occurs.
For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that
no liability should be anticipated before the specified minimum threshold is reached. The
Group does not expect that IFRIC 21 will have a material financial impact on its future
financial statements.
Effective in 2015
· Amendments to PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions,
apply to contributions from employees or third parties to defined benefit plans. Contributions
that are set out in the formal terms of the plan shall be accounted for as reductions to current
service costs if they are linked to service or as part of the remeasurements of the net defined
benefit asset or liability if they are not linked to service. Contributions that are discretionary
shall be accounted for as reductions of current service cost upon payment of these
contributions to the plans. The amendments will not have any significant impact on the
financial statements of the Group as majority of its retirement plans are noncontributory.
Further, the employee contributions from the contributory defined benefit plan is currently
recognized as reduction against total retirement costs.
Annual Improvements to PFRSs (2010-2012 cycle)
The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessary
amendments to the following standards:
·
PFRS 2, Share-based Payment - Definition of Vesting Condition, revised the definitions of
vesting condition and market condition and added the definitions of performance condition
and service condition to clarify various issues. This amendment does not apply to the Group as
it has no share-based payments.
·
PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business
Combination, clarifies that a contingent consideration that meets the definition of a financial
instrument should be classified as a financial liability or as equity in accordance with PAS 32.
*SGVFS004446*
- 12 Contingent conderation that is not classified as equity is subsequently measured at fair value
through profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9
is not yet adopted). The Group shall consider this amendment for future business
combinations.
·
PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the
Total of the Reportable Segments’ Assets to the Entity’s Assets, requires entities to disclose the
judgment made by management in aggregating two or more operating segments. This
disclosure should include a brief description of the operating segments that have been
aggregated in this way and the economic indicators that have been assessed in determining
that the aggregated operating segments share similar economic characteristics. The
amendments also clarify that an entity shall provide reconciliations of the total of the
reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the
chief operating decision maker are applied retrospectively. The amendments will affect
disclosures only and will have no impact on the Group’s financial position or performance.
·
PFRS 13, Fair Value Measurement - Short-term Receivables and Payables, clarifies that
short-term receivables and payables with no stated interest rates can be held at invoice
amounts when the effect of discounting is immaterial. This amendment is effective
immediately. The amendments will have no impact on the Group’s financial position and
performance.
·
PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of
Accumulated Depreciation, clarifies that, upon revaluation of an item of property, plant and
equipment, the carrying amount of the asset shall be adjusted to the revalued amount, and the
asset shall be treated in one of the following ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation
of the carrying amount of the asset. The accumulated depreciation at the date of
revaluation is adjusted to equal the difference between the gross carrying amount and the
carrying amount of the asset after taking into account any accumulated impairment losses.
b. The accumulated depreciation is eliminated against the gross carrying amount of the asset.
The amendments shall apply to all revaluation recognized in annual periods beginning on or
after the date of initial application of this amendment and in the immediately preceding annual
period. The amendment will have no impact on the Group’s financial position or performance
since the Group does not have any related revalued property, plant and equipment.
·
PAS 24, Related Party Disclosures - Key Management Personnel, clarifies that an entity is a
related party of the reporting entity if the said entity, or any member of a group for which it is
a part of, provides key management personnel services to the reporting entity or to the parent
company of the reporting entity. The amendments also clarify that a reporting entity that
obtains management personnel services from another entity (also referred to as management
entity) is not required to disclose the compensation paid or payable by the management entity
to its employees or directors. The reporting entity is required to disclose the amounts incurred
for the key management personnel services provided by a separate management entity. The
amendments will affect disclosures only and will have no impact on the Group’s financial
position or performance.
*SGVFS004446*
- 13 ·
PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of Accumulated
Amortization, clarifies that, upon revaluation of an intangible asset, the carrying amount of the
asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the
following ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation
of the carrying amount of the asset. The accumulated amortization at the date of
revaluation is adjusted to equal the difference between the gross carrying amount and the
carrying amount of the asset after taking into account any accumulated impairment losses.
b. The accumulated amortization is eliminated against the gross carrying amount of the asset.
The amendments also clarify that the amount of the adjustment of the accumulated
amortization should form part of the increase or decrease in the carrying amount accounted for
in accordance with the standard. The amendments will have no impact on the Group’s
financial position or performance.
Annual Improvements to PFRSs (2011-2013 cycle)
The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessary
amendments to the following standards:
·
PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of
‘Effective PFRSs’, clarifies that an entity may choose to apply either a current standard or a
new standard that is not yet mandatory, but that permits early application, provided either
standard is applied consistently throughout the periods presented in the entity’s first PFRS
financial statements. This amendment is not applicable to the Group as it is not a first-time
adopter of PFRS.
·
PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements, clarifies that
PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the
financial statements of the joint arrangement itself. This amendment will not have any impact
on the Group’s financial position or performance.
·
PFRS 13, Fair Value Measurement - Portfolio Exception, clarifies that the portfolio exception
in PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The
amendment has no significant impact on the Group’s financial position or performance.
·
PAS 40, Investment Property, clarifies the interrelationship between PFRS 3 and PAS 40
when classifying property as investment property or owner-occupied property. The
amendment stated that judgment is needed when determining whether the acquisition of
investment property is the acquisition of an asset or a group of assets or a business
combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3.
The amendment will have no significant impact on the Group’s financial position or
performance.
New Standard with No Mandatory Effective Date
· PFRS 9, Financial Instruments, as issued, reflects the first and third phases of the project to
replace PAS 39 and applies to the classification and measurement of financial assets and
liabilities and hedge accounting, respectively. Work on the second phase, which relate to
impairment of financial instruments, and the limited amendments to the classification and
*SGVFS004446*
- 14 measurement model is still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9
requires all financial assets to be measured at fair value at initial recognition. A debt financial
asset may, if the fair value option (FVO) is not invoked, be subsequently measured at
amortized cost if it is held within a business model that has the objective to hold the assets to
collect the contractual cash flows and its contractual terms give rise, on specified dates, to
cash flows that are solely payments of principal and interest on the principal outstanding. All
other debt instruments are subsequently measured at fair value through profit or loss. All
equity financial assets are measured at fair value either through OCI or profit or loss. Equity
financial assets held for trading must be measured at fair value through profit or loss. For
liabilities designated as at FVPL using the FVO, the amount of change in the fair value of a
liability that is attributable to changes in credit risk must be presented in OCI. The remainder
of the change in fair value is presented in profit or loss, unless presentation of the fair value
change relating to the entity’s own credit risk in OCI would create or enlarge an accounting
mismatch in profit or loss. All other PAS 39 classification and measurement requirements for
financial liabilities have been carried forward to PFRS 9, including the embedded derivative
bifurcation rules and the criteria for using the FVO. 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 the classification and measurement of financial liabilities.
On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39
with a more principles-based approach. Changes include replacing the rules-based hedge
effectiveness test with an objectives-based test that focuses on the economic relationship
between the hedged item and the hedging instrument, and the effect of credit risk on that
economic relationship; allowing risk components to be designated as the hedged item, not
only for financial items, but also for nonfinancial items, provided that the risk component is
separately identifiable and reliably measurable; and allowing the time value of an option, the
forward element of a forward contract and any foreign currency basis spread to be excluded
from the designation of a financial instrument as the hedging instrument and accounted for as
costs of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.
PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before the
completion of the limited amendments to the classification and measurement model and
impairment methodology. The Group will not adopt the standard before the completion of the
limited amendments and the second phase of the project. The Group shall conduct another
impact evaluation in early 2014 using the consolidated financial statements for the year ended
December 31, 2014.
Deferred
· 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 Philippine SEC and the Financial
Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until
the final Revenue standard is issued by the 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. The adoption of the interpretation when it
becomes effective will not have any impact on the consolidated financial statements of the
Group.
*SGVFS004446*
- 15 Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Parent Company
and the following wholly-owned and majority-owned subsidiaries, all incorporated in the
Philippines, as at December 31 of each year:
Supercat Fast Ferry Corp. (SFFC)
Special Container and Value Added
Services, Inc. (SCVASI) (1)
2GO Express, Inc. (2GO Express)
2GO Logistics, Inc. (2GO Logistics)
Scanasia Overseas, Inc. (SOI)
Hapag-Lloyd Philippines, Inc. (HLP) (2)
WRR Trucking Corporation (WTC)
NN-ATS Logistics Management and
Holding Co., Inc. (NALMHCI)(3)
J&A Services Corporation (JASC)
Red.Dot Corporation (RDC)
North Harbor Tugs Corporation (NHTC)
Super Terminals, Inc. (STI)(4)
Sungold Forwarding Corporation (SFC)
Supersail Services, Inc. (SSI)
Astir Engineering Works, Inc. (AEWI) (5)
W G & A Supercommerce, Inc. (WSI)(6)
(1)
(2)
(3)
(4)
(5)
(6)
Nature of business
Transporting passenger
Percentage of ownership
2012
2011
2013
100.0
100.0
100.0
Transportation/logistics
Transportation/logistics
Transportation/logistics
Distribution
Transportation/logistics
Transportation
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
100.0
100.0
85.0
100.0
Holding and logistics management
Vessel support services
Manpower services
Tug assistance
Passenger terminal operator
Transportation/logistics
Manpower provider and vessel support
services
Engineering services
Vessels’ hotel management
100.0
100.0
100.0
58.9
50.0
51.0
100.0
100.0
100.0
58.9
50.0
51.0
100.0
100.0
100.0
58.9
50.0
51.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
85.0
100.0
SCVASI was incorporated on March 9, 2012 and started its commercial operation on January 1, 2013.
In 2013, 2GO Express acquired additional 15% ownership interest in HLP, thus, making HLP a 100%-owned subsidiary.
On November 22, 2011, NALMHCI, a wholly-owned subsidiary of 2GO, was incorporated to be the holding company of JASC,
RDC, NHTC, STI, SFC and SSI effective December 1, 2011.
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.
In 2013, NN ownership in AEWI was transferred to NALMHCI.
WSI ceased operations in February 2006.
The financial statements of the subsidiaries are prepared for the same reporting year as the
Company using consistent accounting policies.
Subsidiaries are all entities over which the Group has control. Control is achieved when the Group
is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect that return through its power over the investee. Specifically, the Group controls an
investee if and only if the Group has:
·
·
·
Power over the investee (i.e., existing rights that give it the current ability to direct the relevant
activities of the investee)
Exposure, or rights, to variable returns from its involvement with the investee, and
The ability to use its power over the investee to affect its returns
When the Group has less than a majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an investee,
including:
·
·
·
The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual arrangements
The Group’s voting rights and potential voting rights
*SGVFS004446*
- 16 The Group re-assesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group
loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or
disposed of during the year are included or excluded in the consolidated financial statements from
the date the Group gains control or until the date the Group ceases to control the subsidiary.
Non-controlling interest represents a portion of profit or loss and net assets of subsidiaries not held
by the Group, directly or indirectly, and are presented separately in the consolidated statement of
income and within the equity section in the consolidated balance sheet and consolidated statement
of changes in equity, separately from the Company’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 noncontrolling 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 on consolidation.
A change in ownership interest in a subsidiary without a loss of control is accounted for as an
equity transaction. 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, as would be required if the Group
had directly disposed of the related assets or liabilities.
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 Group elects whether to measure the non-controlling interest in the acquiree
either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred and are included in operating expenses.
*SGVFS004446*
- 17 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 OCI. If the contingent consideration is not within the scope of PAS 39, it
is measured in accordance with the appropriate PFRS. Contingent consideration that is classified
as equity is not re-measured and subsequent settlement is accounted for within equity.
Goodwill acquired in a business combination is initially measured at cost, being the excess of the
aggregate of the consideration transferred and the amount recognized for non-controlling interest,
and any previous interest held, over the fair values of net identifiable assets acquired and liabilities
assumed. If this consideration is lower than the fair value of the net assets of the subsidiary
acquired, the Group reassesses whether it has correctly identified all of the assets acquired and all
of the liabilities assumed and reviews the procedures used to measure the amounts to be
recognized at the acquisition date. If the re-assessment still results in an excess of the fair value of
net assets acquired over the aggregate consideration transferred, then the gain is recognized in
profit or loss. After initial recognition, goodwill is measured at cost less any accumulated
impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generating units (CGU) that are expected to
benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units.
Where goodwill forms part of a CGU or a group of CGUs 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 CGU 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
that the control is not transitory (“business combinations under common control”), the Group
accounts for such business combinations under the acquisition 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.
*SGVFS004446*
- 18 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
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 and as if the companies had always been combined.
Investments in Associates and Joint Ventures
The following are the associates and joint ventures of the Group as at December 31, 2013 and
2012:
Effective percentage of
Ownership
Nature of Business
2012
2013
Associates:
MCC Transport Philippines (MCCP)
Container transportation
33.0%
33.0%
Hansa-Meyer ATS Projects, Inc. (HATS) Project logistics and
consultancy
47.1 %
47.1%
Joint Ventures:
KLN Holdings (KLN)(1)
Holding Company
78.4%
78.4%
Kerry-ATS Logistics, Inc. (KALI)
International freight and
cargo forwarding
62.5%
62.5%
(1)
KLN is 78.4% owned by 2GO Express.
An associate is an entity over which the Group has significant influence. Significant influence is
the power to participate in the financial and operating policy decisions of the investee, but has no
control or joint control over those policies.
A joint arrangement is a contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control. A joint venture is a type of joint arrangement
where the parties that have joint control of the arrangement and have rights over the net assets of
the joint venture.
The considerations made in determining significant influence or joint control are similar to those
necessary to determine control over subsidiaries.
Investments in associates and joint ventures (investee companies) are accounted for under the
equity method of accounting. An investment is accounted for using the equity method from the
day it becomes an associate or joint venture. On acquisition of investment, the excess of the cost
of investment over the investor’s share in the net fair value of the investee’s identifiable assets,
liabilities and contingent liabilities is accounted for as goodwill and included in the carrying
amount of the investment and not amortized. Any excess of the investor’s share of the net fair
value of the investee’s identifiable assets, liabilities and contingent liabilities over the cost of the
investment is excluded from the carrying amount of the investment, and is instead included as
income in the determination of the share in the earnings of the investees.
Under the equity method, the investments in the investee companies are carried in the consolidated
balance sheet at cost plus post-acquisition changes in the Group’s share in the net assets of the
investee companies, less any impairment in values. The consolidated statement of income reflects
the share of the results of the operations of the investee companies. The Group’s share of postacquisition movements in the investee’s equity reserves is recognized directly in equity. Profits
and losses resulting from transactions between the Group and the investee companies are
eliminated to the extent of the interest in the investee companies and for unrealized losses to the
extent that there is no evidence of impairment of the asset transferred. Dividends received are
treated as a reduction of the carrying value of the investment.
*SGVFS004446*
- 19 The Group discontinues applying the equity method when their investments in investee companies
are reduced to zero. Accordingly, additional losses are not recognized unless the Group has
guaranteed certain obligations of the investee companies. When the investee companies
subsequently report net income, the Group will resume applying the equity method but only after
its share of that net income equals the share of net losses not recognized during the period the
equity method was suspended.
The reporting dates of the investee companies and the Group are identical and the investee
companies’ accounting policies conform to those used by the Group for like transactions and
events in similar circumstances.
Upon loss of significant influence over the associate, the Group measures and recognizes any
retaining investment at its fair value. Any difference between the carrying amount of the associate
upon loss of significant influence and the fair value of the retaining investment and proceeds from
disposal is recognized in the consolidated statement of income.
Interest in a Joint Operation
The Group has an interest in a joint operation 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. Upon adoption of PFRS 11, the assets, liabilities, revenues and
expenses relating to its interest in the joint operation have been retrospectively recognized in the
consolidated financial statements of the Group.
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.
Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:
·
·
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their
economic best interest.
A fair value measurement of a nonfinancial asset takes into account a market participant’s ability
to generate economic benefits by using the asset in its highest and best use or by selling it to
another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
*SGVFS004446*
- 20 All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
·
·
·
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable
For assets and liabilities that are recognized in the consolidated financial statements on a recurring
basis, the Group determines whether transfers have occurred between Levels in the hierarchy by
reassessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities
on the basis of the nature, characteristics and risks of the assets or liability and the level of the fair
value hierarchy.
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 or sales) 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, which is the fair value of the
consideration given (in case of an asset) or received (in case of a liability). If part of consideration
given or received is for something other than the financial instrument, the fair value of the
financial instrument is estimated using a valuation technique. The initial measurement of financial
instruments, except for those financial assets and liabilities at fair value through profit or loss
(FVPL), includes transaction costs.
Classification of financial instruments
On initial recognition, the Group classifies its financial assets in the following categories: financial
assets at FVPL, loans and receivables, held-to-maturity (HTM) investments and AFS investments.
The Group also classifies its financial liabilities into 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 and
financial liabilities at initial recognition and, where allowed and appropriate, reevaluates such
designation at the end of each reporting period.
Financial instruments are classified as liabilities or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a
component that is a financial liability are reported as expense or income. Distributions to holders
of financial instruments classified as equity are charged directly to equity, net of any related
income tax benefits.
The Group has no financial assets classified as FVPL and HTM investments.
*SGVFS004446*
- 21 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 investments or financial assets
at FVPL. Loans and receivables are carried at amortized cost using the effective interest
method, less allowance for impairment. Amortized cost is calculated by taking into account
any discount or premium on acquisition and fees that are integral part of the effective interest
rate. Gains and losses are recognized in 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, 2013 and 2012, 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).
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 or
loss 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, 2013 and 2012, the Group’s AFS investments include investments in quoted and
unquoted shares of stock and club shares.
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 method of amortization (or
accretion) for any related premium (discount) and any directly attributable transaction costs.
As at December 31, 2013 and 2012, financial liabilities included in this classification are the
Group’s loans payable, trade and other payables, long-term debts, obligations under finance lease,
restructured debts, redeemable preferred shares of a subsidiary 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.
A financial instrument is classified as debt if it provides for a contractual obligation to:
·
deliver cash or another financial asset to another entity; or
*SGVFS004446*
- 22 ·
·
exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Group; or
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of own equity shares.
If the Group does not have an unconditional right to avoid delivering cash or another financial
asset to settle its contractual obligation, the obligation meets the definition of a financial
liability.
The components of issued financial instruments that contain both liability and equity elements are
accounted for separately, with the equity component being assigned the residual amount after
deducting from the instrument as a whole the amount separately determined as the fair value of the
liability component on the date of issue.
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:
·
·
the rights to receive cash flows from the asset have expired; or
the Group has transferred its rights to receive cash flows from the asset or has assumed an
obligation to pay them in full without material delay to a third party under a “pass-through”
arrangement; or
*SGVFS004446*
- 23 ·
the Group has transferred its rights to recline 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
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the
Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of 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,
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 an objective evidence that an impairment loss has been incurred, the amount of the loss
is measured as the difference between the asset’s carrying amount and the present value of
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 is
increased or decreased by adjusting the allowance account. Any subsequent reversal of an
impairment loss is 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.
*SGVFS004446*
- 24 Assets carried at cost
If there is an 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.
The Group treats “significant” generally as 20% or more and “prolonged” as greater than 12
months for quoted equity securities. 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 OCI.
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 and 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 weighted average method for trading goods, moving average
method for materials, parts and supplies, flight equipment, expendable parts and supplies, and the
first-in, first-out method for truck and trailer expendable parts, fuel, lubricants and spare parts.
NRV of the trading goods is the estimated selling price in the ordinary course of business, less
estimated costs necessary to make the sale. NRV of materials and supplies is the current
replacement cost. An allowance for inventory obsolescence is provided for damaged goods based
on analysis and physical inspection.
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. 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
*SGVFS004446*
- 25 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, that 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 are stated at cost less accumulated
depreciation and any impairment in value.
*SGVFS004446*
- 26 Depreciation and amortization are computed using the straight-line method over the following
estimated useful lives of the property and equipment:
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
2-5
3-5
5 - 10
5 - 10
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 or amortization commences when an asset is in its location or condition capable of
being operated in the manner intended by management. Depreciation or amortization ceases at the
earlier of the date that the item is classified as held for sale in accordance with PFRS 5,
Noncurrent Assets Held for Sale and Discontinued Operations, and the date the asset is
derecognized.
The asset’s residual values, useful lives and depreciation and amortization methods are reviewed
at each reporting period, and adjusted prospectively if appropriate.
When property and equipment are sold or retired, their cost and accumulated depreciation and
amortization 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. Fully depreciated assets are
retained in the accounts until these are no longer in use.
Investment Property
Investment property, consisting of a parcel of land of 2GO Express, is measured at cost less any
impairment in value. The Group used the fair value of the land as the cost in the consolidated
financial statements at the date the Company acquired 2GO Express.
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 consolidated
statement of income. Transfers are made to investment property when, and only when, there is
change in use, evidenced by cessation of owner-occupation, 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 owneroccupation or commencement of development with a view to sale.
*SGVFS004446*
- 27 Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is its 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 estimated recoverable amount is the higher of an asset’s or CGU’s fair value
less costs of disposal 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 of disposal, 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.
*SGVFS004446*
- 28 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 or amortization expense is adjusted in future periods to allocate the
asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining
useful life.
The Group’s nonfinancial assets consist of creditable withholding taxes (CWTs), input value
added tax (VAT), prepaid expenses, other current assets, assets held for sale, property and
equipment, investment property, investments in associates and joint ventures, software
development costs, deferred input VAT and retirement benefit 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 Parent 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) represents the cumulative balance of net income or loss, net of any
dividend declaration and other capital adjustments.
Treasury shares are own 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,
*SGVFS004446*
- 29 sale, issuance 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. Other comprehensive income of the Group includes net changes in fair
value of AFS investments, share in other comprehensive income of an associate and
remeasurement gains (losses) on accrued retirement benefits.
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 or receivable, excluding discounts, rebates, VAT or duties. 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 revenues are recognized when the related services are rendered. Customer
payments for services which have not yet been rendered are classified as unearned revenue under
“Trade and other payables” in the consolidated balance sheet.
Service fees are recognized when the related services have been rendered. Service fees 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, which is upon delivery of the goods and acceptance of the
buyer and the amount of revenue can be measured reliably.
Revenue from sale of food and beverage is recognized upon delivery and acceptance by customers.
Vessel lease revenues from short-term leasing arrangements are recognized in accordance with the
terms of the lease 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.
Arrastre and stevedoring revenue is recognized when related services are rendered.
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 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.
*SGVFS004446*
- 30 Dividend income is recognized when the shareholders’ right to receive the payment is established.
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 rewards 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 rewards 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 rewards 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 are capitalized if they are directly attributable to the acquisition, construction or
production of a qualifying asset. Capitalization of borrowing costs commences when the activities
necessary to prepare the asset for intended use are in progress and expenditures and borrowing
costs are being incurred. Borrowing costs are capitalized until the asset is available for their
*SGVFS004446*
- 31 intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an
impairment loss is recognized. Borrowing costs include interest charges and other costs incurred
in connection with the borrowing of funds, as well as exchange differences arising from foreign
currency borrowings used to finance these projects, to the extent that they are regarded as an
adjustment to interest costs. All other borrowing costs are expensed as incurred.
Retirement Benefits
The net defined benefit liability or asset is the aggregate of the present value of the defined benefit
obligation at the end of the reporting period reduced by the fair value of plan assets (if any),
adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling
is the present value of any economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is actuarially determined using the
projected unit credit method.
Defined benefit costs comprise the following:
- Service cost
- Net interest on the net defined benefit liability or asset
- Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on nonroutine settlements are recognized as expense in profit or loss. Past service costs are recognized
when plan amendment or curtailment occurs. These amounts are calculated periodically by
independent qualified actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the net
defined benefit liability or asset that arises from the passage of time which is determined by
applying the discount rate based on government bonds to the net defined benefit liability or asset.
Net interest on the net defined benefit liability or asset is recognized as expense or income in
profit or loss.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in
the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized
immediately in other comprehensive income in the period in which they arise. Remeasurements
are not reclassified to profit or loss in subsequent periods.
Taxes
Current income tax
Current income tax assets and liabilities for the current periods are measured at the amount
expected to be recovered from or paid to the 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 income 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.
*SGVFS004446*
- 32 Deferred income tax
Deferred income 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 income tax assets are recognized for deductible temporary differences, carryforward
benefits of unused tax credits from excess of minimum corporate income tax (MCIT) over regular
corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that
it is probable that sufficient future taxable profits will be available against which the deductible
temporary differences, carryforward benefits of unused tax credits from excess of MCIT over
RCIT and unused NOLCO can be utilized. Deferred income tax liabilities are recognized for all
taxable temporary differences.
Deferred income tax, however, is not recognized when it arises from the initial recognition of an
asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit or loss nor taxable profit or loss.
Deferred income tax liabilities are not provided on non-taxable temporary differences associated
with investments in domestic subsidiaries, associates and interest in joint ventures. With respect
to investments in other subsidiaries, associates and interests in joint ventures, deferred income tax
liabilities are recognized except when the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred income 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 all or part of the deferred income tax asset to be utilized. Unrecognized deferred income 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 profits will allow the deferred income tax asset to
be recovered. It is probable that sufficient future taxable profits will be available against which a
deductible temporary difference can be utilized when there are sufficient taxable temporary
difference relating to the same taxation authority and the same taxable entity which are expected
to reverse in the same period as the expected reversal of the deductible temporary difference. In
such circumstances, the deferred income tax asset is recognized in the period in which the
deductible temporary difference arises.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply
in the year when the asset is realized or the liability is settled, based on tax rate and tax laws that
have been enacted or substantively enacted at the end of the reporting period.
Deferred income tax relating to items recognized in OCI 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 income 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 tax authority and the Group intends to settle its current income tax assets and
liabilities on a net basis.
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 tax authority, in
*SGVFS004446*
- 33 which case 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 tax authority is included as part of
“Other current assets” or “Trade and other 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 assets.
Foreign Currency-denominated Transactions and Translations
The Group’s consolidated financial statements are presented in Philippine Peso, which is the
Company’s functional and presentation currency. Each entity in the Group determines its own
functional currency and items included in the consolidated 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 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 OCI 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.
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.
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 reporting period are dealt with as an event after the reporting
period.
*SGVFS004446*
- 34 Segment Reporting
The Group’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 4.
Events After the Reporting Period
Post year events that provide evidence of conditions that existed at balance sheet date are reflected
in the consolidated financial statements. Subsequent events that are indicative of conditions that
arose after reporting period 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
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 consolidated 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 Peso. It is the currency that mainly influences the
sale of services and the cost of rendering the services.
Determination if significant influence or 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 Super Terminal, Inc. (STI), it has control
by virtue of its power to cast the majority votes at meetings of STI’s 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 33.
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
*SGVFS004446*
- 35 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 operating leases.
The Group has also entered into a finance lease agreements 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). As at December 31, 2013 and 2012,
the carrying amount of the property and equipment under finance lease amounted to
P
= 135.4 million and =
P 182.6 million, respectively (see Note 20).
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. Based on an evaluation of the terms and conditions of the
arrangements, the Group determined that it retains all the significant risks and rewards of
ownership of these equipment and so accounts for it as operating leases.
Classification and valuation of assets held for sale
Management assessed whether its existing vessels met the criteria as assets held based on the
following: (1) the related assets are available for immediate sale; (2) preliminary negotiations with
willing buyers were executed; and (3) the sale is expected to be completed within 12 months from
the end of reporting period.
As at December 31, 2012, management assessed that the two of its existing vessels would remain
as assets held for sale since the delay in the disposal within one year from December 31, 2011 was
caused by events beyond the control of the Group and management remains committed to its plan
to sell the vessels. As at December 31, 2013 and 2012, the carrying values of two vessels under
assets held for sale amounted to =
P359.2 million (see Note 10).
In June 2013, the Group sold one of the vessels held for sale for total cash proceeds of
P
=85.3 million, which resulted to a loss amounting to =
P51.0 million (see Note 10). In
December 2013, the Group decided to put back into operation the remaining vessel held for sale to
property and equipment due to certain incidents which happened in 2013 that have a significant
impact on the passage and cargo capacity of the Group (see Note 13). Thus, as of December 31,
2013, there were no vessels classified as held for sale.
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 Company. The Company classified this
RPS amounting to =
P 6.7 million and =
P6.9 million as liability as of December 31, 2013 and 2012,
respectively (see Note 21).
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
2013 and 2012 (see Note 22).
*SGVFS004446*
- 36 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.
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 34.
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 collectability 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
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.
*SGVFS004446*
- 37 As at December 31, 2013 and 2012, trade and other receivables amounted to P
= 3,949.8 million and
P
=2,839.9 million, respectively, net of allowance for doubtful receivables of P
= 379.4 million and
P
=318.6 million, respectively (see Note 7).
Determination of NRV of inventories
The Group’s estimates of the NRV of inventories are based on the most reliable evidence
available at the time the estimates are made, of the amount that the inventories are expected to be
realized. These estimates consider the fluctuations of price or cost directly relating to events
occurring after the end of the period to the extent that such events confirm conditions existing at the
end of the period. A new assessment is made of NRV in each subsequent period. When the
circumstances that previously caused inventories to be written down below cost no longer exist
or when there is a clear evidence of an increase in NRV because of change in economic
circumstances, the amount of the write-down is reversed so that the new carrying amount is the
lower of the cost and the revised NRV.
As at December 31, 2013 and 2012, the carrying values of inventories amounted to
P
= 422.0 million and =
P371.8 million, net of allowance for inventory obsolescence amounting to
=
P 55.7 million and =
P62.7 million, respectively (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 of
recorded 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. There were no
changes in the estimated useful lives of property and equipment in 2013 and 2012.
As at December 31, 2013 and 2012, property and equipment amounted to =
P 5,054.9 million and
P
=4,577.3 million, net of accumulated depreciation, amortization and impairment loss of
P
= 6,171.2 million and P
=6,370.4 million, respectively (see Note 13).
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 2013, 2012 and
2011.
*SGVFS004446*
- 38 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 December 31, 2013 and 2012, the carrying value of software development costs amounted to
=
P 15.4 million and =
P11.3 million, respectively (see Note 15).
Impairment assessment of AFS investments
The Group considers AFS investments 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 December 31, 2013 and 2012, the carrying value of AFS investments amounted to =
P 6.9 million
and =
P8.7 million, respectively (see Note 11). No impairment loss was recognized in 2013, 2012
and 2011.
Estimation of probable losses on prepaid taxes
The Group makes an estimate of the provision for probable losses on its 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
= 1,028.9 million and P
=939.7 million as of
December 31, 2013 and 2012, respectively, are fully recoverable (see Notes 9 and 16).
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
of disposal and its value-in-use. In determining fair value less costs of disposal, an appropriate
valuation model is used, which can be based on quoted prices or other available fair value
indicators. In estimating the value-in-use, the Group is required to make an estimate of the
expected future cash flows from the CGU and also to choose an appropriate discount rate in order
to calculate the present value of those cash flows.
Determining the recoverable amounts of nonfinancial assets, 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.
*SGVFS004446*
- 39 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:
2012
2013
(In Thousands)
Property and equipment - net (Note 13)
Investment property (Note 14)
Investments in associates and joint ventures
(Note 12)
Software development costs (Note 15)
P
=5,054,932
9,763
P
=4,577,306
9,763
181,977
15,379
140,515
11,317
The Group recognized provision for impairment losses on property and equipment and assets held
for sale amounting to =
P234.8 million and =
P223.6 million in 2013 and 2011, respectively
(see Note 13). In 2012, no impairment loss was recognized on property and equipment.
As of December 31, 2013, 2012 and 2011, no impairment losses were recognized on the Group’s
investment property, investment in associates and joint ventures and software development costs
as their recoverable values are higher than their carrying values.
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 CGUs 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
CGU 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.
The carrying amount of goodwill as at December 31, 2013 and 2012 amounted to P
=250.5 million
(see Note 5).
Estimation of retirement benefits costs and obligation
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 28 and include among others, discount rate and rate of
compensation increase. While it is believed that the Group’s assumptions are reasonable and
appropriate, significant differences in actual experience or significant changes in assumptions may
materially affect the Group’s pension and other retirement obligations.
The discount is determined based on the market prices prevailing on that date, applicable to the
period over which the obligation is to be settled.
As at December 31, 2013 and 2012, the Group’s pension asset amounted to P
=1.4 million and
P
=0.5 million while the Group’s accrued retirement benefits amounted to =
P167.2 million and
P
=131.9 million, respectively (see Notes 16 and 28).
*SGVFS004446*
- 40 Recognition of deferred income tax assets
The carrying amount of deferred income tax assets is reviewed at the end of each reporting
period and reduced to the extent that it is no longer probable that sufficient future taxable
income will be available to allow all or part of the deferred income tax assets to be utilized.
As at December 31, 2013 and 2012, the Group has recognized deferred income tax assets on its
temporary differences, carryforward benefits of NOLCO and excess MCIT amounting to
P
=481.9 million and P
=824.1 million, respectively (see Note 29). Tax effect of the temporary
differences and carryforward benefits of unused NOLCO and MCIT for which no deferred
income tax assets were recognized amounted to P
=454.4 million and P
=366.5 million as at
December 31, 2013 and 2012, respectively (see Note 29).
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:
·
·
The shipping segment renders passage transportation and cargo freight services.
The non-shipping segment provides logistics services and supply chain management.
The Group’s BOD regularly reviews 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 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 a single customer that accounts for 10% or more 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 the land property of 2GO
Express, which is carried at cost in the Company’s consolidated financial statements but was
measured to fair value in the NN’s consolidated financial statements at the date of the business
combination of the Company and NN.
*SGVFS004446*
- 41 Segment revenue, expenses, results, assets, liabilities and other information about the business
segments follows:
2013
Shipping
Revenues
Operating Costs and Expenses
Operating
Terminal
Cost of goods sold
Overhead
Total Cost and Expenses
Operating income (loss) before
interest and others
Interest and financing charges
Others - net
Income before income tax
Provision for income tax
Segment profit (loss)
Segment assets
Segment liabilities
Other information:
Depreciation and amortization
Reversal of vessel impairment loss
Investments in associates and joint
ventures
Equity in net earnings of associates
and joint ventures
P
=8,556,276
6,174,827
1,401,229
–
777,967
8,354,023
Segment assets
Segment liabilities
Other information:
Depreciation and amortization
Investments in associates and joint
ventures
Equity in net earnings of associates
and joint ventures
3,523,627
1,472
1,720,991
569,625
5,815,715
(1,124,313)
(45,842)
–
(116,484)
(1,286,639)
Consolidated
balances
P
=13,373,193
8,574,141
1,356,859
1,720,991
1,231,108
12,883,099
202,253
(364,728)
573,688
411,213
418,076
(P
= 6,863)
288,016
(53,721)
84,116
318,411
67,616
P
=250,795
(175)
49,435
(66,111)
(16,851)
–
(P
= 16,851)
490,094
(369,014)
591,693
712,773
485,692
P
=227,081
P
=11,201,978
(8,777,183)
P
=3,560,781
(2,543,062)
(P
= 2,240,855)
1,881,357
P
=12,521,904
(9,438,888)
966,167
60,606
76,064
–
(5,640)
–
1,036,591
60,606
16,500
62,473
103,004
181,977
32,427
12,419
–
44,846
2012 (As restated, Note 2)
Eliminations/
Non-shipping
adjustments
(In Thousands)
Consolidated
balances
Shipping
Revenues
Operating Costs and Expenses
Operating
Terminal
Cost of goods sold
Overhead
Total Cost and Expenses
Operating income (loss) before interest
and others
Interest and financing charges
Others - net
Income (loss) before income tax
Provision for income tax
Segment profit (loss)
Eliminations/
Non-shipping
adjustments
(In Thousands)
P
=6,103,731
(P
=1,286,814)
P
=9,001,320
P
=5,038,263
(P
=385,952)
P
=13,653,631
7,377,773
1,112,223
–
723,596
9,213,592
2,519,046
1,551
1,761,564
422,221
4,704,382
(298,711)
(48,009)
–
(39,111)
(385,831)
9,598,108
1,065,765
1,761,564
1,106,706
13,532,143
(212,272)
(403,949)
172,130
(444,091)
175,047
(P
=619,138)
333,881
(46,027)
33,230
321,084
82,852
P
=238,232
(121)
49,504
(24,232)
25,151
–
P
=25,151
121,488
(400,472)
181,128
(97,856)
257,899
(P
=355,755)
P
=10,124,742
(7,691,263)
P
=3,003,620
(2,170,596)
(P
=1,833,423)
1,487,645
P
=11,294,939
(8,374,214)
861,888
62,889
–
924,777
16,500
55,827
68,188
140,515
28,713
8,981
–
37,694
*SGVFS004446*
- 42 -
Shipping
Revenues
Operating Costs and Expenses
Operating
Terminal
Cost of goods sold
Overhead
Total Cost and Expenses
Operating income (loss) before interest
and others
Interest and financing charges
Others - net
Income (loss) before income tax
Provision for (benefit from)
income tax
Segment profit (loss)
Segment assets
Segment liabilities
Other information:
Depreciation and amortization
Provision for impairment loss
Investments in associates and joint
ventures
Equity in net losses of associates
and joint ventures
2011 (As restated, Note 2)
Eliminations/
Non-shipping
adjustments
(In Thousands)
Consolidated
balances
P
=7,941,054
P
=5,414,370
(P
=460,699)
P
=12,894,725
6,160,437
1,439,607
76,382
787,835
8,464,261
2,280,449
–
2,601,539
467,612
5,349,600
(411,910)
1,979
–
(175,162)
(585,093)
8,028,976
1,441,586
2,677,921
1,080,285
13,228,768
(523,207)
(423,632)
189,394
(757,445)
64,770
(52,320)
67,965
80,415
124,394
68,586
(313,836)
(120,856)
(334,043)
(407,366)
(56,477)
(797,886)
(233,706)
(P
=523,739)
41,669
P
=38,746
–
(P
=120,856)
(192,037)
(P
=605,849)
(P
=1,538,612)
1,167,627
P
=12,204,863
(8,931,839)
P
=11,067,799
(8,019,480)
P
=2,675,676
(2,079,986)
1,008,591
223,644
72,623
–
(34,531)
–
–
61,756
55,666
117,422
17,226
–
(6,590)
(23,816)
1,046,683
223,644
5. Business Combinations
Acquisition of SOI and Impairment Testing of Goodwill
On June 3, 2008, 2GO Express 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 CGU. 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 11.1% and 10.2% in 2013 and 2012.
Cash flows beyond the five-year period are extrapolated using a zero percent growth rate.
*SGVFS004446*
- 43 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.
Budgeted EBITDA
Budgeted EBITDA has been based on past experience adjusted for the following:
·
·
·
·
·
Revenue growth rate. Management expects a 13% increase in revenue in 2014 and in
subsequent years. The expected growth is based on management’s strategic plan to expand its
supply chain operations.
Variable expenses. Management expects variable expenses to increase by 13% in 2014 and
subsequent years.
Fixed operating expenses. Management expects an increase in fixed operating expenses of
15% in 2014 and 9% to 10% increase in subsequent years.
Foreign exchange rates. The assumption used to determine foreign exchange rate is a
fluctuating Peso exchange rate of =
P43.0 to a dollar starting 2013 until the fifth year.
Materials price inflation. The assumption used to determine the value assigned to the
materials price inflation is 5.00%, 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 2014 is consistent with external information sources.
Budgeted capital expenditure
Budgeted capital expenditure is based on management’s plan to expand the Group’s supply chain
segment.
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 CGU to exceed its
recoverable amount.
As at December 31, 2013, 2012 and 2011, the Group has not recognized any impairment in
goodwill on SOI.
6. Cash and Cash Equivalents
Cash on hand and in banks
Cash equivalents
2012
(As restated,
Note 2)
2013
(In Thousands)
=704,459
P
P
=869,215
82,397
49,430
=786,856
P
P
=918,645
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are made for
varying periods of up to three months depending on the immediate cash requirements of the
Group, and earn interest at the respective short-term investment rates.
Total interest income earned by the Group from cash in banks and cash equivalents amounted to
P
=1.7 million in 2013, =
P5.5 million in 2012 and =
P6.7 million in 2011 (see Note 26).
*SGVFS004446*
- 44 -
7. Trade and Other Receivables
2012
(As restated,
Note 2)
2013
(In Thousands)
Trade (Note 23):
Freight
Passage
Service fees
Distribution
Others
Nontrade (Note 23)
Due from related parties (Note 23)
Insurance and other claims (Notes 13 and 22)
Advances to officers and employees
=1,308,846
P
77,909
353,607
287,371
422,179
368,494
50,535
248,246
41,331
3,158,518
318,634
=2,839,884
P
P
=1,403,534
46,037
586,874
281,738
503,068
414,429
159,418
908,358
25,746
4,329,202
379,383
P
=3,949,819
Less allowance for doubtful receivables
a. Trade receivables are non-interest bearing and are normally on 30 days’ term.
b. Nontrade receivables also include advances to supplier, passage bonds and receivable from
trustee fund. These receivables are non-interest bearing and payable on demand.
c. Insurance and other claims receivables pertain to the Group’s claims for reimbursement of
losses against insurance coverage for hull and machinery, spare parts, cargo, and personal
accidents. In 2013, the Group recognized recovery from insurance claims receivables relating
to the sunk and damaged vessels amounting to P
=943.3 million, of which P
=642.5 million
remains outstanding as of December 31, 2013 (see Note 13).
d. Freight and passage receivables of the NN Group amounting to =
P1,706.4 million and
P
=1,589.5 million as of December 31, 2013 and 2012, respectively, were assigned to secure the
long-term debts (see Note 19).
e. Trade and other receivables that are individually determined to be impaired at the end of
reporting period relate to debtors with significant financial difficulties and who have defaulted
on payments and whose accounts are under dispute and legal proceedings. These receivables
are not secured by any collateral or credit enhancements.
The following tables set out the rollforward of the allowance for doubtful receivables as of
December 31:
2013
Trade
Freight Service fees Distribution
Beginning
Provisions (Note 25)
Accounts written off /
reclassifications
Ending
Others
(In Thousands)
Nontrade
Insurance
and other
claims
Total
P
= 126,086
49,557
P
= 114,396
3,511
P
= 15,344
–
P
= 4,768
3,461
P
= 6,665
4,431
P
= 51,375
–
P
= 318,634
60,960
–
P
= 175,643
–
P
= 117,907
–
P
= 15,344
(192)
P
= 8,037
(19)
P
= 11,077
–
P
= 51,375
(211)
P
= 379,383
*SGVFS004446*
- 45 2012 (As restated, Note 2)
Trade
Freight Service fees Distribution
Beginning
Provisions (Note 25)
Accounts written off /
reclassifications
Ending
P
=118,233
7,853
P
=106,584
7,812
Others
(In Thousands)
P
=17,849
P
=8,300
1,375
1,130
–
P
=126,086
–
P
=114,396
(3,880)
P
=15,344
(4,662)
P
=4,768
Nontrade
Insurance
and other
claims
Total
P
=6,648
17
P
=47,251
4,124
P
=304,865
22,311
–
P
=6,665
–
P
=51,375
(8,542)
P
=318,634
The following table sets out the analysis of collective and individual impairment of trade and
other receivables:
2013
Collectively Individually
impaired
impaired
Trade
Nontrade
Insurance and
other claims
P
=48,901
–
P
=268,030
11,077
Collectively
impaired
Total
(In Thousands)
P
=20,663
P
=316,931
–
11,077
–
P
=48,901
51,375
P
=330,482
51,375
P
=379,383
–
P
=20,663
2012 (As restated, Note 2)
Individually
impaired
Total
P
=239,931
6,665
P
=260,594
6,665
51,375
P
=297,971
51,375
P
=318,634
8. Inventories
2012
(As restated,
Note 2)
2013
(In Thousands)
At NRV:
Trading goods
Materials, parts and supplies
At cost - fuel, oil and lubricants
P
=194,026
102,761
125,170
P
=421,957
=148,507
P
99,856
123,416
=371,779
P
The allowance for inventory obsolescence as at December 31, 2013 and 2012 amounted to
P
=55.7 million and =
P62.7 million, respectively.
The cost of inventories recognized as “Cost of goods sold” in the consolidated statements of
income pertains to the trading goods sold by the non-shipping segment and food and beverages
sold by the shipping segment totaling to =
P1,721.0 million in 2013, =
P1,761.6 million in 2012 and
P
=2,677.9 million in 2011 (see Note 25).
*SGVFS004446*
- 46 -
9. Other Current Assets
CWT
Prepaid expenses
Input VAT
Others
2012
(As restated,
Noted 2)
2013
(In Thousands)
=834,295
P
P
=881,693
72,825
107,274
9,654
38,304
12,714
27,138
=929,488
P
P
=1,054,409
a. Outstanding CWT pertains mainly to the amounts withheld from income derived from freight,
sale of goods and service fees for logistics and other services. The CWTs can be applied
against any income tax liability of a company in the Group to which the CWTs relate. Others
pertain to current portion of recoverable deposit.
b. Prepaid expenses include prepaid insurance and prepaid taxes.
10. Assets Held for Sale
In December 2011, in line with the Group’s integration and vessels’ route rationalization, the
Group’s BOD approved the sale of five of the Group’s vessels within the next 12 months.
Accordingly, the net carrying values of these vessels amounting to =
P692.6 million were
reclassified from property and equipment to assets held for sale in the 2011 consolidated balance
sheet. In 2011, the Group recognized impairment loss amounting to =
P223.6 million, representing
the excess of carrying value over the fair value less cost to sell of the vessels. The recoverable
values of the assets held for sale as at December 31, 2011 are based from quotations obtained from
prospective buyers, net of estimated costs to sell.
On June 2, 2012, the Group sold two of the five vessels held for sale and the related spare parts,
fuel and lubricants inventories on board, for a total cash proceeds amounting to P
=152.0 million
which resulted to loss amounting to P
=201.7 million (included in “Others - net” in the consolidated
statement of income, see Note 26).
In December 2012, the Group reclassified one vessel from assets held for sale to property and
equipment as management decided to use the vessel in consideration of the change in the Group’s
operational requirements which would increase the vessel’s utilization. Consequently, the Group
assessed that the vessel will be recovered through continuing use rather than through sale. The Group
recorded depreciation of =
P16.8 million as if the Group had not classified the vessel as assets held for
sale.
As of December 31, 2012, the recoverable values of the remaining two vessels classified as assets
held for sale amounting to =
P359.2 million approximate the assets’ fair values less cost to sell which
are based from quotations obtained from prospective buyers, net of estimated costs to sell.
In June 2013, the Group sold one of its remaining vessels held for sale for total cash proceeds of
P
=85.3 million and which resulted to a loss amounting to P
=51.0 million (see Note 26).
*SGVFS004446*
- 47 In December 2013, the Group reclassified the remaining vessel from assets held for sale to
property and equipment in consideration of the change in the Group’s operations requirements
which was significantly affected by the incidents on the damaged and sunken vessels in 2013.
Consequently, the Group assessed that the vessel will be recognized through continuing use rather
than through sale. The Group recorded depreciation of P
=131.6 million as if the Group had not
classified the vessel as asset held for sale. Further, the Group reversed a portion of the previously
recognized impairment loss amounting to =
P73.5 million on the basis that the value in use of the
vessel is higher than its carrying value as if it was not previously reclassified to assets held for
sale.
11. AFS Investments
Unquoted equity investments - at cost
Quoted equity investments - listed shares of stocks
2012
2013
(In Thousands)
=8,111
P
P
=6,267
624
640
=8,735
P
P
=6,907
a. Listed shares of stocks are carried at market value. Unrealized gains or losses on AFS
investments are recognized in the consolidated statements of comprehensive income and
included in the “Equity” section of the consolidated balance sheets.
b. Unquoted shares of stocks pertain to fixed number of shares that are subject to mandatory
redemption every year.
c. In 2011, the Group recognized realized gain on sale of these AFS investments amounting to
P
=17.7 million (see Note 26).
d. The following table shows the movement of “Unrealized gain on AFS investments” account:
At beginning of year
Net fair value changes of AFS investments
At end of year
Attributable to non-controlling interest
2012
2013
(In Thousands)
=622
P
P
=760
137
38
759
798
363
364
=396
P
P
=434
12. Investments in Associates and Joint Ventures
The Group has the power to participate in the financial and operating policy decisions in MCCP
and HATS, which does not constitute control or joint control. The Group also has interest in KLN
and KALI, which are joint ventures.
*SGVFS004446*
- 48 The Group’s investments in its associates and joint ventures are accounted for using equity
method of accounting as of December 31:
2013
Ownership
interest
Associates:
MCCP
HATS
Joint Ventures:
KLN
KALI
33.0%
47.1%
78.4%
62.5%
Carrying
values
(In Thousands)
P
=119,504
32,075
2012 (As restated, Note 2)
Ownership
Carrying
interest
values
33.0%
47.1%
78.4%
62.5%
30,398
–
P
=181,977
(In Thousands)
P
=87,077
30,719
22,719
–
P
=140,515
Details of investment in associates and joint ventures are as follows:
Acquisition - at beginning of year
Accumulated equity in net earnings:
Balances at beginning of year
Equity in net earnings during the year
Dividends received
Balances at end of year
Share in remeasurement loss on retirement benefits
of associates and joint ventures
Share in cumulative translation adjustment of
associates
2012
(As restated,
Note 2)
2013
(In Thousands)
=28,175
P
P
=28,175
109,520
44,846
(5,609)
148,757
86,735
37,694
(14,909)
109,520
(249)
(2,474)
5,294
P
=181,977
5,294
=140,515
P
Associates
In 2011, the Group sold its investment in Catena Security, Inc., an associate, for a total cash
consideration of =
P19.2 million resulting to a gain on disposal of investment amounting to
P
=2.9 million, included under “Others - net” in the consolidated statements of income
(see Note 26).
Joint Ventures
On March 18, 2009, 2GO Express and KLN Investments Holdings Philippines, Inc. (KLN
Investments) formed KLN Logistics Holdings Philippines, Inc. (KLN Holdings), a joint venture.
In accordance with the Joint Venture Agreement, 2GO Express and KLN Investments (the
“venturers”) will hold ownership interests of 78.4% and 21.6%, respectively, in KLN Holdings.
However, the venturers exercise joint control over the financial and operating policies of KLN
Holdings.
On March 30, 2009, KLN Holdings and KLN Investments formed another joint venture entity,
Kerry-ATS Logistics, Inc. (KALI) to engage in the business of international freight and cargo
forwarding. In accordance with the Joint Venture Agreement, KLN Holdings and KLN
Investments will hold 62.5% and 37.5% interest in KALI, respectively, thus giving the Group a
49.0% indirect ownership interest in KALI.
*SGVFS004446*
- 49 Summarized financial information of the associates and joint ventures, based on their financial
statements, the reconciliation with the carrying amount of the investment in the consolidated
financial statements are set out below.
Associates
MCCP
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity
Revenue
Net income
Group share of net income
for the year
P
=188,080
414,963
311,674
6,691
284,678
1,254,268
98,264
32,427
Associates
MCCP
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity
Revenue
Net income
Group share of net income
for the year
P397,089
=
529,856
473,288
258,916
194,741
1,197,558
86,752
28,628
2013
Joint Ventures
HATS
KLN/KALI
(In Thousands)
P
=128,129
P
=160,906
7,084
9,162
81,198
108,953
1,296
4,642
52,719
56,473
348,907
591,976
9,961
15,934
4,693
7,726
2012
Joint Ventures
HATS
KLN/KALI
(In Thousands)
=127,379
P
=64,989
P
8,753
4,163
77,977
44,288
8,314
1,812
49,841
23,052
314,489
219,105
13,493
2,624
6,488
2,578
Total
P
=477,115
431,209
501,825
12,629
393,870
2,195,151
124,159
44,846
Total
P589,457
=
542,772
595,553
269,042
267,634
1,731,152
102,869
37,694
*SGVFS004446*
- 50 13. Property and Equipment
2013
Vessels in
Operation
Containers
(Notes 19 and Reefer Vans
and 20)
(Note 20)
Cost
Beginning
Additions
Disposals
Retirements/reclassifications
Reclassification from assets held for sale (Note 10)
Ending
Accumulated Depreciation and Amortization
Beginning
Depreciation and amortization (Note 25)
Disposals
Retirements/Reclassifications
Reclassification from assets held for sale (Note 10)
Impairment for the year
Ending
Net Book Value
Terminal and
Handling
Equipment
Flight
Equipment
Furniture and
Other
Equipment
Land
Improvements
(In Thousands)
Buildings and Transportation
Warehouses
Equipment
Leasehold
Improvements
Construction
in Progress
Total
P
= 6,160,707
1,357,487
(1,149,283)
(1,205,301)
1,037,858
6,201,468
P
= 1,529,443
73,954
(20,524)
–
–
1,582,873
P
= 1,289,930
16,769
(50,159)
4,138
–
1,260,678
P
= 4,999
–
–
(4,999)
–
–
P
= 771,929
37,922
(25,666)
1,716
–
785,901
P
= 410,685
8,250
–
–
–
418,935
P
= 261,470
10,523
(219)
(3,349)
–
268,425
P
= 103,709
199,826
(13,597)
–
–
289,938
P
= 365,773
28,395
(2,525)
2,507
–
394,150
P
= 49,042
54,654
–
–
(79,942)
23,754
P
= 10,947,687
1,787,780
(1,261,973)
(1,205,288)
957,916
11,226,122
2,499,697
849,929
(808,995)
(1,205,301)
653,161
234,761
2,223,252
P
= 3,978,216
1,326,051
25,108
(19,446)
–
–
–
1,331,713
P
= 251,160
1,203,895
43,542
(50,157)
4,053
–
–
1,201,333
P
= 59,345
4,781
–
–
(4,781)
–
–
–
=
P–
679,654
39,161
(26,458)
1,015
–
–
693,372
P
= 92,529
104,790
7,852
–
–
–
–
112,642
P
= 306,293
190,255
17,349
(113)
(359)
–
–
207,132
P
= 61,293
65,538
30,611
(10,834)
–
–
–
85,315
P
= 204,623
295,720
23,039
(2,410)
82
–
–
316,431
P
= 77,719
–
–
–
–
–
–
–
P
= 23,754
6,370,381
1,036,591
(918,413)
(1,205,291)
653,161
234,761
6,171,190
P
= 5,054,932
2012 (As restated, Note 2)
Vessels in
Operation
Containers
(Notes 19 and Reefer Vans
and 20)
(Note 20)
Cost
Beginning
Additions
Disposals
Retirements/reclassifications
Ending
Accumulated Depreciation and Amortization
Beginning
Depreciation and amortization (Note 25)
Disposals
Retirements/Reclassifications
Ending
Impairment Loss
Beginning
Disposal
Ending
Net Book Value
Terminal and
Handling
Equipment
Flight
Equipment
Furniture and
Other
Equipment
Land
Improvements
(In Thousands)
Buildings and
Warehouses
Transportation
Equipment
Leasehold
Improvements
Construction
in Progress
Total
P
=5,481,092
721,452
(103,559)
61,722
6,160,707
P
=1,502,549
36,410
(9,516)
–
1,529,443
P
=1,276,018
12,737
(244)
1,419
1,289,930
=
P25,221
160
(18,047)
(2,335)
4,999
=
P746,818
27,528
(13,639)
11,222
771,929
=
P428,483
171
(17,969)
–
410,685
=
P255,010
24,765
(9,059)
(9,246)
261,470
=
P114,467
25,026
(35,784)
–
103,709
=
P363,202
5,759
(3,174)
(14)
365,773
=
P–
39,320
–
9,722
49,042
=
P10,192,860
893,328
(210,991)
72,490
10,947,687
1,780,764
732,773
(87,479)
73,639
2,499,697
1,313,763
20,145
(8,723)
866
1,326,051
1,163,384
40,755
(244)
–
1,203,895
7,560
256
(706)
(2,329)
4,781
642,781
48,673
(12,610)
810
679,654
101,717
8,926
(5,853)
104,790
177,899
16,507
(5,395)
1,244
190,255
62,784
31,336
(22,332)
(6,250)
65,538
271,826
25,406
(1,505)
(7)
295,720
5,522,478
924,777
(144,847)
67,973
6,370,381
–
–
–
=
P203,392
–
–
–
=
P86,036
17,342
(17,342)
–
P
=218
–
–
–
=
P92,275
–
–
–
=
P71,215
–
–
–
=
P38,171
–
–
–
=
P70,053
–
–
–
–
–
–
–
–
–
=
P49,042
–
–
–
P
=3,661,010
–
–
–
=
P305,895
17,342
(17,342)
–
P
=4,577,306
*SGVFS004446*
- 51 Noncash additions - property and equipment under finance lease
Vessels in operations, containers and reefer vans, include units acquired under finance lease
arrangements (see Note 20). In 2013 and 2012, noncash additions include costs of those leased
assets amounting to P
=90.9 million and =
P31.9 million, respectively. The related depreciation of the
leased containers amounting to P
=12.1 million in 2013, P
=10.0 million in 2012 and =
P16.3 million in
2011 were computed on the basis of the Group’s depreciation policy for owned assets.
Capitalization of drydocking costs
Vessels in operation also include capitalized drydocking costs incurred amounting to
P
=733.8 million and P
=507.1 million for the four vessels drydocked in 2013 and 2012, respectively.
No drydrocking cost for capitalization was incurred in 2011. The related depreciable life of
drydocking costs ranges from two to five years.
Disposal, retirement and impairment of property and equipment
In 2013 and 2012, the Group disposed certain property and equipment for net cash proceeds of
=
P4.8 million and =
P160.8 million resulting to net gains of P
=99.0 million in 2012 (see Note 26).
In July 2013, one of the Group’s operating passenger-cargo vessels was damaged. Thus, the
Group wrote off the carrying value of the damaged vessel’s engine and the related component
parts amounting to =
P221.9 million (see Note 26), which represents the estimated repair cost of the
damaged vessel. As of May 14, 2014, the damaged vessel has yet to be put back into operation.
In August 2013, a passenger-cargo vessel of the Group sunk after colliding with a cargo vessel.
As a result, the carrying value of the sunk vessel as of that date amounting to =
P227.7 million was
written off (see Note 26).
Subsequent to the above incidents which happened in 2013, management filed the insurance
claims with the insurance company to recover the insured values of the damaged vessel and
sunken vessel and cargoes on board, and other related expenses which were incurred by the Group
as a result of the incidents. The total recovery from the insurance company amounting to
P
=943.3 million in 2013 is included under “Others - net” in the consolidated statements of income
(see Note 26).
In 2013, the Group also recognized impairment loss of =
P12.9 million (included under “Reversal of
(provision for) impairment loss on assets held for sale and property and equipment - net”) on two
non-operating vessels to write down their carrying values to their salvage values.
Depreciation and amortization
Depreciation and amortization were recognized and presented in the following accounts in the
consolidated statements of income (see Note 25):
2013
Operating expenses
Terminal expenses
Overhead expenses
P
=886,032
76,833
73,726
P
=1,036,591
2012
(In Thousands)
=767,558
P
73,471
83,748
=924,777
P
2011
=861,162
P
88,907
96,614
=1,046,683
P
Property and equipment held as collateral
As of December 31, 2013 and 2012, the Group’s vessels in operations and assets held for sale with
total carrying value of =
P3,661.0 million and =
P4,020.0 million are mortgaged to secure certain
obligations (see Note 19). As of December 31, 2013 and 2012, containers and other equipment
held as collateral for finance lease amounted to =
P135.4 million and =
P182.6 million, respectively
(see Note 20).
*SGVFS004446*
- 52 Fair value of vessels in operation
The Group’s vessels in operation are appraised for the purpose of determining their market values.
Based on the latest appraisal with various dates from July 2012 to January 2013 made by
independent appraisers, the related vessels in operation have an aggregate market value of
P
=4,855.0 million against net book value of P
=3,978.2 million (see Note 34).
14. Investment Property
The Group’s investment property amounting to P
=9.8 million pertains to a parcel of land not
currently being used in operations. The fair value of the investment property as of
December 20, 2011, the latest appraisal report, amounted to =
P66.9 million. This was determined
based on the valuation performed by independent appraisers using the Market Data Approach.
Under the Market Data Approach, the value of the land is based on sales and listings of
comparable property registered within the vicinity. The technique of this approach requires the
establishment of comparable property by reducing reasonable comparative sales and listings to a
common denominator. This is done by adjusting the differences between the subject property and
those actual sales and listings regarded as comparable. The properties used as basis of comparison
are situated within the immediate vicinity of the subject property.
The Group assessed that the fair value determination for the investment properties as Level 3 since
significant unobservable inputs were used in the valuation. Significant increase (decrease) in
estimated price per square meter in isolation would result in a significantly higher (lower) fair
value (see Note 34).
15. Software Development Costs
Software development costs amounted to P
=15.4 million and P
=11.3 million, net of accumulated
amortization of P
=578.8 million and =
P573.4 million as at December 31, 2013 and 2012, respectively.
The Group recognized additions to software amounting to P
=7.2 million in 2013 and P
=7.9 million in
2012 and amortization of software costs included under “Overhead expenses” in the consolidated
statements of income amounting to =
P5.6 million in 2013, P
=11.2 million in 2012 and P
=38.1 million in
2011 (see Note 25).
16. Other Noncurrent Assets
Deferred input VAT
Refundable deposits - net of current portion
Pension asset (Note 28)
Others
2012
2013
(In Thousands)
=95,702
P
P
=108,896
91,714
65,788
461
1,354
5,569
4,552
=193,446
P
P
=180,590
a. Deferred input VAT relates mainly to the acquisition of vessels and related component parts.
b. Noncurrent refundable deposits consist of amounts recoverable beyond one year arising from
rental deposits which can be applied as rental payments at the end of the lease term or can be
paid out in cash upon termination of the lease.
*SGVFS004446*
- 53 -
17. Loans Payable
As at December 31, 2013 and 2012, the loans payable amounting to =
P1,344.9 million and
P
=1,379.2 million, respectively, pertain to unsecured short-term peso-denominated notes payable
obtained by the Group from local banks with annual interest rates ranging from 4.5% to 7.9% in
2013 and 5.0% to 8.5% in 2012.
Loans payable outstanding as of December 31, 2013 will mature on various dates in 2014. Total
interest expense incurred by the Group for the loans amounted to =
P90.6 million in 2013,
P
=89.1 million in 2012 and =
P85.0 million in 2011 (see Note 26).
18. Trade and Other Payables
Trade (Note 23)
Accrued expenses (Note 23)
Nontrade (Note 23)
Dividends payable (Note 24)
Due to related parties (Note 23)
Provision for cargo losses and damages
Unearned revenue - net of deferred discounts
2012
(As restated,
Note 2)
2013
(In Thousands)
=1,684,901
P
P
=2,166,704
927,025
1,213,333
789,631
735,503
8,566
8,566
31,312
31,354
9,203
11,640
85,054
22,144
=3,535,692
P
P
=4,189,244
a. Trade and other payables are non-interest bearing and are normally on 30-45 days’ term
except for advances to related parties which are classified under nontrade payables and are
payable on demand.
b. Details of accrued expenses are as follows:
Freight and handling
Fuel and lube
Outside services
Pick-up and delivery
Rent
Repairs and maintenance
Co-loading
Interest
Insurance
Salaries and wages
Communication, light and water
Advertising and promotions
Professional fees
Taxes and licenses
Steward supplies
Pilotage and berthing
Others
2012
(As restated,
Note 2)
2013
(In Thousands)
=194,764
P
P
=255,400
182,538
269,765
92,257
133,713
34,450
93,158
66,760
76,337
73,146
68,125
25,560
66,332
20,186
62,255
99,735
47,602
46,686
34,061
18,988
15,094
4,198
11,255
9,282
8,711
20,440
5,896
1,098
4,870
2,577
2,321
34,360
58,438
=927,025
P
P
=1,213,333
*SGVFS004446*
- 54 c. Nontrade payables consist of customers’ deposits, and payables due to government agencies.
d. Provision for cargo losses and damages refers to the cost of claims for breakages, cargo losses,
cargo short weight or passenger claims which are not covered by insurance. In 2013, 2012 and
2011, provisions recognized amounted to =
P22.7 million, =
P24.9 million and =
P41.3 million
(see Note 25) while actual claims during the year amounted to =
P4.8 million, =
P51.3 million and
=
P21.9 million, respectively.
19. Long-term Debts
Omnibus Loan and Security Agreement (OLSA)
Banco de Oro Unibank, Inc. (BDO)
RCBC Savings Bank
Unamortized debt arrangement fees
Current portion
2013
2012
(In Thousands)
P
=3,619,952
1,863
(23,946)
3,597,869
(373)
P
=3,597,496
=3,200,000
P
–
(21,384)
3,178,616
(993,319)
=2,185,297
P
Omnibus Loan and Security Agreement dated February 24, 2011
The Company, NN, SFFC and HLP entered into an Omnibus Loan and Security Agreement dated
February 24, 2011 (2011 Omnibus Loan) with BDO, which consists of term loans of =
P4.0 billion
and omnibus line of P
=400.0 million. In March 2011, the Company availed the P
=4.0 billion term
loans, which was used for the refinancing of its short-term loans payable (see Note 17) and the
early redemption of its long-term debt on March 15, 2011 in accordance with the provision of the
2011 Omnibus Loan. The omnibus loan, on the other hand, amounting to =
P400.0 million shall be
used by the 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 16
quarterly amortizations which commenced at the end of the third quarter from the drawdown date
until March 2016.
Prior to the refinancing as assessed below, the Company paid the principal of the loan amounting
to =
P800.0 million in 2012.
2011 Omnibus Loan - Suretyship agreement, mortgage trust indenture and assignment of receivables
In accordance with the 2011 Omnibus Loan, the Company and NN 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 NN and the creditor bank on
January 26, 2011.
*SGVFS004446*
- 55 The Company, NN 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 Company, NN and SFFC shall assigned customer receivables
sufficient to cover the availed credit facility in excess of P
=3.66 billion. Notwithstanding such
assignment, the Company, NN and SFFC shall have the right to collect the assigned 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 Peso.
As of December 31, 2013 and 2012, the Company, NN and SFFC collateralized their vessels
under MTI with carrying value amounting to =
P3,490.6 million and P
=4,305.6 million assets
held for sale amounting to =
P75.4 million and =
P359.2 million and certain outstanding customer’s
receivables amounting to P
=1,706.4 million and P
=1,589.5 million, respectively (see Notes 7
and 13).
2011 Omnibus Loan covenants
The OLSA is subject to certain covenants such as but not limited to:
· Maintenance of the following required financial ratios of the 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
the first and second years and 1.5:1 for the succeeding years, provided, however, that the
consolidated yearly DSCR of the Company and NN shall not fall below 1.5:1 for the first and
second years, and 1.75:1 for the succeeding years;
· Prohibition on any change in control in the Company or its business or majority ownership of
its capital stock (except with respect to the majority investors in the case of NN) or a change in
the Chief Executive Officer;
· 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;
· 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, 2012, the Company breached the minimum current ratio, maximum debt-toequity ratio and minimum DSCR, which likewise constitute events of default. Due to the crossdefault provisions in accordance with the NN/BDO Facility Agreement, this resulted in an event
of default also on the long-term debt of NN.
The Company obtained a letter from BDO dated December 28, 2012, which states that the
Company shall not be declared in default by BDO should there be breach in minimum current
ratio of 1.0, maximum debt to equity ratio of 2.0 and maximum DSCR of 1.2 and that the
Company is given 12 months from December 31, 2012 to remedy the default. In view of this, the
noncurrent portion of the loans remained as noncurrent liability in the consolidated balance sheet
as of December 31, 2012.
*SGVFS004446*
- 56 Refinancing of the Company’s 2011 Omnibus Loan with 2013
Omnibus Loan and Security Agreement dated June 11, 2013
On June 13, 2013, the Company, as borrower and assignor, and BDO, as lender, and NN, SOI,
2GO Express, 2GO Logistics, as sureties and assignors, and SFFC, as assignor, executed an
Omnibus Loan and Security Agreement (2013 Omnibus Loan) effective June 11, 2013 (i) to
refinance the Company’s existing loan with the lender with original maturity date on March 15,
2016 under the 2011 Omnibus Loan and (ii) to fund various capital expenditures such as, but not
limited to, drydocking, major repairs of various vessel, and other capital expenditures related to
the Company’s supply chain business, as well as other general corporate requirements of the
Company.
In June 2013, the Company availed of =
P3.6 billion of the =
P4.0 billion term loans, which was used
for the early redemption of its outstanding long-term debt based on the 2011 Omnibus Loan.
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 16
quarterly amortizations which commenced at the end of the third quarter from the drawdown date
until March 2016.
2013 Omnibus Loan - Supplemental Indenture to the suretyship agreement, mortgage trust indenture
and assignment of receivables
The Borrower and the parties to the MTI executed a Supplemental Indenture to (i) include in the 2013
Omnibus Loan as part of the obligations covered and secured by the MTI, (ii) to include the vessels
based on the revised list as collateral under the MTI, and (iii) ensure that the Secured Obligations
enjoyed the same ranking as the obligations under the term loan of the 2013 Omnibus Loan with
respect to the collateral under the MTI.
The Borrower and the parties to the MTI also executed a Second Supplemental Indenture to include
the real properties as collateral under the MTI.
Further, as required by 2013 Omnibus Loan, in the event the availed amount of the long-term debt
exceeds the loan value of the collaterals under the MTI, as determined by the lender, each of the
Assignors assigns, conveys, sets over and transfers unto the Lender the absolutely and unconditionally
all of its respective rights, title, and interest in and to the Customers Receivables to cover the
availment of the long-term debt that exceeds the loan value of the collaterals under the MTI. All other
conditions with respect to the assignment of receivables under the 2013 omnibus loan are the same
with the assignment provisions under the 2011 Omnibus Loan.
2013 Omnibus Loan covenants
In accordance with the Section 7 of the 2013 Omnibus Loan, the Group is now required to
maintain the following financial ratios based on NN consolidated financial statements at each
testing date: minimum current ratio of 1.0 times; maximum debt-to-equity ratio of 2.2 times; and,
minimum DSCR. Testing date means (i) with respect to any December 31 consolidated audited
financial statements of the Company, April 30 of the succeeding year, (ii) with respect to any
June 30 consolidated unaudited financial statements of the Company, September 30 of the same
year.
As of December 31, 2013, the Group is compliant with its loan covenants.
*SGVFS004446*
- 57 Interests from long-term borrowings of the Group recognized as expense amounted to
P
=210.9 million in 2013, P
=263.7 million in 2012 and =
P266.2 million in 2011 (see Note 26).
In 2013 and 2011, the Group incurred debt transaction costs amounting to P
=26.6 million and
P
=48.9 million, respectively. Amortization of these debt transaction costs included under interest
and financing charges amounted to P
=26.7 million in 2013, P
=14.9 million in 2012 and P
=33.6 million
in 2011 (see Note 26).
20. Obligations Under Finance Lease
The Group has various finance lease arrangements with third parties for the lease of 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 December 31 are as follows:
Minimum lease payments due within one year
Beyond one year but not later than five years
Total minimum lease obligation
Less amount representing interest
Present value of minimum lease payment
Less current portion
Noncurrent portion
2012
2013
(In Thousands)
=81,904
P
P
=19,618
50,390
103,448
132,294
123,066
9,713
5,282
122,581
117,784
77,724
28,592
=44,857
P
P
=89,192
The net carrying values of property and equipment held by the Group under finance lease are
summarized as follows (see Note 13).
Cost
Less accumulated depreciation
Net book value
2012
2013
(In Thousands)
=237,738
P
P
=181,032
55,133
45,611
=182,605
P
P
=135,421
The interest expense recognized related to these leases amounted to =
P6.1 million in 2013,
P
=6.4 million in 2012 and =
P7.3 million in 2011 (see Note 26).
21. Redeemable Preferred Shares (RPS)
On January 7, 2003, the 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.
*SGVFS004446*
- 58 The RPS has the following features:
·
·
·
·
·
non-voting;
preference on dividends at the same rate as common share;
redeemable at any time, in whole or in part, as may be determined by the BOD within a period
not exceeding 10 years from the date of issuance at a price of not lower than =
P6 per share as
may be determined by the BOD. The shares must be redeemed in the amount of at least
P
=250,000 per calendar year;
if not redeemed in accordance with the foregoing, the RPS may be converted to a bond
bearing interest at 4% over prevailing treasury bill rate to be issued by the Parent Company;
and
preference over assets in the event of liquidation.
On June 15, 2006, the Philippine SEC approved 2GO’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 2GO. 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.
As at December 31, 2011, 4,560,417 outstanding RPS with remaining carrying value of =
P25.9 million
are shown under “Current liabilities” section of the consolidated balance sheets, which are carried
at amortized cost, accretion of interest is nil for 2013, P
=1.4 million in 2012 and P
=3.1 million in
2011 (see Note 26).
On October 25, 2012, the BOD of the Company approved the redemption of all remaining
outstanding RPS held by each eligible stockholder of such shares at a price of P
=6.00 per share. As
of December 31, 2012, unredeemed RPS amounted to =
P6.9 million.
On March 27, 2013, the BOD approved the retirement of 4,564,330 RPS due to the mandatory
redemption by the Company of the RPS. On the same date, the BOD also approved the
amendment of the Articles of Incorporation of the Company to decrease its authorized capital
stock as a result of the retirement of the RPS. As of December 31, 2013, unredeemed RPS
amounted to =
P6.7 million.
As of December 31, 2013 and 2012, the total redeemed shares of 3,540,505 and 3,507,053 are
recognized as treasury shares.
22. Provisions and Contingencies
a. 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.
b. The Company has pending insurance claims (presented as part of “Insurance and other
claims”) amounting to =
P908.4 million and =
P248.2 million as at December 31, 2013 and 2012,
respectively, which management believes is virtually certain of collection (see Note 7).
*SGVFS004446*
- 59 -
23. Related Party Disclosures
In the normal course of business, the Group has transacted with the following related party:
Relationship
Ultimate Parent
Intermediate Company
Parent Company
Significant stockholder
Subsidiaries of the
Parent Company
Subsidiaries of the
Parent Company
Subsidiary
Associates
Name
Negros Holdings & Management Corporation (NHMC)
KGLI-NM Holdings, Inc. (KGLI-NM)
NN
China-ASEAN Marine B.V. (CAMBV)
Negrense Marine Integrated Services, Inc. (NMISI)
Brisk Nautilus Dock Integrated Services, Inc. (BNDISI)
Sea Merchants Inc.(SMI)
Bluemarine Inc. (BMI)
2GO Express, Inc. (Express)
2GO Logistics, Inc. (Logistics)
ScanAsia Overseas, Inc. (SOI)
Hapag-Lloyd Philippines, Inc. (HLP)
Reefer Van Specialist, Inc. (RVSI)
WRR Trucking Corporation (WTC)
The Supercat Fast Ferry Corporation (SFFC)
Special Container and Value Added Services, Inc. (SCVASI)
NN-ATS Logistics Management and Holdings, Inc.
(NALMHCI)
Super Terminal, Inc. (STI)
J&A Services Corporation (J&A)
Red Dot Corporation (RDC)
North Harbor Tugs Corporation (NHTC)
Sungold Forwarding Corporation (SFC)
Supersail Corporation (SSI)
Astir Engineering Works, Inc. (AEWI)
United South Dockhandlers, Inc. (USDI)
W G & A Supercommerce, Inc. (WSI)
MCC Transport Philippines, Inc. (MCCP)
Hansa-Meyer ATS Projects, Inc. (HATS)
Vestina Securities Services, Inc. (VSSI)
The following are the revenue and income (costs and expenses) included in the consolidated
statements of income with related parties which are not eliminated:
Nature
Parent Company
Associates
Entities Under
Common Control
(Forward)
Interest income
Vessel leasing
Outside services
Freight income
Shared cost
Freight expense
Trucking income
Rent income
Outside services
Service income
Rent
Outside services
Repairs and maintenance
Professional and management fee
Arrastre and stevedoring
Steward supplies
2012
(As restated,
Note 2)
2013
(In Thousands)
P
=–
(527,759)
(58,535)
1,488
11,464
(523)
1,413
7
(38,792)
44,322
1,875
(194,330)
(38,466)
2,250
(2,769)
(26,571)
P
=40,099
(804,193)
–
17,214
5,309
(157)
–
–
–
–
332
(154,992)
(72,573)
(53,354)
(9,971)
(7,409)
*SGVFS004446*
- 60 -
Nature
Key Management
Personnel
Food and subsistence
Rent expense
Hustling and shifting
Transportation and delivery
Short-term employee benefits
Post-employment benefits
2012
(As restated,
Note 2)
2013
(In Thousands)
(P
=5,456)
(P
= 28)
(2,378)
–
(1,150)
(5,396)
(93)
(1,018)
36,803
40,673
2,818
4,343
The consolidated balance sheets include the following amounts with respect to the balances with
related parties:
Financial Statement Account
Parent Company
Associate
Entities Under
Common Control
Trade receivables
Due from related parties
Nontrade receivables
Trade payables
Accrued expenses
Due to related parties
Nontrade payables
Trade receivables
Due from related parties
Nontrade receivables
Trade payables
Accrued expenses
Due to related parties
Nontrade payables
Trade receivables
Due from related parties
Nontrade receivables
Trade and other payables
Accrued expenses
Due to related parties
Nontrade payables
Terms and Conditions
30 to 60 days; noninterest-bearing
On demand; noninterest-bearing
On demand; noninterest-bearing
30 to 60 days; noninterest-bearing
30 to 60 days; noninterest-bearing
On demand; noninterest-bearing
On demand; noninterest-bearing
30 to 60 days; noninterest-bearing
On demand; noninterest-bearing
On demand; noninterest-bearing
30 to 60 days; noninterest-bearing
30 to 60 days; noninterest-bearing
On demand; noninterest-bearing
On demand; noninterest-bearing
30 to 60 days; noninterest-bearing
On demand; noninterest-bearing
On demand; noninterest-bearing
30 to 60 days; noninterest-bearing
30 to 60 days; noninterest-bearing
On demand; noninterest-bearing
30 to 60 days; noninterest-bearing
2013
2012
(As restated,
Note 2)
(In Thousands)
P
=3,061
146,068
61,653
(450,923)
(35,791)
(29,507)
(26,229)
26,162
13,293
33,966
(5,980)
(12,611)
(148)
(400)
316
57
69,925
(51,909)
(56,514)
(1,699)
(1,223)
P
=–
9
23,621
(80,287)
(48,866)
(28,366)
–
7,200
32,811
–
–
–
–
–
–
17,715
91,710
(62,827)
(32,415)
(2,946)
–
The outstanding related party balances are unsecured and settlement occurs in cash, unless
otherwise indicated. The Group has not recorded any impairment of receivables relating to
amounts owed by related parties. This assessment is undertaken each financial year through
examining the financial position of the related parties and the market in which these related parties
operate.
Other terms and conditions related to the above related party balances and transactions are as
follows:
Transactions with NN
· Transactions with NN in 2011 include joint services and co-loading arrangements whereby the
Company and NN 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.
· Effective December 1, 2011, the Company entered into a vessel lease arrangement with NN
involving six of NN’s vessels at a fixed daily rate for a period of one year. In 2013, vessel
lease rates are based on agreed monthly rates (see Note 32).
· In 2011, the Company has granted NN an interest-bearing loan amounting to P
=657.5 million,
which was fully paid by NN in 2012.
· NN charges shared cost to the Company and its subsidiaries.
*SGVFS004446*
- 61 Transactions with associates and other related parties under common control
· NMISI charges agency fee to the Company based on an agreed rate for its manpower services
and for its management of the Company’s food and beverage business effective August 2011.
Negrense also provides housekeeping and manpower pooling services to the Company and
SFFC.
· BNDISI provides container repairs, cargo handling and trucking services to the Company.
· Transactions with other associates and related companies consist of shipping services, charter
hire, management services, ship management services, purchases of steward supplies,
availment of stevedoring, arrastre, trucking, and repair services and rental.
Transactions and balances with related parties eliminated during consolidation
The following are the transactions and balances among related parties which are eliminated in the
consolidated financial statements:
Nature
2GO
2GO Express
2GO
2GO Logistics
KALI
2GO Express
SFFC
NALMHCI
2GO
KALI/J&A/STI/SSI
2GO
Freight
Interest
Shared cost
Shared cost
Freight
Shared cost
Interest
Shared cost
Commission
Services fees
Shared cost
Freight
Purchase/sale of water
Passage terminal
Outside services
Terms and Conditions
Amounts owed to:
2GO
AEWI
2GO Express
2GO Logistics
SOI
KALI
SFFC
Amounts owed by:
2GO Express
SFFC
2GO Express/2GO Logistics/
SOI/Others
2GO Express/2GO Logistics/
SOI/Others
2GO
2GO
SCVASI
2GO
RDC
2GO
2GO/2GO Express
7% interest-bearing
9% interest-bearing
On demand; Noninterest bearing
30 - 60 days; Noninterest bearing
30 - 60 days; Noninterest bearing
On demand; Noninterest bearing
30 - 60 days; Noninterest bearing
On demand, Noninterest bearing
30 days; Noninterest bearing
30 - 60 days; Noninterest bearing
30 days; Noninterest bearing
2013
P
=256,717
21,439
10,692
33,613
6,927
195
17,731
23,133
4,629
2,975
10,885
–
23,889
–
14,298
2012
(In Thousands)
P
=80,717
22,921
4,377
7,430
6,882
295
26,584
205
55,181
30,534
12,000
430
21,153
7,081
109,988
December 31
2012
2013
(In Thousands)
P
=132,410
78,597
P
=527,000
393,890
126
196,371
226,250
37,468
23,464
12,491
2,665
5
–
10,941
101,181
24,414
3,761
17,115
1,508
37
1,022
9,488
(Forward)
*SGVFS004446*
- 62 December 31
2012
2013
(In Thousands)
Terms and Conditions
Amounts owed to:
NALMHCI
J&A
RDC
SSI
STI
NHTC
SFC
SCVASI
·
·
·
Amounts owed by:
2GO/2GO Express/2GO
Logistics
USDI
2GO/NHTC
2GO
Logistics/SOI/NALMHCI
2GO/2GO Express/2GO
Logistics
2GO
2GO/J&A
2GO/2GO Express/
2GO Logistics/
NALMHCI
2GO
30 days; Noninterest bearing
30 days; Noninterest bearing
30 days; Noninterest bearing
30 days; Noninterest bearing
P
=117,809
13,366
4,121
P
=127,011
2,756
3,304
47,869
1,946
1,802
48,402
3,009
9,757
–
8,104
2,983
624
5,042
30 days; Noninterest bearing
30 days; Noninterest bearing
30 days; Noninterest bearing
30 days; Noninterest bearing
On demand; Noninterest bearing
The Company’s transactions with 2GO Express Group include shipping and forwarding
services, commission and trucking services.
The Company provided management services to SFFC, 2GO Express, 2GO Logistics, HLP,
KALI and SOI at fees based on agreed rates.
2GO Express provides management services to the Company’s loose cargo business at fees
based on an agreed rate.
24. Equity
a. Share capital
Details of share capital considered as equity as of December 31, 2013 and 2012 follows:
Authorized common shares
Issued and outstanding common shares of
P
=1.00 per value each
Number of shares
4,070,343,670
Amount
(In Thousands)
=4,070,344
P
2,446,136,400
P
=2,446,136
Movements in authorized capital stocks follow:
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
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
Number of shares
Common Preferred shares
shares
(Note 21)
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
–
–
–
–
–
–
–
–
–
–
375,000,000
(224,712,374)
–
(74,904,026)
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
–
(224,712,374)
750,000,000
(74,904,026)
(Forward)
*SGVFS004446*
- 63 -
Date
October 24, 2005
October 24, 2005
August 7, 2008
Activity
Increase in authorized capital stocks
Reclassification of preferred shares to
common shares
Reclassification of preferred shares to
common shares
Number of shares
Common Preferred shares
shares
(Note 21)
Total
1,624,524,400
– 1,624,524,400
475,600
(475,600)
–
70,343,670
4,070,343,670
(70,343,670)
4,564,330
–
4,074,908,000
Movements in issued and outstanding capital stocks follow:
Number of shares
Preferred shares
(Note 21)
Issue
price
Common
shares
P
=1,000.00
1,002
–
1,002
Increase in issued capital stocks
Reclassification of common shares to
preferred shares
Issuance of preferred shares
before redemption
Redemption of preferred shares
Issuance of common shares by way of
stock dividends
1,000.00
1,496,597,636
–
1,496,597,636
1.00
40,000,000
374,520,535
414,520,535
1.00
6.67
–
–
(48)
(224,712,374)
(48)
(224,712,374)
1.00
393,246,555
6.67
–
December 6 -31, 2012
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
Redemption of redeemable preference
share
December 31, 2001
Treasury shares*
1.50
Date
May 26, 1949
December 10, 1971 to
October 26, 1998
December 6, 2002
February 10, 2003
November 18, 2003
September 6, 2004
November 22, 2004
December 31, 2004
October 24, 2005
August 22 to
October 13, 2006
Activity
Issued capital stocks as of incorporation
date
1.00
(756)
(74,904,026)
–
1.76
414,121,123
–
3.20
140,687,340
(70,343,670)
6.00
–
2,484,652,900
(38,516,500)
2,446,136,400
(3,413,467)
1,146,950
–
1,146,950
Total
393,246,555
(74,904,026)
(756)
414,121,123
70,343,670
(3,413,467)
2,485,799,850
(38,516,500)
2,447,283,350
* The carrying value of treasury shares is inclusive of =
P0.9 million transaction cost.
Issued and outstanding common shares are held by 1,940 and 1,965 equity holders as of
December 31, 2013 and 2012, respectively.
b. Deficit
Deficit is net of undistributed earnings amounting to =
P202.6 million in 2013 and
P
=274.3 million in 2012, 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. Deficit is further restricted to the extent of
the cost of the shares held in treasury and deferred income tax assets recognized as of
December 31, 2013 and 2012.
On January 12, 2011, the Company’s fully paid 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 P
=367.6 million.
c. Excess of cost over net asset value of investments - net
The pooling of interest method was applied to account for the following acquisitions since
these involved entities under common control:
·
On August 30, 2007, the Company acquired SFFC from its affiliate, Accuria, Inc. for a
total consideration of P
=13.7 million. The excess of cost over SFFC’s net assets during the
*SGVFS004446*
- 64 time of acquisition, amounting to P
=11.7 million is recorded in equity as “Excess of cost
over net assets of investments”.
·
On December 1, 2011, NALHMCI acquired from NN, six of its subsidiaries for a total
consideration of P
=29.4 million. These subsidiaries are J&A, RDC, NHTC, STI, SFC and
SSI. The excess of the combined net assets of NN’s subsidiaries at the time of acquisition
over the total cost of the investment amounted to =
P0.8 million and is presented under
equity as “Excess of cost over net assets value of investments”.
25. Operating Costs and Expenses
2013
Operating Expenses
Fuel, oil and lubricants
Outside services (Note 23)
Vessel leasing
(Notes 23)
Depreciation and amortization
(Note 13)
Personnel costs (Notes 27 and 28)
Rent (Note 23)
Repairs and maintenance
(Note 23)
Food and beverage (Note 8)
Insurance
Communication, light and water
Material and supplies used
Food and subsistence
Commissions
Sales concessions
Provision for cargo losses and
damages (Note 18)
Others
Terminal Expenses
Transportation and delivery
Outside services (Note 23)
Repairs and maintenance
Personnel costs (Notes 27 and 28)
Rent (Note 23)
Depreciation and amortization
(Note 13)
Fuel, oil and lubricants
Communication, light and water
Insurance
Others
2012
(As restated,
Note 2)
(In Thousands)
2011
(As restated,
Note 2)
P
=2,748,764
2,056,054
P3,884,963
=
1,937,183
P3,493,679
=
1,567,927
527,759
830,166
57,452
886,032
589,688
418,636
767,558
526,480
329,593
861,162
558,876
247,275
241,714
221,200
145,842
126,055
118,469
91,643
33,172
27,493
289,347
171,272
157,583
92,911
133,283
87,717
31,386
64,137
395,738
–
187,931
84,577
60,248
103,878
34,600
40,039
22,697
318,923
8,574,141
24,946
269,583
9,598,108
41,316
294,278
8,028,976
401,766
358,869
115,375
108,265
98,427
167,203
369,663
118,854
113,292
51,015
540,518
354,685
102,435
165,666
97,565
76,833
61,846
24,268
15,126
96,084
1,356,859
73,471
60,289
22,210
10,226
79,542
1,065,765
88,907
46,560
21,160
20,268
3,822
1,441,586
(Forward)
*SGVFS004446*
- 65 -
2013
Overhead Expenses
Personnel costs (Notes 27 and 28)
Outside services (Note 23)
Advertising and promotion
Depreciation and amortization
(Notes 13 and 15)
Communication, light and water
Provision for doubtful accounts
(Note 7)
Taxes and licenses
Rent (Note 23)
Entertainment, amusement and
recreation
Computer charges
Transportation and travel
Repairs and maintenance
Office supplies
Others
Cost of Goods Sold (Note 8)
2012
(As restated,
Note 2)
(In Thousands)
2011
(As restated,
Note 2)
P
=435,825
191,739
131,307
P442,033
=
103,111
115,784
=507,542
P
26,905
72,973
79,366
74,733
94,901
89,085
134,714
54,649
60,960
47,112
39,651
22,311
43,846
40,903
26,273
22,899
24,260
31,544
27,703
15,842
13,289
12,084
69,953
1,231,108
1,720,991
P
=12,883,099
16,079
24,491
13,966
18,520
13,189
68,487
1,106,706
1,761,564
=13,532,143
P
7,814
17,675
12,228
11,232
4,028
157,093
1,080,285
2,677,921
=13,228,768
P
In accordance with the vessel leasing agreement as discussed in Note 23, NN, as the owner of the
vessels, is accountable for its vessels’ drydocking costs, depreciation and amortization, repair and
maintenance, personnel, and insurance costs. Included in the vessel costs are the costs incurred by
2GO relating to fuel and lubricants, pilotage, port charges and other variable costs on the leased
NN’s vessels.
26. Other Income (Charges)
Financing Charges
2013
Interest expense on:
Loans payable (Note 17)
Long-term debt (Note 19)
Amortization of:
Debt transaction cost
(Note 19)
Obligations under finance lease
(Note 20)
RPS (Note 21)
Bank charges
Other financing charges
2012
(As restated,
Note 2)
(In Thousands)
2011
(As restated,
Note 2)
P
=90,579
210,923
P89,136
=
263,722
P85,004
=
266,212
26,705
14,872
33,550
6,050
–
23,469
11,288
P
=369,014
6,407
1,425
18,114
6,796
=400,472
P
7,306
3,055
12,239
–
=407,366
P
*SGVFS004446*
- 66 Others - net
2013
Write-off of carrying value of sunk
vessel (Note 13)
Write-down of vessel component
parts (Note 13)
Recovery from insurance claims
(Notes 7 and 13)
Gain (loss) on disposal of:
AFS investments (Note 11)
Assets held for sale (Note 10)
Property and equipment
(Note 13)
Income from reversal of liabilities
Reversal of impairment on
receivables
Gain on other insurance claims
(Notes 7 and 13)
Recovery (loss) of inventory
obsolescence
Interest income (Notes 6 and 23)
Foreign exchange gains
Dividend income
Others - net (Note 12)
2012
(As restated,
Note 2)
(In Thousands)
2011
(As restated,
Note 2)
(P
=227,743)
P
=–
P
=–
(221,900)
–
–
943,315
–
–
–
(51,041)
–
(201,715)
17,662
–
–
24,130
98,978
182,984
11,326
127,070
–
–
4,013
–
2,086
34,568
(1,672)
1,690
6,203
–
13,259
P
=486,241
343
59,843
(149)
3,009
(1,945)
=143,434
P
1,400
61,361
5,806
281
33,295
=296,782
P
27. Personnel Costs
Details of personnel costs are as follows:
2013
Salaries and wages
Crewing cost
Retirement benefits cost
(Note 28)
Other employee benefits
P
=798,023
95,415
33,131
207,209
P
=1,133,778
2012
(As restated,
Note 2)
(In Thousands)
=765,986
P
118,638
11,041
186,140
=1,081,805
P
2011
(As restated,
Note 2)
=854,348
P
223,787
36,128
117,821
=1,232,084
P
In 2011, redundancy and retirement benefits cost included as part of integration cost amounted to
P
=97.2 million. The remaining =
P25.8 million pertains to the professional fees incurred relating to
the integration of the Group.
*SGVFS004446*
- 67 -
28. Retirement Benefits
The Group has funded defined benefits pension plans covering all regular and permanent
employees. The benefits are based on employees’ projected salaries and number of years of
service.
The funded status and amounts recognized in the consolidated balance sheets include
the retirement benefits of SGF as at December 31, 2013 and of SGF and SOI as at
December 31, 2012.
The following tables summarize the components of the net retirement benefits cost recognized in
the consolidated statements of income and comprehensive income and the funded status and
amounts recognized in the consolidated balance sheets:
January 1
Net retirement benefits cost in profit or
loss:
Current service cost
Curtailment gain
Net interest cost
Benefits paid
Re-measurement losses (gains) in
other comprehensive income actuarial changes arising from
changes in:
Financial assumptions
Demographic assumptions
Experience adjustments
Actual contributions
December 31
January 1
Net retirement benefits cost in profit or
loss:
Current service cost
Curtailment gain
Settlement cost
Net interest cost
Benefits paid
Defined
Benefit
Obligation
=229,044
P
2013
Fair Value
of Plan
Assets
(P
=97,558)
Accrued
Retirement
Benefits
=131,486
P
31,331
(4,684)
12,527
39,174
(16,281)
–
–
(6,043)
(6,043)
10,679
31,331
(4,684)
6,484
33,131
(5,602)
(11,025)
6,992
24,644
20,611
–
=272,548
P
4,338
–
–
4,338
(18,075)
(P
=106,659)
(6,687)
6,992
24,644
24,949
(18,075)
=165,889
P
2012 (As restated, Note 2)
Defined
Fair Value
Benefit
of Plan
Obligation
Assets
=225,803
P
(P
=72,906)
26,784
(28,440)
–
16,359
14,703
(26,504)
–
–
1,490
(5,152)
(3,662)
39,341
Accrued
Retirement
Benefits
=152,897
P
26,784
(28,440)
1,490
11,207
11,041
12,837
(Forward)
*SGVFS004446*
- 68 -
2012 (As restated, Note 2)
Defined
Fair Value
Benefit
of Plan
Obligation
Assets
Re-measurement losses (gains) in
other comprehensive income actuarial changes arising from
changes in:
Financial assumptions
Demographic assumptions
Experience adjustments
Actual contributions
December 31
P34,508
=
(24,245)
4,779
15,042
–
=229,044
P
(P
=24,902)
–
–
(24,902)
(35,429)
(P
=97,558)
Accrued
Retirement
Benefits
=9,606
P
(24,245)
4,779
(9,860)
(35,429)
=131,486
P
The plan assets available for benefits follow:
Cash and cash equivalents
Receivables
Investments in debt securities
Others
Fair value of plan assets
December 31,
December 31,
2012
2013
(In Thousands)
13,899
11,932
28,932
32,760
54,181
56,971
546
4,996
=97,558
P
P
=106,659
The principal assumptions used in determining pension benefit obligations for the Group’s plans
are shown below:
Discount rate
Future salary increases
Turnover rate
December 31
2012
2013
7.52%
6.04%
7.70%
7.83%
17.00%
17.00%
January 1,
2012
8.29% to 10.53%
6.00% to 8.00%
17.00%
The accrued retirement benefits is subject to several key assumptions. Shown below is the
sensitivity analysis of the retirement obligation to reasonably possible changes on each significant
assumption:
Increase (decrease)
Discount rate
Salary increase rate
Turnover rate
+1%
-1%
+1%
-1%
+1%
-1%
Impact on accrued
retirement benefits
(In Thousands)
(P
=19,079)
23,104
21,884
(18,520)
(5,577)
6,403
As of December 31, 2013 and 2012, the Group has no transactions with its retirement funds such
as loans, investments, gratuities, or surety. The fund also does not have investments in debt or
equity securities of the companies in the Group.
*SGVFS004446*
- 69 The Group expects to contribute approximately =
P44.7 million to the defined benefit pension plan
in 2014.
29. Income Tax
a. The components of provision for (benefit from) income tax are as follows:
2013
Current:
RCIT
MCIT
Deferred
2012
(In Thousands)
=66,997
P
14,293
81,290
176,609
=257,899
P
P
=98,804
40,617
139,421
346,271
P
=485,692
2011
=43,042
P
11,687
54,729
(246,766)
(P
=192,037)
b. The components of the Group’s recognized net deferred income tax assets and liabilities are as
follows:
2013
Net Deferred
Income
Tax Assets
Directly recognized in profit or loss
Deferred income tax assets on:
NOLCO
MCIT
Allowances for:
Impairment of receivables
Inventory obsolescence
Investment in stock
Accrued retirement costs
and others
Accruals and others
Deferred income tax liabilities:
Pension asset
Others
Directly recognized in equity
Deferred income tax asset on
remeasurement of retirement costs
(1)
(2)
2012
Net Deferred
Net Deferred
Income
Income
Tax Assets(1) Tax Liabilities(2)
(In Thousands)
=250,370
P
23,528
=645,828
P
13,576
P–
=
–
100,945
16,698
75
84,314
19,608
75
85
–
–
20,456
40,065
452,137
16,689
20,803
800,893
663
264
1,012
(406)
(4,372)
(4,778)
–
(6,924)
(6,924)
(138)
(1,213)
(1,351)
29,717
=477,076
P
22,232
=816,201
P
–
(P
=339)
Pertain to the Company, 2GO Express, 2GO Logistics, WTC, J&A, SFFC and AEWI
Pertain to HLP
*SGVFS004446*
- 70 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
2012
2011
2010
Available
Until
2015
2014
2013
Amount
P
=851,550
1,364,384
1,168,924
=
P3,384,858
Applied
=
P–
(30,874)
(511,919)
(P
=542,793)
Expired
(In Thousands)
=
P–
–
(657,005)
(P
=657,005)
Balances as of December 31, 2013
Amount
Tax Effect
P
=851,550
1,333,510
–
=
P2,185,060
P
=255,465
400,053
–
P
=655,518
MCIT
Incurred in
2013
2012
2011
2010
Available
Until
2016
2015
2014
2013
Amount
P
=47,742
21,919
3,092
1,606
P
=74,359
Applied
(In Thousands)
=
P–
–
–
–
=
P–
Expired
=
P–
–
–
(1,606)
(P
=1,606)
Balances as of
December 31,
2013
P
=47,742
21,919
3,092
–
P
=72,753
d. The following are the Group’s NOLCO and MCIT for which no deferred income tax assets
have been recognized in compliance with PFRS. Management, however, believes that there
will be sufficient future taxable income that would substantially utilize the NOLCO in the
future.
2012
(In Thousands)
=1,203,408
P
P
=1,350,493
5,454
49,225
2013
NOLCO
MCIT
e. Reconciliation between the income tax expense (benefit) computed at statutory income tax
rates of 30% in the provision for income tax expense as shown in profit or loss is as follows:
Tax effect of income at statutory rates
Derecognition of deferred income tax asset
on NOLCO
Income tax effects of:
Changes in unrecognized deferred
income tax assets
Income tax holiday (ITH) incentive on
registered activities (Note 31)
Gain on sale of investment already
subjected to final tax
2013
2012
(As Restated,
Note 2)
(In Thousands)
2011
(As Restated,
Note 2)
P
=213,832
(P
=29,357)
(P
=239,366)
381,631
334,877
–
–
–
46,571
806
–
(36,123)
–
7,093
(5,299)
(Forward)
*SGVFS004446*
- 71 -
2013
Equity in net (earnings) loss of
associates
Interest income already subjected to a
lower final tax
Dividend income
MCIT derecognized
Application of NOLCO for which no
deferred tax asset was recognized
MCIT incurred for the year for which
no deferred tax asset was
recognized
Others
Provision for (benefit from) income tax
2012
(As Restated,
Note 2)
(In Thousands)
(P
=13,454)
(P
=11,308)
(619)
(10,987)
13,576
(1,449)
(903)
624
=
P1,977
(1,944)
(84)
–
–
(146,787)
39,306
8,388
P
=485,692
2011
(As Restated,
Note 2)
–
1,538
=257,899
P
–
–
(985)
(P
=192,037)
30. Earnings (Loss) Per Common Share
Basic and diluted earnings per common share were computed as follows:
2012
(As restated,
Note 2)
2013
(In Thousands, except EPS)
Net loss for the year attributable to
equity holders of the parent
Weighted average number of
common shares outstanding for
the year
Earnings (loss) per common share
2011
(As restated,
Note 2)
P
=212,044
(P
=366,084)
(P
=614,512)
2,446,136
=0.0867
P
2,446,136
(P
=0.1497)
2,446,136
(P
=0.2512)
There are no potentially dilutive common shares as at December 31, 2013, 2012 and 2011.
31. Registration with the Board of Investments (BOI)
a. With the effectivity of the merger of the Company and ZIP, the Parent Company assumed
ZIP’s outstanding BOI registration as an expanding operator of logistics service facility on a
non-pioneer 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 =
P924.1 million will be used in the computation of the ITH for the said
expansion.
b. On January 27, 2011, BOI approved the Company’s application for registration of the
modernization of two (2) second-hand RORO vessels, SuperFerry 20 and SuperFerry 21. The
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.
*SGVFS004446*
- 72 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. Agreements and Commitments
a. The 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 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 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 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 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.
b. On December 31, 2012, the Company and Manila North Harbour Port, Inc. (MNHPI) entered
into an agreement to engage the services of MNHPI to handle all the freight, passenger
terminal and allied port services requirements of the former and in particular, to consolidate
all its operations at Manila North Harbor. The agreement is effective upon signing and shall
remain in effect for 10 years, renewable for another 5 years upon such terms and conditions as
the parties may agree.
c. 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
2012
2013
(In Thousands)
=223,689
P
P
=175,050
184,208
217,069
=407,897
P
P
=392,119
d. The Company entered into several vessel leasing agreements for a period ranging from three
to 15 months. In 2012, vessel lease rates are based on an agreed daily rate ranging from
$3,125 to $9,400. In 2013, vessel lease rates are based on agreed monthly rate of =
P26.0
million.
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.
*SGVFS004446*
- 73 Credit Risk Management Objectives and Procedures
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 Group’s
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.
As of December 31, 2013 and 2012, the Group did not hold collateral from any counterparty.
The credit quality per class of financial assets that are neither past due nor impaired is as follows:
As at December 31, 2013
Neither past due nor impaired
High
Medium
Low
(In Thousands)
Loans and receivables
Cash in banks
Cash equivalents
Trade and other receivables:
Freight
Passage
Services fees
Distribution
Others
Nontrade receivables
Due from related parties
Insurance and other claims
Advances to officers and employees
AFS investments
Total
Past due and/or
impaired
Total
P
= 837,089
49,430
P
=–
–
P
=–
–
P
=–
–
P
= 837,089
49,430
45,734
11,214
17,550
169,513
179,333
5,654
14,651
856,944
20,913
6,333
P
= 2,214,358
156,215
96
56,104
–
49,045
38,978
–
39
2,805
574
P
= 303,856
291,879
–
94,568
–
–
–
–
–
–
–
P
= 386,447
909,706
34,727
418,652
112,225
274,690
369,797
144,767
51,375
2,028
–
P
= 2,317,967
1,403,534
46,037
586,874
281,738
503,068
414,429
159,418
908,358
25,746
6,907
P
= 5,222,628
*SGVFS004446*
- 74 As at December 31, 2012
Neither past due nor impaired
High
Medium
Low
(In Thousands)
Loans and receivables
Cash in banks
Cash equivalents
Trade and other receivables:
Freight
Passage
Services fees
Distribution
Others
Nontrade receivables
Due from related parties
Insurance and other claims
Advances to officers and employees
AFS investments
Total
Past due and/or
impaired
Total
P
=662,808
82,397
=
P–
–
=
P–
–
=
P–
–
P
=662,808
82,397
43,534
25,352
45,490
184,582
136,005
72,324
50,535
113,678
38,639
8,178
P
=1,463,522
316,285
–
46,053
–
21,944
27,307
–
4,275
1,966
557
P
=418,387
204,871
–
29,774
–
1,663
–
–
–
–
–
P
=236,308
744,156
52,557
232,290
102,789
262,567
268,863
–
130,293
726
–
P
=1,794,241
1,308,846
77,909
353,607
287,371
422,179
368,494
50,535
248,246
41,331
8,735
P
=3,912,458
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. Low quality receivables are
accounts from new customers and forwarders. For new customers, the Group has no basis yet as
far as payment habit is concerned. With regards to the forwarders, most of them are either under
legal proceedings or suspended. In addition, their payment habits extend beyond the approved
credit terms because their funds are not sufficient to conduct their operations.
The Group evaluated its cash in bank and cash equivalents as high quality financial assets since
these are placed in financial institutions of high credit standing. 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, 2013
Neither past
due nor Less than 30
impaired
days
Loans and receivables:
Cash in banks
Cash equivalents
Trade and other
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
Past due but not impaired
31 to 60
61 to 90
days
days
(In Thousands)
Over 90
days
Impaired
financial
assets
Total
P
= 837,089
49,430
P
=–
–
P
=–
–
P
=–
–
P
=–
–
P
=–
–
P
= 837,089
49,430
493,828
11,310
168,222
169,513
228,378
44,632
222,759
11,274
93,562
38,946
91,560
2,517
142,977
14,427
58,029
15,974
57,546
5,748
84,483
3,791
34,337
6,859
99,675
5,955
283,844
5,235
114,817
35,102
17,872
344,500
175,643
–
117,907
15,344
8,037
11,077
1,403,534
46,037
586,874
281,738
503,068
414,429
14,651
4,047
2,931
2,014
135,775
–
159,418
856,983
–
–
–
–
51,375
908,358
23,718
6,907
P
= 2,904,661
836
–
P
= 465,501
597
–
P
= 298,229
403
–
P
= 237,517
192
–
P
= 937,337
–
–
P
= 379,383
25,746
6,907
P
= 5,222,628
*SGVFS004446*
- 75 As at December 31, 2012 (As restated, Note 2)
Loans and receivables:
Cash in banks
Cash equivalents
Trade and other
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
Past due but not impaired
31 to 60
61 to 90
days
days
(In Thousands)
Neither past
due nor
impaired
Less than 30
days
P
=662,808
82,397
=
P–
–
=
P–
–
564,690
25,352
121,317
184,582
159,612
99,631
199,960
26,723
45,916
69,625
144,027
3,949
50,535
Over 90
days
Impaired
financial
assets
Total
=
P–
–
=
P–
–
=
P–
–
P
=662,808
82,397
110,497
195
18,118
16,456
34,675
4,640
75,740
10,338
12,540
673
28,814
4,181
231,873
15,301
41,320
691
50,283
249,428
126,086
–
114,396
15,344
4,768
6,665
1,308,846
77,909
353,607
287,371
422,179
368,494
–
–
–
–
–
50,535
117,953
1,084
–
–
77,834
51,375
248,246
40,605
8,735
P
=2,118,217
601
–
P
=491,885
7
–
P
=184,588
–
–
P
=132,286
118
–
P
=666,848
–
–
P
=318,634
41,331
8,735
P
=3,912,458
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:
2013
Less than
1 year
Financial Liabilities
Trade and other payables*
Loans payable
Long-term debts
Obligations under finance lease
Redeemable preferred shares
Other noncurrent liabilities
P
=3,839,604
1,344,927
373
28,592
6,680
–
P
=5,220,176
1 to 5 years
Over 5 years
(In Thousands)
P
=–
–
3,597,496
89,192
–
9,369
P
=3,696,057
P
=–
–
–
–
–
–
P
=–
Total
P
=3,839,604
1,344,927
3,597,869
117,784
6,680
9,369
P
=8,916,233
*Excludes nonfinancial liabilities amounting to =
P 349.6 million as of December 31, 2013.
*SGVFS004446*
- 76 2013
Less than
1 year
Financial Assets
Cash and cash equivalents
Trade and other receivables
AFS investments
1 to 5 years
Over 5 years
(In Thousands)
P
=–
–
–
P
=–
P
=918,645
3,949,819
6,907
P
=4,875,371
Total
P
=–
–
–
P
=–
P
=918,645
3,949,819
6,907
P
=4,875,371
1 to 5 years
Over 5 years
(In Thousands)
Total
2012
Less than
1 year
Financial Liabilities
Trade and other payables*
Loans payable
Long-term debts
Obligations under finance lease
Redeemable preferred shares
Other noncurrent liabilities
Financial Assets
Cash and cash equivalents
Trade and other receivables
AFS investments
P
=3,092,712
1,379,230
993,319
77,724
6,882
–
P
=5,549,867
=
P–
–
2,185,297
44,857
–
9,030
P
=2,293,184
P
=
–
–
–
–
–
=
P–
P
=3,092,712
1,379,230
3,178,616
122,581
6,882
9,030
P
=7,789,051
P
=786,856
2,839,884
8,735
P
=3,635,475
=
P–
–
–
=
P–
=
P–
–
–
=
P–
P
=786,856
2,839,884
8,735
P
=3,635,475
*Excludes nonfinancial liabilities amounting to =
P 443.0 million as of December 31, 2012.
Trade and other payables and maturing other liabilities are expected to be settled using cash to be
generated from operations, drawing from existing and new credit lines and additional capital
contribution of the shareholders.
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.
The Group’s significant foreign currency-denominated financial assets and financial liabilities as
of December 31 are as follows:
2013
Financial Asset
Cash in banks
Trade receivables
Insurance receivables
Financial Liabilities
Trade and other payables
Obligations under finance lease
Net foreign currency denominated
assets (liabilities)
1
3
$1 = P
=39.46
$1 = P
=36.21
2
4
€1 = P
=60.82
$1 = P
=44.40
AUD1
EUR2
NZD3
USD4
Total Peso
Equivalent
$1
–
–
1
€3
–
–
3
$9
–
–
9
$219
266
13
498
P9,944
=
11,809
577
22,330
65
–
65
117
–
117
–
–
–
–
986
986
9,680
43,773
53,453
($64)
(€114)
$9
($488)
(P
= 31,123)
*SGVFS004446*
- 77 2012
2
EUR3
NZD4
USD5
Total Peso
Equivalent
$2
–
2
Kr–
–
–
€19
–
19
$–
–
–
$251
552
803
P
=15,315
22,671
37,986
281
–
281
596
–
596
67
–
67
456
–
456
181
354
535
27,434
14,532
41,966
(€48)
($456)
$268
(P
= 3,980)
1
AUD
Financial Assets
Cash in banks
Trade receivables
Financial Liabilities
Trade and other payables
Obligations under finance lease
Net foreign currency denominated
assets (liabilities)
1
4
$1 = P
=42.67
$1 = P
=33.66
2
5
Kr1 = =
P7.31
$1 = P
=41.05
3
€1 = P
=54.27
($279)
DKK
(Kr596)
The Group has recognized foreign exchange revaluation gains amounting to P
=1.3 million in 2013
and P
=0.5 million in 2012 and foreign exchange loss in 2010 amounting to P
=12.9 million.
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, 2013 and 2012.
Appreciation/
(Depreciation) of
Foreign
Currency
Australian Dollar (AUD)
Euro (EUR)
New Zealand Dollar (NZD)
US Dollar (USD)
Danish Kroner (DKK)
+5%
-5%
+5%
-5%
+5%
-5%
+5%
-5%
+5%
-5%
Effect on Income Before Tax
2012
2013
(In Thousands)
(P
=595)
(P
=126)
595
126
130
(347)
(130)
347
(767)
16
767
(16)
550
(1,083)
(550)
1083
–
(218)
–
218
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.
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 4.5% to 8.5% for 10 years in 2013 and
2.3% to 9.7% for 10 years in 2012.
The Group’s =
P4.0 billion loans under the OLSA includes P
=2.0 billion loans which bear variable
interest rates and exposes the Group to cash flow interest rate risk.
*SGVFS004446*
- 78 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
non-trading financial liabilities held at December 31, 2013 with other variables held constant:
Changes in
interest rates
For more than one year
+80 basis points
-80 basis points
Effect on income before tax
2012
2013
(In Thousands)
(P
=10,523)
(P
=28,762)
10,523
28,762
Changes in
interest rates
For more than one year
Effect on equity
2012
2013
(In Thousands)
(P
=7,366)
(P
=20,133)
7,366
20,133
+80 basis points
-80 basis points
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, 2013 and 2012, 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, 2013 and 2012) due to reasonably possible change in equity
indices, with all other variables held constant, follows:
Increase (decrease)
in PSE index
2013
2012
55%
(55%)
34%
(34%)
Effect on equity
(In Thousands)
P
=352
(352)
212
(212)
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.
*SGVFS004446*
- 79 The Group considers its total equities as its capital. The Group monitors capital on the basis of the
carrying amount of equity as presented on the face of the balance sheet. The capital ratios are as
follows:
2012
2013
Assets financed by:
Creditors
Stockholders
74%
26%
75%
25%
As of December 31, 2013 and 2012, the Group met its capital management objectives.
34. Fair Value of Financial Instruments and Nonfinancial Assets
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, 2013 and 2012. Financial instruments with
carrying amounts reasonably approximating their fair values are no longer included in the
comparison.
2012
2013
Carrying
Amount
Financial Liabilities
Long-term debts
Obligations under finance lease
Nonfinancial Assets
Vessels in operations
Investments property
Carrying
Amount
Fair Value
(In Thousands)
Fair Value
=3,597,869
P
117,784
=3,715,653
P
=4,111,311
P
125,164
=4,236,475
P
=3,178,616
P
122,581
=3,301,197
P
=3,475,112
P
94,283
=3,569,395
P
=3,978,216
P
9,763
=4,855,000
P
66,900
=3,661,010
P
9,763
=4,715,000
P
66,900
The following methods and assumptions are used to estimate the fair value of each cash flow of
financial instruments and nonfinancial assets:
Financial Instruments
Cash and cash equivalents, trade and other receivables, trade and other payables, refundable
deposits and RPS
The carrying amounts of these financial instruments approximate their respective fair values due
to their relatively short-term maturities.
Loans payable
The carrying value of loans payable that reprice every three (3) months, approximates their fair
value because of recent and regular repricing based on current market rate. For fixed rate loans,
the carrying value approximates fair value due to its short term maturities, ranging from three
months to twelve months.
*SGVFS004446*
- 80 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 debts
Discount rates of 2.6% and 4.7% were used in calculating the fair value of the long term debt as of
December 31, 2013 and 2012, respectively.
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 3.5% to 3.7% as at December 31, 2013 and 1.45% to 4.82% as
at December 31, 2012.
Nonfinancial Assets
The fair values of the Group’s vessels in operations and investment property have been
determined by the appraisal method by independent external appraisers based on the highest and
best use of property being appraised.
Vessels in operations
The fair values of the vessels in operations are determined using the replacement fixed asset
approach. This method requires an analysis of the vessels by breaking them down into major
components. Bills of quantities for each component using the appropriate basic unit are prepared
and related to the unit cost for each component developed on the basis of current costs of
materials, labor, plant and equipment prevailing in the locality to arrive at the direct costs of the
components. Accrued depreciation was based on the observed condition.
Investment property
The fair value of the investment property is determined using the Market Data Approach, which is
a process of comparing the subject property being appraised to similar comparable properties
recently sold or being offered for sale.
Fair Value Hierarchy
Only the Group’s AFS investments, which are classified under Level 1, are measured at fair value.
During the year ended December 31, 2013 and 2012, 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.
*SGVFS004446*