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SEC No. 34218
File No. _____
AYALA CORPORATION
(Company’s Full Name)
Tower One, Ayala Triangle
Ayala Avenue, Makati City
(Company’s Address)
908-3000
(Telephone Number)
December 31, 2013
(Fiscal Year Ending)
(Month & Day)
SEC Form 17- A
(Form Type)
2
13.
Aggregate market value of the voting stock held by non-affiliates: About P138.3 billion (based
on bid stock prices of Ayala Corporation common shares as of April 4, 2014 and outstanding
shares owned by the public as of December 31, 2013)
APPLICABLE ONLY TO ISSUERS INVOLVED IN
INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS
DURING THE PRECEEDING FIVE YEARS
14. Check whether the issuer has filed all documents and reports required to be filed by Section 17
of the Code subsequent to the distribution of securities under a plan confirmed by a court or the
Commission. Not applicable
Yes [ ]
No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
15. Briefly describe documents incorporated by reference and identify the part of the SEC Form 17-A
into which the document is incorporated:
2013 Consolidated Financial Statements of Ayala Corporation and Subsidiaries
2013 Consolidated Financial Statements of Bank of the Philippine Islands and Subsidiaries
2013 Consolidated Financial Statements of Globe Telecom, Inc. and Subsidiaries
4
TABLE OF CONTENTS
PART I
Item 1
Item 2
Item 3
Item 4
BUSINESS AND GENERAL INFORMATION
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II
Item 5
OPERATIONAL AND FINANCIAL INFORMATION
Market for Registrant’s Common Equity and Related
Stockholder Matters
Management’s Discussion and Analysis or Plan of Operations
Financial Statements and Supplementary Schedules
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
89
91
113
PART III
Item 9
Item 10
Item 11
Item 12
CONTROL AND COMPENSATION INFORMATION
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
115
120
122
124
PART IV
Item 13
COPORATE GOVERNANCE
Corporate Governance
126
PART V
Item 14
EXHIBITS AND SCHEDULES
Exhibits
Reports on SEC Form 17-C (Current Report)
127
Item 6
Item 7
Item 8
6
77
83
88
113
SIGNATURES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
5
PART I - BUSINESS AND GENERAL INFORMATION
Item 1. Business
Ayala Corporation (the Company or Ayala) is the holding company of one of the oldest and largest
business groups in the Philippines that traces its history back to the establishment of the Casa Roxas
business house in 1834. The Company was incorporated in January 23, 1968, and its Class A Shares
and Class B Shares were first listed on the Manila and Makati Stock Exchanges (the predecessors of
the PSE) in 1976. In 1997 the Company’s Class A and Class B Shares were declassified and unified
as Common Shares.
As of December 31, 2013, the Company is 50.66% owned by Mermac, Inc., 10.52% owned by
Mitsubishi Corporation and the rest by the public. Its registered office address and principal place of
business is Tower One, Ayala Triangle, Ayala Avenue, Makati City.
The Ayala Group’s (the Group) business activities were, for some time, primarily focused on real
estate, banking and insurance. In the 1970s and 1980s, the Group expanded its existing businesses
through organic growth and acquisitions. During this period, the Group also materially diversified its
activities and disposed of interests that it considered peripheral to its business strategy.
Thereafter up to recent years, Ayala’s business activities are divided into: (a) real estate and hotels,
(b) financial services and insurance, (c) telecommunications, (d) water distribution and wastewater
services, (e) electronics manufacturing solutions services, (f) automotive dealerships, (g) business
process outsourcing (BPO), (h) investments in overseas real estate projects and technology-related
ventures, (i) power generation and (j) transport infrastructure. Further discussion of the background of
certain Ayala Group companies is included elsewhere in this section
The list of subsidiaries is contained in the attached Company’s Consolidated Financial Statements for
December 31, 2013.
For management purposes, the Group is organized into the following business units:
•
Real estate and hotels - planning and development of large-scale fully integrated residential and
commercial communities; development and sale of residential, leisure and commercial lots and
the development and leasing of retail and office space and land in these communities;
construction and sale of residential condominiums and office buildings; development of industrial
and business parks; development and sale of upper middle-income and affordable housing;
strategic land bank management; hotel, cinema and theater operations; and construction and
property management.
•
Financial services and insurance - universal banking operations, including savings and time
deposits in local and foreign currencies; commercial, consumer, mortgage and agribusiness
loans; leasing; payment services, including card products, fund transfers, international trade
settlement and remittances from overseas workers; trust and investment services including
portfolio management, unit funds, trust administration and estate planning; fully integrated
insurance operations, including life, non-life, pre-need and reinsurance services; internet banking;
on-line stock trading; corporate finance and consulting services; foreign exchange and securities
dealing; and safety deposit facilities.
•
Telecommunications - provider of digital wireless communications services, wireline voice
communication services, consumer broadband services, other wireline communication services,
domestic and international long distance communication or carrier services and mobile commerce
services.
• Water distribution and wastewater services - contractor to manage, operate, repair,
decommission, and refurbish all fixed and movable assets (except certain retained assets)
required to provide water delivery services and sewerage services in the East Zone Service Area.
Aside from the East Zone, it currently has three operating subsidiaries in the Philippines, namely
Laguna AAAWater Corporation (“LWC”), Boracay Island Water Company (“BIWC”) and Clark
Water Corporation (“CWC”). It also has presence in Vietnam through a leakage reduction project
in Ho Chi Minh City and two bulk water companies, namely Thu Duc Water B.O.O Corporation
(“TDW”) and Kenh Dong Water Supply Joint Stock Company (“KDW”).
6
• Electronics - electronics manufacturing services provider for original equipment manufacturers in
the computing, communications, consumer, automotive, industrial and medical electronics
markets, service provider for test development and systems integration and distribution of related
products and services.
• Information technology and BPO services - venture capital for technology businesses and
emerging markets; provision of value-added content for wireless services, on-line business-tobusiness and business-to-consumer services; electronic commerce; technology infrastructure
hardware and software sales and technology services; and onshore and offshore outsourcing
services in the research, analytics, legal, electronic discovery, document management, finance
and accounting, IT support, graphics, advertising production, marketing and communications,
human resources, sales, retention, technical support and customer care areas.
• Automotive - manufacture, distribution and sale of passenger cars and commercial vehicles.
• Infrastructure and power - transport infrastructure and power generation
• International - investments in overseas property companies and projects.
• Others - air-charter services, agri-business and others.
Please refer to Note 29 of the Company’s Consolidated Financial Statements regarding operating
segments which presents assets and liabilities as of December 31, 2013, 2012 and January 1, 2012
and revenue and profit information for each of the three years in the period ended December 31,
2013.
Management monitors the operating results of its business units separately for the purpose of making
decisions about resource allocation and performance assessment. Segment performance is
evaluated based on operating profit or loss and is measured consistently with operating profit or loss
in the consolidated financial statements.
Intersegment transfers or transactions are entered into under the normal commercial terms and
conditions that would also be available to unrelated third parties. Segment revenue, segment
expense and segment results include transfers between operating segments. Those transfers are
eliminated in consolidation.
For the detailed discussion on the specific subsidiaries falling under each business unit, please refer
to Note 2 of the Consolidated Financial Statements for December 31, 2013 which forms part of the
Annex of this SEC17A report.
In addition, the Group has the following transactions:
Real Estate and Hotels
a. The SEC approved last January 31, 2013 the decrease in authorized capital stock of ALI by
P
= 1,303.5 million, the aggregate par value of the 13,034.6 million preferred shares which have
been redeemed and eliminated, from P
= 22,803.5 million to P
= 21,500.0 million; and the amendments
to ALI’s Articles of Incorporation reflecting the decrease in capital stock.
b. On April 15, 2013, ALI has entered into a Sale and Purchase Agreement with Global
Technologies International Limited (GTIL) to acquire the latter’s 32% stake in ALI Property
Partners Co. (APPCo) for P
= 3.52 billion.
APPCo owns BPO buildings in Makati, Quezon City and Laguna, with a total leasable area
approximately 230 thousand square meters.
This acquisition is aligned with ALI’s thrust of expanding its office leasing business and increasing
its recurring income.
This is accounted for by the ALI as an equity transaction since there is a change in its ownership
but still retained it controlling financial interest. As such, there is no gain or loss recognized in
consolidated net income or comprehensive income. The carrying amount of the non-controlling
interest is now nil as the Company already owns 100% share in APPCo. The difference between
7
the fair value of the consideration paid and the amount by which the non-controlling interest is
adjusted is recognized in equity attributable to the Company.
c.
The difference between the fair value of the consideration paid and the amount by which the noncontrolling interest is adjusted is recognized in equity attributable to ALI to about P
= 2.7 billion, P
= 1.3
billion of which represents AC Parent’s share.
On April 16, 2013, ALI has sold its 60% interest in Asian i-Office Properties Inc. (AiO) to Cebu
Property Ventures and Development Corporation (CPVDC). CPVDC is 76.3% owned by Cebu
Holdings, Inc., a subsidiary of the ALI.
This transaction will allow ALI to consolidate into CPVDC the development and operations of BPO
offices in Cebu and businesses related thereto, which should lead to value enhancement,
improved efficiencies, streamlined processes and synergy creation among the company and its
subsidiaries. This is also consistent with the thrust of the CHI group to build up its recurring
income base.
This transaction is considered to be a Common Control Business Combination because AiO and
CPDVC are ultimately controlled by the Company both before and after the business combination,
and that control is not transitory. The relevant accounting policy used is pooling of interests
method as the acquisition method is not applicable due to lack of commercial substance. (PIC
Q&A No. 2011-02). The assets and liabilities of AiO and CPVDC are reflected in the consolidated
financial statements at their carrying amounts. No adjustments are made to reflect fair values, or
recognize any new assets or liabilities, at the date of the combination that otherwise would have
been done under the acquisition method. No 'new' goodwill is recognized as a result of the
combination. (PIC Q&A No. 2012-01).
Water distribution and wastewater services
a. On January 7, 2013, Metropac Water Investments Corporation (MWIC) subscribed to
128,700,000 shares or 39% of MW Consortium at a subscription price of P
= 1.04 per share. This
transaction reduced the ownership of MWCI in MW Consortium from 84% as of December 31,
2012 to 51% in January 2013. The remaining 10% interest is owned by Vicsal Development
Corporation.
Information Technology and BPO Services
a. On February 26, 2013, Stream Global Services Inc. (Stream), one of the investee companies of
Ayalas BPO unit, LiveIt Investments, Inc. (LiveIt) acquired UK-based LBM Holdings, Ltd. This
acquisition will enable Stream to penetrate the UK market better with a potential to add almost
US$90 million in revenues to Stream.
Power
a. On May 15, 2013, ACEHI has sold its 40% interest in each of Palm Concepcion Power
Corporation (PCPC) and Panay Consolidated Land Holdings, Corp. (PCLHC) in favor of its joint
venture partner therein, Palm Thermal Consolidated Holdings Corp. ACEHI will be paid its
original investment in PCPC and PCLHC. The sale by ACEHI is a result of its strategic decision
to focus on other power projects imminent in its development pipeline.
PCPC and PCLHC broke ground this year to build a 135MW Circulating Fluidized Bed Thermal
Coal-Fired Power Plant in Iloilo. PCPC and PCLHC will continue to pursue the project, as
scheduled.
b. On July 12, 2013, ACEHI signed an Investment Framework Agreement and Shareholders’
Agreement with UPC Philippines Wind Holdco I B.V., a wholly-owned company of UPC
Renewables Partners (UPC) and the Philippine Investment Alliance for Infrastructure (PINAI)
fund, comprised of the Government Service Insurance System, APG and Macquarie Infrastructure
Holdings (Philippines) Pte. Limited, to develop wind power projects in Ilocos Norte through
Northern Luzon UPC Asia Corporation (NLUPC) as their joint venture company. An initial equity
investment has been agreed for the first 81MW project with an investment value of approximately
US$220 million with ACEHI funding 64% of equity, PINAI 32% and UPC 4%.
c.
On July 31, 2013, ACEHI signed a joint-venture agreement with Power Partners Ltd. Co., a
private limited partnership engaged in developing and owning power facilities in the Philippines
since 2001, to build and operate a 3 x 135-megawatt thermal power plant in Kauswagan, Lanao
del Norte. Along with this, AC Energy GP Corporation (ACEHI GP Corp.), a wholly ownedsubsidiary of AC Energy, was incorporated last September 4, 2013. ACEHI GP Corp. and AC
8
Energy will be the general partner and limited partner, respectively, for the development company
related to this partnership.
Subsequently in September 23, 2013, Kauswagan Power Holding Ltd. Co., the development
company, was incorporated.
The consolidated financial statements of the Group as of December 31, 2013 and 2012 and for each
of the three years in the period ended December 31, 2013 were endorsed for approval by the Audit
and Risk Committee on March 5, 2014 and authorized for issue by the Board of Directors (BOD) on
March 10, 2014.
Based on SEC’s parameters, the significant subsidiaries of Ayala Corporation as of December
31, 2013 are Manila Water Co, Inc. (MWCI – established in 1997), Ayala Land, Inc. (ALI - organized in
1988), and Integrated Micro Electronics, Inc. (IMI - organized in 1980). Except as stated in the
succeeding paragraphs and in the discussion for each of the Company’s significant subsidiaries, there
has been no other business development such as bankruptcy, receivership or similar proceeding not
in the ordinary course of business that affected the registrant for the past three years.
As to the material reclassification, merger, consolidation or purchase or sale of a significant
amount of assets:
For detailed discussion as to material reclassification, merger, consolidation and purchase
transactions with subsidiaries, please refer to Note 24 of the Company’s Consolidated Financial
Statements for December 31, 2013 which forms part of the Annex of this SEC17A report.
Distribution methods of the company’s products and services
This is not applicable to the Company being a holding company. The Company’s operating
companies, however, have their respective distribution methods of products and services. Please
refer to Significant Subsidiaries, Associates and Joint Ventures portion below.
Competition
The Company is subject to significant competition in each of the industry segments where it operates.
Please refer to Significant Subsidiaries, Associates and Joint Ventures portion below for a discussion
on Ayala Land, Inc. (ALI), Integrated Micro Electronic, Inc. (IMI), and Manila Water Company, Inc.
(MWCI), significant subsidiaries, and Bank of the Philippine Islands (BPI), and Globe Telecom (Globe),
significant associates and joint ventures.
Transactions with related parties
The Company and its subsidiaries, in their regular conduct of business, have entered into transactions
with associates and other related parties principally consisting of advances, loans, reimbursement of
expenses, various guarantees, construction contract, and management, marketing, and administrative
service agreements. Sales and purchases of goods and services to and from related parties are made
at normal market prices.
Related party transactions are also discussed in the Note 31 of the accompanying consolidated
financial statements of the Company.
Developmental and Other Activities
Being a holding company, the Company has no material patent, trademark, or intellectual property
right to its products. The Company’s operating companies, however, may have these material
intellectual property rights, but the dates and terms of their expiration or renewal is not perceived to
have a material adverse effect on the Company. The Company complies with all existing government
regulations and environmental laws, the costs of which are not material. As a holding company, it has
no material development activities.
Employees
The Company has a total workforce of 115 employees as of December 31, 2013, classified as follows:
Management
Staff
75
40
The Company expects to maintain its number of employees in the next 12 months. We have an
existing Collective Bargaining Agreement (CBA) with the Ayala Corp. Employees Union for a period of
5 years, from January 2012 until December 2016. The CBA generally provides for increment in annual
9
salary and improvement in health benefit. The Company’s management had not encountered
difficulties with its labor force, nor have strikes been staged in the past.
In addition to the basic salary and 13th month pay, other supplemental benefits provided by the
Company to its employees include: mid-year bonus, performance bonus, monthly rice subsidy,
retirement benefit, life and health insurance, medical and dental benefits, various loan facilities and
stock ownership plan among others.
Risks
For detailed discussion on Risks, please refer to Note 32 of the Company’s Consolidated Financial
Statements for December 31, 2013 which forms part of the Annex of this SEC17A report.
SIGNIFICANT SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
AYALA LAND, INC.
Background and Business
Ayala Land, Inc. (alternately referred to as “ALI”, Ayala Land or “the Company” in the entire discussion
of Ayala Land, Inc.) is the real estate arm of the Ayala Group. Its defining project was the 1948
development of a planned mixed-use community on 930 hectares of swamp and grassland in the
Makati district of Metro Manila. Over the course of the following 25 years, the Ayala Group
transformed Makati into the premier central business district of the Philippines and a site of some of
Metro Manila’s most prestigious residential communities. Ayala Land has become the largest real
estate company in the Philippines engaged principally in the planning, development, subdivision and
marketing of large-scale communities having a mix of residential, commercial, leisure and other uses.
Ayala Land was spun-off by Ayala in 1988 to enhance management focus on the Group’s existing real
estate business and to highlight the value of assets, management and capital structure of this
business. The Company’s shares were offered to the public and listed on the Manila and Makati Stock
Exchanges (the predecessors of the PSE) in 1991. This IPO diluted the Ayala’s effective interest in
Ayala Land to 88%. Since then, the Ayala’s effective interest has been further reduced to
approximately 70.11% as of 31 December 2013 through, among other things, the exercise of stock
options by the employees of Ayala and Ayala Land, disposals of the Company shares by the Ayala,
conversions of the Company’s other securities into the Company’s common shares and top-up
placements of the Company’s common shares in July 2012 and March 2013.
Products / Business Lines
Ayala Land’s businesses are organised into several core and non-core supporting business units. Its
core business units consist of residential property development, strategic landbank management,
shopping centre leasing, office leasing and hotels and resorts. Its non-core, supporting business units
include construction and property management.
Property Development
Residential Business - sale of high-end residential lots and units (including leisure community
developments), office spaces, commercial and industrial lots, middle-income residential lots and units,
affordable lots, units and house and lot packages, economic housing units and house and lot
packages, and socialized housing packages; lease of residential units and marketing of residential
developments
Strategic Landbank Management and Visayas-Mindanao - acquisition, development and sale of large,
mixed-use, masterplanned communities; sale of override units or Ayala Land's share in properties
made available to subsidiaries for development; lease of gas station sites and carparks outside Ayala
Center; development, sale and lease of the Company and subsidiaries' product offerings in key cities
in the Visayas and Mindanao regions
Commercial Leasing
Shopping Centers - development of shopping centers and lease to third parties of retail space and
land therein; operation of movie theaters, food courts, entertainment facilities and carparks in these
shopping centers; management and operations of malls which are co-owned with partners
Office Leasing - development and lease or sale of office buildings and lease of factory buildings
10
Hotels and Resorts - development, operation and management of branded and owner-operated
hotels; lease of land to hotel tenants; development, operation and management of eco-resorts
Services
Construction – land development and construction of ALI and third-party projects
Property management – facilities management of ALI and third-party projects; operation of water and
sewage treatment facilities in some ALI projects; distribution of district cooling systems; bulk purchase
and supply of electricity for energy solutions
In addition to above business lines, Ayala Land also derives other income from its investment
activities and sale of non-core assets.
Products / Business Lines (with 10% or more contribution to 2013 consolidated revenues):
Residential Development
64%
(high-end lots and units, leisure, upper mid-income
housing, affordable, economic and socialized housing)
Shopping Centers
13%
Distribution Methods of Products
The Company’s residential products are distributed to a wide range of clients through various sales
groups.
Ayala Land (parent company) has its own in-house sales team. In addition, it has a wholly-owned
subsidiary, Ayala Land Sales, Inc. (“ALSI”), which employs commission-based sales people. Ayala
Land uses a sales force of about 12,791 brokers and sales agents guided by a strict Code of Ethics.
The overseas Filipino (OF) market is being pursued through award-winning websites, permanent
sales offices or broker networks, and regular roadshows with strong follow-through marketing support
in key cities abroad. Ayala Land International Sales, Inc. (“ALISI”), created in March 2005, led the
marketing, sales and channel development activities and marketing initiatives of the three residential
brands abroad. ALISI established marketing offices in North America (Miltipas and San Francisco),
Hong Kong, Singapore, Dubai, Rome, London and Milan. ALISI likewise assumed operations of
AyalaLand Int’l. Marketing in Italy and London, in which ownership of these offices are scheduled to
be transferred to ALISI by 2014.
Separate sales groups have also been formed for certain subsidiaries which cater to different market
segments under Bellavita (socialized housing), Amaia (economic housing), Avida (affordable housing)
and Alveo (middle-income housing). To complement these sales groups, Ayala Land and its
subsidiaries also tap external brokers.
Effective second half of 2008, residential sales support transactions of ALP, Alveo, Avida, Amaia and
BellaVita is being undertaken by the shared services company Amicassa Process Solutions, Inc.
(“APSI”) put up by the Company. In 2011, Aprisa Business Solutions, Inc. (APRISA) completed its full
roll-out to handle transactional accounting processes across the Ayala Land group.
Development of the business of the registrant and its key operating subsidiaries/associates
and joint ventures during the past three years
Ayala Land, Inc. - parent company (incorporated in 1988), pursued major high-end residential land
development and condominium projects, office buildings, leisure community project and shopping
center operations. Its horizontal residential projects include, among others, Abrio, Santierra, Elaro,
Luscara, Ayala Westgrove Heights and Ayala Greenfield Estates. Residential condominium projects
undertaken in the past three years include Park Terraces, West Tower Serendra, Garden Towers,
The Suites, 1016 Residences, Two Roxas Triangle and Parkpoint Residences. Redevelopment
activities have been completed in Glorietta, Alabang Town Center and Ayala Center Cebu. Operations
of traditional headquarter-type and BPO buildings continued as well as the development of its leisure
community project, Anvaya Cove in Bataan.
Property Development
Alveo Land Corp. (incorporated in 2002), 100% owned by Ayala Land, offers various residential
products to the middle-income market. Alveo’s projects over the past three years include Solinea and
Sedona Parc in Cebu, Maridien, Verve Residences, Sequoia and Meranti in Bonifacio Global City,
Lerato, Kroma, Escala and Solstice in Makati, Kasa Luntian in Tagaytay, Sandstone at Portico in
11
Pasig City and Ferndale Villas in Quezon City. Alveo also launched High Street South Corporate
Plaza, its first office for sale building in 2013.
Avida Land Corp. (incorporated in 1990), a wholly-owned subsidiary, continued to develop affordable
housing projects which offer house-and lot packages and residential lots. Avida also ventured into the
development and sale of farm/hacienda/commercial lots. Projects in the past three years include
Avida Towers Riala in Cebu, Avida Towers Vita in Quezon City, Avida Towers 34th Street and Avida
Cityflex Towers in Bonifacio Global City, Avida Towers Centrio, Avida Towers Davao, Avida Towers
Asten in Makati, Madera Grove Estates in Bulacan, Serin West in Tagaytay, Avida Woodhill Settings
in Nuvali and Avida Settings Batangas.
Amaia Land Corp. (formerly First Communities Realty, Inc., incorporated in 2000), wholly-owned
subsidiary of Ayala Land, pursued a planned expansion of residential development operations
catering to the country’s economic housing segment. Project launches in the past three years include
Amaia Scapes Lucena, Amaia Scapes Bauan, Amaia Steps Bicutan, Amaia Steps Nuvali, Amaia
Skies Cubao, Amaia Skies Sta. Mesa and Amaia Skies Shaw.
BellaVita Land Corp. (formerly South Maya Ventures Corp., incorporated in 1995), wholly-owned
subsidiary of Ayala Land, aims to establish the country’s first social enterprise community
development targeting minimum wage earners and members of the informal business sector. Its first
project in General Trias, Cavite was unveiled in December 2011 followed by recent launches in
Pangasinan, Tarlac, Tayabas, Porac, San Pablo and Lipa.
Serendra, Inc. (incorporated in 1994), 28%-owned by ALI and 39%-owned by Alveo Land Corp., is
engaged in residential development. In 2004, it launched Serendra, a residential complex at the
Bonifacio Global City in Taguig.
Solinea (formerly Bigfoot Palms, Inc.), a landholding entity, was acquired on March 5, 2011 through
Alveo Land Corporation through acquisition of 65% shares of stock. The remaining 35% was
acquired by Cebu Holdings, Inc., an associate of Ayala Land.
Roxas Land Corp. (incorporated in 1996), 50% owned, sold-out One Roxas Triangle in 2007. The
project was started in 1996 and was completed in September 2001. In 2013, it launched sequel tower
Two Roxas Triangle.
Ayala Greenfield Development Corporation (“AGDC”, incorporated in 1997), 50-50% owned by Ayala
Land and Greenfield Development Corporation, started development of Ayala Greenfield Estates in
Calamba, Laguna in 1999. Over the past twelve years, AGDC continued to develop and sell lots in
this high-end residential subdivision.
Nuevo Centro, Inc. (incorporated in 2011), a wholly-owned subsidiary of Ayala Land, was established
primarily to acquire and hold real estate properties for the purpose of developing them into largescale, mixed-used and masterplanned communities.
BG West Properties, Inc., BG South Properties, Inc. and BG North Properties, Inc. (incorporated in
2011), 50% owned, is engaged in the development of high-end, middle-end and affordable residential
and retail projects, respectively, in Bonifacio Global City.
Ayala Land Sales, Inc. (incorporated in 2002), wholly-owned, continued to sell ALI’s residential
projects. ALSI employs commission-based brokers.
Ayala Land International Sales, Inc. (incorporated in 2005), wholly-owned, was formed to tap the
overseas Filipino market, selling ALI’s various residential projects.
Aurora Properties, Inc. (incorporated in 1992) and Vesta Property Holdings, Inc. (incorporated in
1993) are 78% and 70% owned respectively by Ayala Land, while Ceci Realty, Inc. (incorporated in
1974) is 60% owned. These companies, joint ventures with the Yulo Family, continued to develop
and sell residential and commercial lots in NUVALI in Canlubang, Laguna.
Emerging City Holdings, Inc. and Berkshires Holdings, Inc. (incorporated in 2003), both 50% owned,
served as ALI’s corporate vehicles in the acquisition of a controlling stake in Bonifacio Land Corp. /
Fort Bonifacio Development Corp. (“FBDC”) through Columbus Holdings, Inc. in 2003. FBDC
continued to sell commercial lots at the Bonifacio Global City while it leased out retail spaces.
12
Regent Time International Limited (incorporated in 2003), 100% owned by ALI, also owns a stake at
Bonifacio Land Corp. / Fort Bonifacio Development Corp.
Cebu Holdings, Inc. (incorporated in 1988), 50% owned by ALI, continued to manage and operate the
Ayala Center Cebu and sell lots within the Cebu Business Park. The company also launched Amara,
a high-end seaside residential subdivision, and continued to sell club shares at City Sports Club
Cebu. Through Cebu Property Ventures Development Corporation, CHI also continued to sell lots at
the Asiatown IT Park.
Southgateway Development Corporation, (incorporated in 2012) is a wholly-owned subsidiary of the
Company involved in real estate development projects of the Group.
Adauge Commercial Corporation, (incorporated in 2012) is 80% owned by the Company for the
purpose of acquiring and developing a mixed-use project in Mandurriao, Iloilo City.
Avencosouth Corporation, was incorporated in 2012 and is currently engaged in condominium
development operations. The Company holds 90% indirect interest in Avencosouth. It is 70% owned
by Avida (wholly-owned subsidiary of the Company) and 30% owned by Accendo (67% owned by the
Company). Avencosouth was registered on April 26, 2012 and started commercial operations on
August 11, 2012.
Ayalaland International Marketing, Inc. was incorporated in 2012 to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of California other than
the banking business, the trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
Portico Land Corp. is a subsidiary of Alveo and was incorporated on October 2, 2013. Portico is 60%
owned by Alveo and 40% by Mitsubishi Corp. The subsidiary was organized to develop and operate
the mixed-use developments primarily in Ortigas center.
BG South Properties, Inc. (BGS), BG North Properties, Inc. (BGN) and BG West Properties, Inc.
(BGW). BGW and BGN were incorporated on August 5, 2011, while BGS was incorporated on August
10, 2011 to engage in the development of high-end, upper middle income and affordable residential
and retail projects, respectively, in Bonifacio Global City.
Amorsedia Development Corporation was incorporated on March 6, 1996 and is domiciled in the
Republic of the Philippines primarily to deal and engage in the real estate business.
Buendia Landholdings, Inc. was incorporated and is domiciled in the Republic of the Philippines and
was organized to deal and engage in land or real estate business.
Crans Montana Holdings, Inc. was incorporated on December 28, 2004 and domiciled in the
Philippines primarily to develop, invest, own, acquire, lease, hold, mortgage, administer of otherwise
deal with commercial, office and mixed-use buildings, structures or apertures, or in any other
profitable business enterprise, venture or establishment, alone or jointly with other persons, natural or
artificial.
Crimson Field Enterprises, Inc. was incorporated on October 26, 1995 and domiciled in the
Philippines primarily to acquire by purchase, lease, donation or otherwise, and to own, use, improve,
develop, subdivide, sell, mortgage, exchange, lease, develop and hold for investment or otherwise,
real estate of all kinds; and improve, manage or otherwise dispose of buildings, houses, apartments,
and other structures of whatever kind, together with their appurtenances.
Ecoholdings Company, Inc. was registered with the Philippine Securities and Exchange Commission
on September 3, 2008 primarily to purchase, acquire, hold, use, sell, assign, transfer, mortgage,
pledge, exchange or otherwise dispose of real and personal property of every kind and description.
Laguna Technopark, Inc. was incorporated on November 15, 1990 and is domiciled in the Philippines
primarily engaged in the sale and lease of industrial lots.
Aviana Development Corporation, incorporated on September 17, 2013, is a 60-40 joint venture
company between the Ayala Land Group (10%-owned by Accendo) and the Alcantara Group. The
Company will develop approximately 27-hectare waterfront property in Lanang, Davao City. The first
phase of the project is expected on the 2nd quarter of 2014.
13
Soltea Commercial Corp., a joint venture between the Company (60%) and Ceci Realty, Inc. (40%),
was incorporated on June 13, 2013. Currently, its main purpose is the development of Solenad 3
project in Sta. Rosa, Laguna.
CMPI Holdings, Inc. a 60% owned subsidiary of Ayala Land was incorporated in the Philippines on
May 30, 1997 primarily engaged in the real estate business.
Leisure and Allied Industries Philippines, Inc. is a joint venture between Ayala Land and Leisure and
Allied Industries Asia Private Limited incorporated on October 10, 1997 to deal and engage in the
business of owning, operating and managing entertainment and amusement centers wherein coin
operated and non-coin operated interactive entertainment games, attractions, rides and machines
shall be installed.
Amicassa Process Solutions, Inc. was on June 2, 2008 and is a wholly-owned subsidiary of Ayala
Land primarily engaged in providing real estate support services.
Commercial Leasing
NorthBeacon Commercial Corporation, formerly Alabang Theatres Management Corporation
(incorporated in 1970), is ALI’s wholly-owned vehicle for its MarQuee Mall in Pampanga which
commenced development in March 2007 and began operations in September 2009.
Station Square East Commercial Corporation (incorporated in 1989), 69% owned subsidiary of ALI,
broke ground in 2002 for Market! Market!, a 150,000-sqm mall along C-5 Road in Taguig. It opened
Phase 1A of the mall in 2004 and Phase 1B in 2005.
Accendo Commercial Corp. (incorporated in 2008), 67% owned by ALI, is a joint venture company
with the Anflo Group for the development of a mixed-use project in Davao City including Abreeza Mall.
Alabang Commercial Corp. (incorporated in 1978), 50% owned by ALI, continued to manage and
operate the Alabang Town Center.
ALI-CII Development Corporation (incorporated in 1997), a 50-50% joint venture with Concepcion
Industries, continued to operate Metro Point, a mid-market mall at the corner of EDSA and Taft
Avenue, which was completed in the fourth quarter of 2001.
North Triangle Depot Commercial Corp. (incorporated in 2001), 49% owned by ALI, commenced
development of TriNoma (formerly referred to as North Triangle Commercial Center), a 188,000-sqm
mall constructed at the main depot of MRT-3 in Quezon City. TriNoma broke ground in June 2005
and began operations in May 2007.
Lagoon Development Corporation (incorporated in 1996), 30% owned by Ayala Land, is a joint
venture company with Extraordinary Development Corporation. It continued to operate Pavilion Mall
which is located in Biñan, Laguna.
Subic Bay Town Centre, Inc. (incorporated in 2010), 100% owned by Ayala Land, is tasked to plan,
develop and eventually manage a mall in Subic Bay Freeport Zone.
Primavera Town Centre, Inc. (incorporated in 2009), is a 100% owned subsidiary that was formed to
handle the planning, development and management of small-format retail facilities known as
“neighborhood centers” within the Company’s existing and planned growth centers across the country.
Ayala Theaters Management, Inc. (incorporated in 1984), 100% owned, continued to manage and
operate theaters at the Ayala Center in Makati.
Five Star Cinema, Inc. (incorporated in 2000), also wholly-owned, continued to manage and operate
theaters at the Alabang Town Center.
Leisure and Allied Industries Phils., Inc. (incorporated in 1997), a 50-50% joint venture of ALI with
Australian company, LAI Asia Pte. Ltd., continued to operate family entertainment centers called
TimeZone in various Ayala malls, as well as other malls.
14
Cagayan De Oro Gateway Corp. (incorporated in 2010), 70% owned, was established to pursue a
mixed-use development with a 47,000 sqm regional mall as its centerpiece. A 150-room boutique
hotel shall be located on top of the mall, while a single tower residential condominium with 21 floors
and 522 rooms shall be located right beside the mall. The project is strategically located in the
economic hub of Cagayan de Oro City.
Arvo Commercial Corporation ((incorporated in 2011), a wholly owned subsidiary of the Ayala Land,
was established primarily to develop and operate shopping malls within ALI-identified growth areas
across the country.
Laguna Technopark, Inc. (incorporated in 1990), 75% owned, continued to sell industrial lots to local
and foreign company locators. It also leases ready-built factory units within the Laguna Technopark.
ALI Property Partners Co. (incorporated in 2011), is a wholly-owned subsidiary of Ayala Land that
owns BPO buildings in Makati, Quezon City and Laguna, with a total leasable area of approximately
230 thousand square meters.
Asian I-Office Properties, Inc. (incorporated in 2008), is the Company’s vehicle that manages and
operates two BPO buildings located in Asiatown IT Park in Cebu, namely eBloc and Peak Building A.
In 2013, CPVDC acquired the 60% interest of Ayala Land in AiO for cash considerations. AiO was
previously 40%-owned by CPVDC and 60%-owned by Ayala Land. .
Fairview Prime Commercial Group (Asterion Technopod, Incorporated and Summerhill E-Office
Corporation) and (all incorporated in 2009), are wholly-owned entities established to handle, develop
and manage all future BPO buildings located in various growth centers within the Philippines.
Sunnyfield E-Office Corporation a wholly-owned subsidiary of the Company, was registered with
PEZA lastDecember 17, 2010 as a Developer/Operator of Iloilo Technohub.
Hillsford Property Corp. a wholly-owned subsidiary of the Company, was registered with PEZA last
January 29, 2009as an Ecozone Facilities Enterprise at the John Hay Special Tourism Economic
Zone located inBaguio.
Westview Commercial Ventures Corporation a wholly-owned subsidiary of the Company, was
registered with PEZA last December 17, 2010 as an Ecozone Facilities Enterprise at the Ayala
Northpoint Technohub located in
Bacolod.
Ayala Land Metro North, Inc. (incorporated in 2012), is a wholly-owned subsidiary of the Company. It
is established primarily to develop and operate shopping malls and offices.
Varejo Corporation (incorporated in 2012) is a wholly-owned subsidiary of the Company. It is the
holding company of Ayala Land for its retail-related initiatives.
Hotels and Resorts
Ayala Hotels, Inc. (incorporated in 1991), 50% owned, currently manages hotel land lease operations.
AyalaLand Hotels and Resorts Corporation (incorporated in 2010), 100%-owned, serve as a holding
company for the Company’s hotels and resorts operations.
Greenhaven Property Venture, Inc. (incorporated in 2009), 100%-owned, was established to plan,
develop and manage the hotel being constructed in Glorietta 1 as part of the Ayala Center
redevelopment project.
Ten Knots Philippines, Inc. and Ten Knots Development Corp. (The Ten Knots Group), 60% owned
by ALI in partnership with Asian Conservation Company and ACC Resorts, Inc. (the ACC Group), is
engaged in the development of parcels of land and islands into resorts in Palawan.
ALI Makati Hotels and Residences Inc. and ALI Makati Hotel Property Inc. are the project companies
of the Fairmont Hotel and Raffles Suites and Residences project in Makati which opened last
December 2012. On October 2, 2012, AHRC, a wholly-owned subsidiary of the Company, entered
into an agreement to acquire the interests of Kingdom Manila B.V., an affiliate of Kingdom Hotel
Investments (KHI), and its nominees in KHI-ALI Manila Inc. (now renamed AMHRI) and 72,124
15
common shares in KHI Manila Property Inc. (now renamed AMHPI).
Southcrest Hotel Ventures Inc. (incorporated in 2010) is a 67% owned subsidiary and the project
company of Seda Abreeza in Davao.
Bonifacio Hotel Ventures Inc. (incorporated in 2010) is a wholly-owned subsidiary and the project
company of Seda Bonifacio Global City in Taguig.
North Triangle Hotel Ventures Inc. (incorporated in 2010) is a wholly-owned subsidiary and the project
company of Seda Vertis North in Quezon City.
Northgate Hotel Ventures Inc. (incorporated in 2010) is a 70% owned subsidiary and the project
company of Seda Centrio in Cagayan de Oro.
Ecosouth Hotel Ventures Inc. (incorporated in 2011) is a wholly-owned subsidiary and the project
company of Seda Nuvali in Laguna.
Services
Makati Development Corporation (incorporated in 1974), 100% owned by ALI, continued to engage in
engineering, design and construction of horizontal and low-rise vertical developments. It continued to
service site development requirements of Ayala-related projects while it provided services to thirdparties in both private and public sectors.
MDC Equipment Solutions, Inc. (MESI) is a wholly-owned subsidiary of MDC. MESI was incorporated
on September 16, 2013 primarily to acquire, manage, and operate tools, heavy equipment and motor
vehicles.
MDC Conqrete, Inc. (MCI) is a wholly-owned subsidiary of MDC. MCI was incorporated on August 12,
2013 primarily to manufacture, facilitate, prepare, ready-mix, pre-cast and pre-fabricate floor slabs,
wall panels and other construction materials and to manufacture, buy, sell and deal with cement and
other related products.
MDC Build Plus, a wholly-owned construction subsidiary of MDC, was incorporated on October 17,
2011 to primarily cater to projects focusing on the lower end of the base of the pyramid, particularly
the residential brands Amaia and BellaVita.
Ayala Property Management Corp. (incorporated in 1957), wholly-owned by ALI, continued to manage
properties of ALI and its subsidiaries. It also provides services to third-party clients.
Directpower Services, Inc., (incorporated in 2011), a wholly owned subsidiary of ALI, was formed to
engage in the bulk purchase and supply of electricity and to introduce various energy solutions.
Philippine Integrated Energy Solutions, Inc. (incorporated in 2010), 60% owned by ALI, is engaged in
the implementation of district cooling systems in large ALI mixed-use developments.
Bankruptcy, Receivership or Similar Proceedings
None for any of the subsidiaries and joint ventures above.
Material Reclassification, Merger, Consolidation or Purchase or Sale of a Significant Amount of
Assets (not ordinary) over the past three years
Since 2003, Ayala Land has implemented an asset rationalization program involving, among others,
the sale of installment receivables and divestment of some non-core assets.
The Company divested of its ownership stake in ARCH Capital Management Co., Ltd. In March 2011
while there were no large sale transactions in 2010 and 2009.
On November 16, 2011, the SEC approved the merger of APPHC and APPco, with APPco as the
surviving entity. The merger was meant to streamline administrative processes and achieve greater
efficiency. From the perspective of the Company, the merger did not affect its effective interest (68%)
in the merged entity.
In 2012, ALI Makati Hotel & Residences, Inc. (AMHRI) and ALI Makati Hotel Property, Inc. (AMHPI)
entered into an agreement to acquire the interests of Kingdom Manila B.V., an affiliate of Kingdom
16
Hotel Investments (KHI), and its nominees in KHI-ALI Manila Inc. (now renamed AMHRI) and
common shares in KHI Manila Property Inc. (now renamed AMHPI).
During the same year, Ayala Land was awarded the 74-hectare FTI property through a government
auction by submitting the highest bid amounting to P24.3 billion. Given its proximity to major
thoroughfares, the Company plans to transform this property into another business district, bringing all
of its product lines into the development.
On April 15, 2013, the Company entered into a Sale and Purchase Agreement with Global
Technologies International Limited (GTIL) to acquire the latter’s 32% stake in APPCo for P3,250.0
million. Prior to the acquisition, the Company has 68% effective interest in APPCo.
On April 16, 2013, CPVDC (a subsidiary of CHI) acquired the 60% interest of the Company in AiO for
a cash consideration of P
= 436.2 million. AiO was previously 40%-owned by CPVDC and 60%-owned
by the Company. This transaction allows the Company to consolidate into CPVDC the development
and operations of BPO offices in Cebu and businesses related thereto, which should lead to value
enhancement, improved efficiencies, streamlined processes and synergy creation among the
Company and its subsidiaries. This is also consistent with the thrust of the CHI group to build up its
recurring income base. The acquisition resulted to AiO becoming a wholly owned subsidiary of
CPVDC. Both AiO and CHI are under the common control of the Company.
On October 31, 2013, the Group Company acquired a 55% interest in TPEPI for a consideration of P
=
550.0 million. The acquisition will allow the Group to consolidate its businesses resulting in improved
efficiencies and synergy creation to maximize opportunities in the Cebu real estate market.
On November 19, 2013, AHRC, a wholly owned subsidiary of the Company entered into an agreement
to acquire 100% interest in ACCI, which effectively consolidates the remaining 40% interest in TKDC
and TKPI (60%-owned subsidiary of the Company prior to this acquisition). This acquisition is in line
with the Company’s thrust to support the country’s flourishing tourism industry. The agreement
resulted in the Company effectively obtaining 100% interest in TKPI and TKDC.
Various diversification/ new product lines introduced by the company during the last three
years
Economic Housing
In 2010, Ayala Land entered into the economic housing segment with the launch of AmaiaScapes in
Laguna under the Company’s subsidiary Amaia Land Corp. carrying the brand Amaia. This segment
is expected to provide a steady end-user demand in the long-term as one-third of the estimated 18
million Filipino households and majority of the almost four million national housing backlog units
belong to this segment.
Socialized Housing
In 2011, the Company’s 5th residential brand BellaVita, which will cater to the socialized housing
segment, launched its first residential subdivision project in a 13.6-hectare property in General Trias,
Cavite. The site is highly accessible from different routes and is strategically located at the center of
schools, places of work, public transportation terminals and commercial destinations.
Businessman’s Hotels and Resorts
In 2010, Ayala Land entered into eco-tourism via the partnership with the Ten Knots Group for a 60%
stake in the world-famous El Nido Resorts in Palawan. The Company acquired the Group’s 40% stake
in El Nido Resorts in 2013, through wholly-owned subsidiary Ayalaland Hotels and Resorts
Corporation.
In 2013, the Company commenced operations of its Seda Hotels in Bonifacio Global City, Cagayan
de Oro, Davao and Holiday Inn & Suites Makati. Seda Hotel Nuvali unveiled its door in March 2014.
Other Services
Philippine Integrated Energy Solutions, Inc. (Philenergy) began official operations with the
construction of two district cooling system (DCS) plants which will serve the needs of the Ayala Center
redevelopment in Makati and the Alabang Town Center. The Company is currently planning other
DCS projects in Cebu, Davao, Cagayan de Oro, and Quezon City and will also tap into the large
domestic and even regional market of facilities that require energy-saving solutions.
17
New Businesses
Ayala Land ventured into maiden businesses to further complement and enhance the value
proposition of its large scale, masterplanned, integrated mixed-use communities. The introduction of
these new formats is likewise seen to boost the Company’s recurring income base.
Hospitals/Clinics
Ayala Land entered into a strategic partnership with the Mercado Group in July 2013 to establish
hospitals and clinics located in the Company’s integrated mixed-use developments. The Company will
enhance its communities with the introduction of healthcare facilities under the QualiMed brand. The
first QualiMed clinic opened in February 2014 at Trinoma in Quezon City. Construction is on-going for
Qualimed Iloilo and is set to open by the third quarter of 2014.
Convenience Stores
SIAL CVS Retailers, Inc., a joint venture entity between Varejo Corporation and Specialty
Investments, Inc. (wholly-owned subsidiaries of Ayala Land, Inc. and Stores Specialists, Inc.,
respectively) signed an agreement with FamilyMart Co, Ltd and Itochu Corporation to tap
opportunities in the convenience store business. The first FamilyMart store was unveiled last April 7,
2013 at Glorietta 3 in Makati. A total of 31 FamilyMart stores were opened in 2013.
Department Stores
Varejo Corporation and Specialty Investments, Inc. (wholly-owned subsidiaries of Ayala Land, Inc.
and Stores Specialists, Inc., respectively) formed SIAL Specialty Retailers, Inc. to develop and
operate department stores in ALI’s mall developments. The first Wellworth branch is scheduled to
open in March 2014 at Fairview Terraces in Quezon City. The Company plans to put up an average of
three department stores per year in the next five years.
Supermarkets
Varejo Corporation, a subsidiary of Ayala Land, entered into a joint venture agreement with Entenso
Equities Incorporated, a wholly-owned entity of Puregold Price Club, Inc., to develop and operate midmarket supermarkets for some of Ayala Land’s mixed-use projects. The first supermarket will open in
the 4th quarter of 2014 at Atria Park District in Iloilo. The Company expects to roll out three mid-brand
supermarkets per year.
Competition
Ayala Land is the only full-line real estate developer in the Philippines with a major presence in almost
all sectors of the industry. Ayala Land believes that, at present, there is no other single property
company that has a significant presence in all sectors of the property market. Ayala Land has
different competitors in each of its principal business lines.
With respect to its mall business, Ayala Land’s main competitor is SM Prime whose focus on mall
operations gives SM Prime some edge over the Company in this line of business. Nevertheless,
Ayala Land is able to effectively compete for tenants primarily based on its ability to attract customers
-- which generally depends on the quality and location of its shopping centers, mix of tenants,
reputation as a developer, rental rates and other charges.
For office rental properties, Ayala Land sees competition in smaller developers such as Kuok
Properties (developer of Enterprise Building), Robinsons Land (developer of Robinsons Summit
Center) and non-traditional developers such as the AIG Group (developer of Philam Towers) and
RCBC (developer of RCBC towers). For BPO office buildings, Ayala Land competes with the likes of
Megaworld and Robinsons Land. Ayala Land is able to effectively compete for tenants primarily based
upon the quality and location of its buildings, reputation as a building owner and the quality of support
services provided by its property manager, rental and other charges.
With respect to residential lot and condominium sales, Ayala Land competes with developers such as
Megaworld, DMCI Homes, Robinsons Land, and SM Development Corporation. Ayala Land is able to
effectively compete for purchasers primarily on the basis of reputation, price, reliability, and the quality
and location of the community in which the relevant site is located.
For the middle-income/affordable housing business, Ayala Land sees the likes of SM Development
Corp, Megaworld, Filinvest Land and DMCI Homes as key competitors. Alveo and Avida are able to
effectively compete for buyers based on quality and location of the project and availability of attractive
in-house financing terms.
18
For the economic housing segment, Amaia competes with Camella Homes, DMCI Homes, Filinvest,
Robinsons Land and SM Development Corporation.
BellaVita, a relatively new player in the socialized housing market, will continue to aggressively
expand its geographical footprint with product launches primarily located in provincial areas.
Suppliers
The Company has a broad base of suppliers, both local and foreign. The Company is not dependent
on one or a limited number of suppliers.
Customers
Ayala Land has a broad market base including local and foreign individual and institutional clients.
The Company does not have a customer that will account for twenty percent (20%) or more of its
revenues.
Transactions with Related Parties
The Company and its subsidiaries (the “Group”), in their regular conduct of business, have entered
into transactions with associates and other related parties principally consisting of advances and
reimbursement of expenses, purchase and sale of real estate properties, construction contracts, and
development, management, underwriting, marketing, leasing and administrative service agreements.
Sales and purchases of goods and services to and from related parties are made on an arm’s length
basis and at current market prices at the time of the transactions.
However, no other transaction, without proper disclosure, was undertaken by the Group in which any
director or executive officer, any nominee for election as director, any beneficial owner of more than
5% of the Company’s outstanding shares (direct or indirect) or any member of his immediate family
was involved or had a direct or indirect material interest.
ALI employees are required to promptly disclose any business and family-related transactions with the
Company to ensure that potential conflicts of interest are surfaced and brought to the attention of
management.
Government approvals/regulations
The Company secures various government approvals such as the ECC, development permits, license
to sell, etc. as part of the normal course of its business.
Employees
Ayala Land - parent company has a total workforce of 492 regular employees (2,742 including
manpower of wholly-owned subsidiaries) as of December 31, 2013.
The breakdown of the ALI - Parent Company employees according to type is as follows:
Executive
Managers
Staff
Total
24
205
263
492
ALI Parent has recently concluded negotiations with the union and inked a new three (3) year
collective bargaining agreement, covering January 2012 to December 2014 that provides for salary
increases based on performance. The company continues to nurture an open and cooperative
relation with the union.
The Company has embarked on a robust leadership development and talent management program
for leaders at the frontline, middle management and senior leaders. It has also implemented retention
initiatives that has resulted in the lowest attrition levels and has strongly pushed for a strong
performance management where all employees up to staff individual contributors have clear key
result objectives and basis for performance assessments and feedback.
Risks
Ayala Land is subject to significant competition in each of its principal businesses. Ayala Land
competes with other developers and developments to attract land and condominium buyers, shopping
center and office tenants, and customers of the retail outlets, restaurants, and hotels and resorts
across the country.
19
However, Ayala Land believes that, at present, there is no single property company that has a
significant presence in all sectors of the property market.
High-End, Middle-Income, Affordable Residential, and Economic and Socialized Housing
Developments
With respect to high-end and middle-income land and condominium sales, Ayala Land competes for
buyers primarily on the basis of reputation, reliability, price and the quality and location of the
community in which the relevant site is located. For the affordable, economic and socialized housing
markets, Ayala Land competes for buyers based on quality of projects, affordability of units and
availability of in-house financing. Ayala Land is also actively tapping the overseas Filipino market.
Shopping Center, Office Space and Land Rental
For its shopping centers, Ayala Land competes for tenants primarily based on the ability of the
relevant shopping center to attract customers - which generally depend on the quality and location of,
and mix of tenants in, the relevant retail center and the reputation of the owner of the retail center and rental and other charges. The market for shopping centers has become especially competitive
and the number of competing properties is growing. Some competing shopping centers are located
within relatively close proximity of each of Ayala Land's commercial centers.
With respect to its office rental properties, Ayala Land competes for tenants primarily based on the
quality and location of the relevant building, reputation of the building's owner, quality of support
services provided by the property manager, and rental and other charges. The Company is
addressing the continuing demand from BPOs by providing fully integrated and well maintained
developments (high rise or campus facility) in key locations in the country.
Hotels and Resort Operations
The local hotel and resort sector is largely driven by foreign and local travel for leisure or business
purposes. Any slowdown in tourism and business activity due to global financial and local political
turmoil and security concerns could potentially limit growth of the Company's hotels and resorts.
Construction
Ayala Land's construction business is benefiting from the improved performance of the construction
industry, particularly from an uptick in development activities mostly from the residential and retail
sectors. Any slowdown in the construction business could potentially cap growth of the Company's
construction arm.
Other risks that the company may be exposed to are the following:
Changes in Philippine and international interest rates
Changes in the value of the Peso
Changes in construction material and labor costs, power rates and other costs
Changes in laws and regulations that apply to the Philippine real estate industry
Changes in the country's political and economic conditions
To mitigate the above mentioned risks, Ayala Land shall continue to adopt appropriate risk
management tools as well as conservative financial and operational controls and policies to manage
the various business risks it faces.
Working Capital
Ayala Land finances its working capital requirements through a combination of internally-generated
cash, pre-selling, joint ventures and joint development agreements, borrowings and proceeds from the
sale of non-core assets and installment receivables.
Domestic and Export Sales
Amounts of revenue, profitability, and identifiable assets attributable to domestic and foreign
operations for 2013, 2012 and 2011 follow: (in P ‘000)
2013
2012
2011
81,523,070
-
59,932,162
-
47,667,610
-
Net income (Attributable to equity holders of ALI)
Domestic
11,741,764
Foreign
-
9,038,328
-
7,140,308
-
Consolidated revenues
Domestic
Foreign
20
Total assets
Domestic
Foreign
325,473,685
-
254,115,680
-
166,398,998
-
INTEGRATED MICROELECTRONICS, INC.
Background and Business
Established in 1980, Integrated Micro-Electronics, Inc. (alternately referred to as IMI or “the
Company” in the entire discussion of Integrated Microelectronics, Inc), has grown into a global
company offering core manufacturing capabilities as well as higher value competencies in design,
engineering, prototyping and supply chain management. IMI is a vertically integrated EMS provider to
leading global original equipment manufacturers (“OEMs”) across industries including computing,
communications, consumer, automotive, industrial and medical electronics segments, as well as
emerging industries like renewable energy. IMI also provides power semiconductor assembly and test
services.
IMI, a stock corporation organized and registered under the laws of the Republic of the Philippines on
August 8, 1980, has four (4) subsidiaries, namely: IMI International (Singapore) Pte. Ltd. (IMI
Singapore), IMI USA, Inc. (IMI USA), IMI Japan, Inc. (IMI Japan) and PSi Technologies Inc. (PSi)
(collectively referred to as the “Group”). IMI Singapore, IMI USA and IMI Japan are wholly owned
subsidiaries while PSi is 83.25% owned.
On January 21, 2010, IMI was listed by way of introduction in the PSE.
IMI is registered with the Philippine Economic Zone Authority (PEZA) as an exporter of printed circuit
board assembly (PCBA), flip chip assembly, box build sub-assembly, enclosure system, and provider
of electronics product design, research and development (R&D), product development outsourcing
and other electronic parts, among others. IMI is also engaged in the business of providing test
development and systems integration services and distributing related products and equipment and
related services. These PEZA registrations entitle IMI to a four-year income tax holiday (ITH) and an
option to apply for ITH extension for a maximum of three (3) years subject to various PEZA
requirements. As of December 31, 2013, there are four (4) new project activities with ITH entitlement
which will expire in 2017.
IMI Singapore was incorporated and is domiciled in Singapore. It is engaged in the procurement of
raw materials, supplies and provision of customer services. Its wholly-owned subsidiary, SpeedyTech Electronics Ltd. (STEL), was incorporated and is domiciled also in Singapore. STEL on its own
has subsidiaries located in Hong Kong, People’s Republic of China (PRC) and Singapore. STEL and
its subsidiaries are principally engaged in the provision of Electronic Manufacturing Services (EMS)
and Power Electronics solutions to original equipment manufacturing (OEM) customers in the
consumer electronics, computer peripherals/information technology, industrial equipment,
telecommunications and medical device sectors.
IMI Singapore established its Philippine Regional Operating Headquarters (also known as IMI
International ROHQ or IMI ROHQ) in 2009. It serves as a supervisory, communications and
coordinating center for the affiliates and subsidiaries of IMI Singapore.
In 2011, IMI infused additional capital to IMI Singapore in exchange for newly issued shares of the
latter. This was used by IMI Singapore to set up Monarch Elite Ltd. and Cooperatief IMI Europe U.A.
as holding companies and facilitate the acquisition of Integrated Micro-Electronics Bulgaria EOOD
(IMI BG) (formerly EPIQ Electronic Assembly EOOD), Integrated Micro-Electronics Czech Republic
s.r.o. (IMI CZ) (formerly EPIQ CZ s.r.o.), and Integrated Micro-Electronics Mexico, S.A.P.I. de C.V.
(IMI MX) (formerly EPIQ MX, S.A.P.I de C.V.), (collectively referred to as “IMI EU/MX Subsidiaries”),
from EPIQ NV. IMI EU/MX subsidiaries design and produce printed circuits and spray casting of
plastics, and supply assembled and tested systems and sub-systems which include drive and control
elements for automotive equipment, household appliances, industrial market and other applications
with plastic parts and electronic components. They also provide engineering, R&D, and logistics
management services.
IMI USA was incorporated and is domiciled in Tustin, California in the United States. It is at the
forefront of technology with regard to precision assembly capabilities including surface mount
technology (SMT), chip on flex, chip on board and flip chip on flex. It specializes in prototyping low to
medium PCBA and sub-assembly. It is also engaged in engineering, design for manufacturing
21
technology, advanced manufacturing process development, new product innovations, direct chip
attach and small precision assemblies. In 2010, the IMI Energy Solutions, a division of IMI USA, was
established in Fremont, California, to develop and manufacture solar panels and other related
technologies. Renewable Energy Test Center (RETC) is right next door to IMI Energy Solutions to
ensure fast turnaround time from prototyping to product certification. IMI Energy Solutions offers its
clients Photovoltaic (PV) module NPI (new product introduction), and the capability to build different
PV panel sizes and PV panel coupons for new product-technology validation.
IMI Japan was registered and is domiciled in Japan. IMI Japan acts as sales office and program
management center for new business. There is no manufacturing operation in IMI Japan.
PSi is a power semiconductor assembly and test services (SATS) company serving niche markets in
the global power semiconductor market. It provides comprehensive package design, assembly and
test services for power semiconductors used in various electronic devices. PSi wholly owns PSi
Technologies Laguna, Inc. (PSi Laguna), which also provides SATS. In addition, PSi owns 40% of
PSiTech Realty, Inc., the holding company of Pacsem Realty, which is a real estate company that
acquires, holds, develops and disposes any real estate or interest acquired. In 2012, the Philippine
Securities and Exchange Commission (SEC) approved the legal merger of PSi Laguna and PSi, with
the former as the absorbed entity and PSi as the surviving entity.
Operations
Design and Engineering Solutions
Partnering with IMI allows a complete and successful product development. This is made possible by
IMI’s capability to design and develop complete products and subsystems, analyze product design
and materials for costs reduction through value and profit engineering, and develop solutions for costeffective production and fast time-to-market while safeguarding intellectual property. IMI’s product
development and engineering service offerings include Contract Design and Joint Development
Solutions, Advanced Manufacturing Engineering (AME), Test and Systems Development, and
Reliability/Failure Analysis and Calibration Quality Test solutions.
Supply Chain Solutions
IMI’s supply chain management solutions are equipped to help partners reduce the risk brought about
by a volatile global market. The three-pronged approach include a systematic Order Management
Solution, a dynamic Supply Chain Strategy hinged on Supplier Managed Inventory, Continuous
Replenishment and Buffer Stock Programs, and a comprehensive Cost Management Solution that
revolves around regular price reviews and negotiations with leading materials strategic supplierpartners, distributors and manufacturers.
Manufacturing Solutions
IMI’s comprehensive manufacturing experience allows a prospective client to leverage its strength in
RoHS-compliant and cleanroom manufacturing process, complex manufacturing using consigned
equipment and materials, complete turnkey manufacturing, and ERP-based planning. IMI has the
essential infrastructure equipment, manpower and quality systems to assure quick start of operations
and turnaround time. These include: PCBA and FCPA Assembly (Flexible PCBA, Aluminum PCBA,
Ceramic PCBA, Flip Chip On Flex, Chip-On-Board, Chip-On-flex, Chip-On-Glass, Hybrid Module
PCBA), Automated Through-Hole Assembly, PCBA with Multiple BGA SMT - Automated
Manufacturing, Complete Box build Solutions, Sub Assembly services, Component Assembly and
Manufacturing of Enclosure Systems.
Business Models
IMI recognizes the uniqueness of each customer’s requirements. To satisfy specific requests, IMI
offers flexible business models that allow it to build the perfect assembly for its client’s manufacturing
requirements.
The “Standard” and “Semi-custom” business models pertain to IMI’s PCBA processes. IMI invests in
SMT lines which support multiple customer requirements. Back-end and box build processes are also
set-up depending on customer requirements.
The “Custom” Business Model gives the client a free hand in designing the systems by offering a
dedicated facility manned by an independent and exclusive organization that will build the system
from ground up. With quality structures and operational procedures compatible with the client’s
systems, IMI’s line serves as the client’s extension plant, assuring that all the parts and processes are
customized to the client’s particular needs.
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Capabilities and Solutions
IMI’s capabilities allow it to take on the specific outsourcing needs of its customers, providing them
with flexible solutions that encompass design, manufacturing, and order fulfilment. It develops
platforms to customize solutions in response to its customers’ unique requirements. Its platforms in
areas like short-range wireless systems, embedded systems, and sensors and imaging technology
represent capabilities to manufacture products. New manufacturing capabilities are developed by
IMI’s AME group. Its expertise includes immersion silver process, pre-flow underfill process, thermally
enhanced flip chip technology, traceless flip chip technology, and flip chip on flex assembly, among
others. IMI has a complete range of manufacturing solutions – from PCBA to complete box build.
Through its flexible, efficient, and cost-effective end-to-end EMS solutions, IMI gives OEMs the luxury
of focusing on their core competencies of technology R&D and brand marketing.
Subsidiary in Power Semiconductor Assembly and Test
IMI through its subsidiary, PSi, provides outsourced power semiconductor assembly and test services
for legacy packages, power QFNs, and power modules.
Global Materials and Supply Chain Management
IMI’s mission is to offer strategic and competitive Supply Chain Management for complete order
fulfillment of its customers. IMI’s turnkey capabilities involve major commodities for direct/indirect
materials: passive/active/mechanical/electro-mechanical components, existing vendor base for over
36,000 line items, and Global sourcing in Asia, US and Europe of over 200 major and strategic
suppliers from over 2,000 suppliers listed in our database. IMI is not or is not expected to be
dependent upon one supplier for raw materials or other items.
IMI’s warehousing capabilities include housing all direct and indirect materials, outsourcing to a third
party logistics provider, satellite warehouses in other IMI plants and under the mySAPTM ERP System.
IMI also has Vendor Partnership Programs to leverage for the most competitive cost and engaged the
supply base on vendor qualification, certification and development. With regard to inbound and
outbound logistics, IMI are partners with the best in the industry. The major lines inbound are
Singapore, Japan, Hong Kong, Taiwan, Malaysia, Thailand, Germany and the US. Major lines
outbound are US, Germany, Malaysia, Hong Kong, Israel, Switzerland, Vietnam, UK, Japan,
Singapore and France.
Product Capabilities
IMI has experience in working with some of the world’s leading companies in the following products:
Automotive Electronics
ƒ Automotive Camera
ƒ Electronic Wiper System
ƒ PCBA for Electronic Stability Program (ESP)
ƒ Tire Pressure Sensor PCBA
ƒ Car Windshield Temperature and Humidity Sensor
ƒ Electronic Power Steering (EPS)
ƒ Rotor Position Sensor (RPS)
ƒ PCBA for Headlight
ƒ Switch Controller for Main Light
ƒ Communication Power PCBA
ƒ Body Control Module (BCM)
ƒ Antenna Receiver / DAB Tuner
ƒ Powertrain Control Solutions
ƒ Semiconductors used in Electric Drive/ Hybrid Electric
Vehicles
ƒ Fuel Management
ƒ Pump Driver
ƒ Steering Wheel Control Device
ƒ Cockpit Control Device, Audio Processor
ƒ Daytime Running Light
ƒ Interior Plastic Parts
Industrial Electronics
•
•
•
•
•
•
Automated Meter Reading (AMR)
Security Device
Electronic Door Access System
Smart Card
Point Of Sales System
Printer Control Board
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•
•
•
•
•
•
•
•
•
Power Amplifier
DC-DC Power Converter
Engine Controllers
Welding Machine Inverter
Motor Drivers for Conveyor
Fan Motor Control Board
Computer Numerical Control (CNC) Control Board
Main power supplies for LED street lighting
Modules for renewable energy generation, transmission and
conversion
• Solar Power Power Regulator
• Mobile Base Station Antenna
• Semiconductor Test Handling Equipment
Medical Electronics
•
•
•
•
•
•
•
•
•
Flat Panel Imaging Equipment
Auto Body Contouring Imaging Equipment
Dental Imaging System
Defibrillator Component
Concealed Hearing Aid
Biomedical and Laboratory Equipment
Centrifuge Control Board
Fitness Equipment Control Board
Medical Instrument Power Supply
Telecommunications
•
•
•
•
•
•
•
•
•
Back Panel for Telecommunication Board
Fiber to the “X” (FFTx) systems
Booster Amplifier
GPON (Gigabit Passive Optical Network) Systems
Wireless Security System
Base Station Power Supply
Digital Station Control Board
Power Transistors for amplifiers in cellular base stations
Power Conversion ICs in adapters and chargers for cell
phones and cordless phones
DC port and USB port protection for cell phones and
satellite radio peripherals
•
Computing and Storage
Devices
•
•
•
•
•
•
•
•
•
•
•
Consumer Electronics
•
•
•
•
•
•
•
•
•
CD/Combo Drive
DVD Drive
Blu-Ray Disc Drive
Hard Disk Drive
Solid State Drives
Printer Sensor
Printer Control Board
Multi-Function Copier Machine
DVD Recorder Power Supply
Power Supplies for Servers, PCs, Notebooks, and
Netbooks
Over-voltage protection for HDD and DC port protection
for keyboard mouse
Hybrid IC
Gas Ignitor and Re-Ignitor
Air-Conditioning (HVAC) Controller
Power Management and Home Appliance for Lighting
Control
Refrigerator and Cooker Hood Control Board
Projector Lamp Drivers
Household Metering Device
Bluetooth Headset
Electric Drive Control for home appliances
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•
•
•
•
•
•
•
•
Power Semiconductor
Renewable Energy
Main Power Supply for Flat-panel TV
Power Supply for game consoles and entertainment
electronics
High Voltage Power Conversion ICs in adapters and
chargers for personal electronics
Garage Door Control
Programmable Timer
Pressure Cooker Modules
Steamer Controller Modules
Washing Machine controllers
Coffee Machine
•
Low-Medium Power Packages:
- TO 220 Fpak 2/3L; TO 220 2/3/5/7L, SOT 82
- PowerFlex 2/3/5/7L, TO252 / TO251, TO 263 3L;
- 3 x 3 mm QFN, 3.3 x 3.3mm QFN ; 5x6mm QFN
•
Medium-High Power Packages:
ƒ SOT 93 3L, TO 247 3L, TO 264 3/5L, SOT 227
ƒ Standard Packages - SP3, SP4, SP6
ƒ DRF, ARF
•
Small Signal Packages - SOT 223 3L, TO 220 2/3/5/7L
•
•
•
•
•
•
PV Panel Assembly
PV Co-Design & Development
PV Panel High Volume Manufacturing
PV Panel Platform
PV Inverter Platform
Inverter Electronics
With regard to emerging product capabilities, IMI is pursuing OEMs in the PV or Solar Energy and
Sensor and Imaging fields.
Except as otherwise disclosed as above, there are no other publicly-announced new products or
services during the year.
Human Resources
The Company has a total workforce of 14,281 employees as of December 31, 2013, shown in the
following table:
Job Groups
Managers
Supervisors
Rank-and-File
Technicians
Operators
TOTAL
Total
385
1,444
1,851
892
9,709
14,281
Philippines
150
540
809
291
3,973
5,763
China/
Singapore
168
605
629
499
4,017
5,918
USA
Japan
Europe
6
5
4
15
3
1
4
58
293
409
102
1,719
2,581
The relationship between management and employees has always been of solidarity and
collaboration from the beginning of its operations up to the present. The rank and file employees and
the supervisory employees of the Company are not unionized. Hence, there is no existing Collective
Bargaining Agreement (CBA) between the Company and its employees.
At present, the Company does not intend or anticipate hiring any number of employees within the
ensuing twelve (12) months because the current workforce can still cope up with the volume of
expected customer orders within that period.
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IMI has existing supplemental benefits for its employees such as transportation and meal subsidy,
group hospitalization insurance coverage and non-contributory retirement plan.
The Company has or will have no supplemental benefits or incentive arrangements with its employees
other than those mentioned above.
Strategic Partnerships
An active strategic partnership is that with Renewable Energy Test Center, a California-based
engineering services, test and certification provider for PV and renewable energy products. This
partnership was forged in 2009. With IMI Energy Solutions, the partnership aims to offer PV services
including PV panel development, panel prototyping, certification, and mass production. IMI Energy
Solutions focuses on solar panel development and prototyping, while RETC handles product testing
and certification. RETC is right next door to IMI Energy Solutions to ensure fast turnaround time from
prototyping to product certification.
Competition
IMI is an EMS provider to OEM manufacturers in the computing, communications, consumer,
automotive, industrial, and medical electronics segments as well as emerging industries like
renewable energy. The global economy continues to be weak despite improvements in advanced
economies. Global economy grew by 3% in 2013 and is estimated to rise further at 3.7% in 2014.
The global electronics equipment production fell 2.3% in 2013 with China dropping by 1.8% as well.
2014 is seen to have better positive estimates with a 4.8% growth in global production as Europe
leaves recession towards a slow yet progressive rise. Combined EMS and original design
manufacturing (ODM) revenues fell by 4.9% in 2013. Global EMS revenues were estimated to be just
flat in 2013. Leading EMS companies continue to seek more innovation by focusing on higher
margins in non-traditional markets as it faces thinning margins and cost pressures from OEM
customers.
IMI competes worldwide, with focus on Asia (including Japan and China), North America, and Europe.
There are two methods of competition: a) price competitiveness and b) robustness of total solution
(service, price, quality, special capabilities or technology). IMI competes with EMS companies ODM
manufacturers all over the world. Some of its fierce EMS provider competitors include Hon Hai,
Flextronics, Hana, and Plexus.
Hon Hai is a Taiwanese company with estimated annual revenues of US$130 billion in 2013, best
known as the vertically integrated outsourcing partner of Apple for tablets and smartphones. Hon Hai
is a competitor of IMI in the computing and telecommunication infrastructure markets. It is estimated
that Hon Hai will attain estimated total revenues of more than US$ 105 billion in 2013. Flextronics is a
Singapore-headquartered company with annual revenues of US$23.5 billion in 2013; its cost structure
is very competitive it is vertically integrated as well. Flextronics poses competition to IMI in the
automotive space. Hana is a Thai company with annual revenues of around US$550 million a year; it
has a semiconductor manufacturing arm. Hana competes with IMI in industrial market. Plexus, U.S.based, recorded US$2.2 billion revenues in fiscal 2013 ended Sept 31, 2013. Plexus is a key EMS
player in industrial and medical sectors, which are target markets of IMI.
IMI is focused on delivering customized solutions of highest quality at reasonable prices. It
collaborates with the customers in finding the right solutions to their problems. IMI even challenges its
own systems and processes if needed. It has a distinct advantage in serving customers who value
quality over price and require complex non-standard solutions. Living up to the flexible expertise
brand, IMI is adaptable to the needs and conditions of its customers. This expertise has propelled IMI
onto the current list of the top 30 EMS providers in the world and earned for IMI several accolades
from its customers. IMI also ranked number 9 among the largest EMS providers in the automotive
segment based on 2012 revenues.
Transactions with Related Parties
The Company and its subsidiaries, in their regular conduct of business, have entered into transactions
with associates and other related parties principally consisting of advances, loans, reimbursement of
expenses, various guarantees, construction contract, and management, marketing, and administrative
service agreements. Sales and purchases of goods and services to and from related parties are made
at normal market prices.
26
Risk Factors
The Company’s business, financial condition and results of operation could be materially and
adversely affected by risks relating to the Company and the Philippines.
IMI’s operating results may significantly fluctuate from period to period
There is a risk that IMI’s operating results may fluctuate significantly. Some of the principal factors
affecting its operating results include:
(1) Changes in demand for its products and services;
(2) Customers’ sales outlook, purchasing patterns, and inventory adjustments;
(3) The mix of the types of services provided to its customers such as: volume of products,
complexity of services and product maturity;
(4) The extent to which it can provide vertically integrated services for a product;
(5) Its effectiveness in managing its manufacturing processes, controlling costs, and integrating
any potential future acquisitions;
(6) Its ability to make optimal use of its available manufacturing capacity;
(7) Changes in the cost and availability of labor, raw materials and components, which affect its
margins and its ability to meet delivery schedules;
(8) Its ability to manage the timing of its component purchases so that components are available
when needed for production while avoiding the risks of accumulating inventory in excess of
immediate production needs;
(9) Timing of new technology development and the qualification of its technology by its customers;
and
(10) Local conditions and events that may affect its production volumes, such as labor conditions,
political instability, and local holidays.
Due to the factors enumerated above and other risks discussed in this Section, many of which are
beyond the Company’s control, its operating results may vary from time to time.
Furthermore, IMI may not be able to effectively sustain its growth due to restraining factors concerning
corporate competencies, competition, global economies, and market and customer requirements. To
meet the needs of its customers, IMI has expanded its operations in recent years and, in conjunction
with the execution of its strategic plans, the Company expects to continue expanding in terms of
geographical reach, customers served, products, and services. To manage its growth, IMI must
continue to enhance its managerial, technical, operational, and other resources.
IMI’s ongoing operations and future growth may also require funding either through internal or
external sources. There can also be no assurance that any future expansion plans will not adversely
affect IMI’s existing operations since execution of said plans often involves challenges. For instance,
IMI may be required to manage relationships with new or a greater number of suppliers, customers,
equipment vendors, and other third parties. IMI may further be confronted with such issues as
shortages of production equipment and raw materials or components, capacity constraints,
construction delays, difficulties in ramping up production at new facilities or upgrading or expanding
existing facilities, and training an increasing number of personnel to manage and operate those
facilities. Compounding these issues are other restraining factors such as competitors’ more
aggressive efforts in expanding business and volatility in global economies and market and customer
requirements. All these challenges could make it difficult for IMI to implement any expansion plans
successfully and in a timely manner.
In response to a very dynamic operating environment and intense industry competition, IMI focuses
on high-growth/high-margin specialized product niches, diversifies its markets and products, engages
in higher value add services, improves its cost structure, and pursues strategies to grow existing
accounts.
Moreover, IMI has established a structure that promotes a transparent corporate governance system.
It has an Audit & Risk Committee that reviews quarterly and audited annual results of operations. It
also has a Finance Committee that reviews and approves significant financial policies and performs
oversight function over the risk management process of the organization. The Company’s financial
statements are certified by a reputable accounting firm.
IMI is highly dependent on an industry that is characterized by rapid technological changes
The demand for the Company’s solutions is derived from the demand of end customers for electronic
products. IMI’s solutions have end-use applications in the computing, communications, consumer
automotive, industrial and medical electronics industries.
27
These industries have historically been characterized by rapid technological change, evolving industry
standards, and changing customer needs. There can be no assurance that IMI will be successful in
responding to these industry demands. New services or technologies may render IMI’s existing
services or technologies less competitive. If IMI does not promptly make measures to respond to
technological developments and industry standard changes, the eventual integration of new
technology or industry standards or the eventual upgrading of its facilities and production capabilities
may require substantial time, effort, and capital investment.
IMI is keeping abreast of current trends and technology in the electronics industry and is continuously
conducting studies to enhance its capabilities and value proposition to its customers. It defines and
executes technology road maps that are aligned with market and customer requirements.
IMI may not be able to mitigate the effects of price declines over the life cycles of its products or as a
result of changes in its mix of new and mature products, mix of turnkey and consignment business
arrangements, and lower competitors’ prices
The price of IMI’s products tends to decline over the product life cycle, reflecting obsolescence,
decreased costs of input components, decreased demand, and increased competition as more
manufacturers are able to produce similar products in large numbers as such products become
standardized. Furthermore, the gross margin for manufacturing services is highest when a product is
first developed. As products mature, market pressures push average selling prices down and cause
gross margin erosion. IMI may be forced to reduce the price of its service for more mature products in
order to remain competitive against other manufacturing services providers. IMI’s gross margin may
further decline if competitors lower their prices as a result of decreased costs or to absorb excess
capacity, liquidate excess inventories, or restructure or attempt to gain market share.
IMI is also moving to a higher proportion of its products on turnkey production (with IMI providing
labor, materials and overhead support), as compared to those under the consignment model. The
margins on these turnkey businesses are generally lower than those done on consignment basis.
To mitigate the effects of price declines in IMI’s existing products and to sustain margins, IMI
continues to improve its production efficiency by reducing its input component costs, reducing
inventory costs, and lowering operating costs. IMI must continually drive its costs down. More
importantly, IMI is intensifying its effort in capturing customers with products in high-margin product
niches most of which involve emerging technologies or complex manufacturing processes.
IMI generally does not obtain firm volume purchase commitments from its customers
IMI generally does not obtain firm volume purchase commitments from its customers. Customers
may place lower-than-expected orders, cancel existing or future orders or change production
quantities. Although IMI’s customers may be contractually obligated to purchase products, IMI may
be unable to or, for other business reasons, choose not to enforce its contractual rights.
Cancellations, reductions, or instructions to delay production by a significant customer could also
harm IMI’s operating results.
In addition, IMI makes significant decisions, including determining the levels of business that it will
seek and accept, production schedules, component procurement commitments, personnel needs, and
other resource requirements. These key decisions are ultimately based on estimates of customer
requirements. The rapid changes in demand for its products reduce its ability to estimate accurately
future customer requirements. Thus, in facing these rapid changes in demand, production scheduling
difficulty and the limited ability to maximize manufacturing capacity utilization are encountered.
To the extent possible, IMI negotiates for guaranteed volume and/or volume break pricing, and
materials buy-back to taper the impact of sudden cancellations, reductions, delays in customer
requirements.
IMI’s success depends on attracting, engaging and retaining key talents, including skilled research
and development engineers
IMI believes that its people are its most valuable asset and an engaged workforce is an essential
element to the continued success of its organization. IMI is committed to build a workforce with
purpose, excitement, and mutual alignment in order to retain its highly-skilled workers, support and
technical staff and management team. It is an organization that keeps abreast of latest trends and
developments to fulfill customer needs to remain in business.
IMI believes that in order to meet customer requirements it has to have highly-skilled workforce
possessing the critical skills, competence and attributes to satisfactory perform and exceed the
28
requirements of the job. To remain one of the top electronics manufacturing solutions providers, IMI
must have dedicated and passionate workforce with global skills and ethical standards committed to
its vision, mission and values. IMI continuously identifies top-caliber candidates and keep the pipeline
full always ready to assume new roles and fuel growth.
The unending war for talent has always been a challenge in the industry. IMI believes that employee
attrition has an unfavorable impact to the organization. It can interrupt operation processes that could
affect the quality of its products and services that may put the business at risk.
The Company recognizes that its competitiveness is dependent on its key talent pipeline, including
leadership, talent and skill pool, and succession plan. Thus, it has implemented proactive measures
to retain employees through sound retention programs, encouraging work-life balance among its
employees, and providing structured career development paths to promote career growth within the
organization and loyalty to the Company. The Company also believes that in order to sustain IMI’s
growth, it will have to continuously attract, develop, engage and retain skilled workforce highly
capable to achieve business goals.
IMI may encounter difficulties with acquisitions it may make in the future
IMI’s globalization strategy has transformed IMI from a Philippines-centric company into a global
network with manufacturing and engineering facilities in the Philippines, China, Singapore, Bulgaria,
Czech Republic, Mexico and the United States; and sales offices in Asia, Europe and North America.
IMI’s further growth may depend in part on future acquisitions, which may expose IMI to potential
difficulties that include:
(1) Diversion of management’s attention from the normal operations of IMI’s business;
(2) Potential loss of key employees and customers of the acquired companies;
(3) Difficulties in managing and integrating operations in geographically dispersed locations;
(4) Lack of experience operating in the geographic market of the acquired business;
(5) Reduction in cash balance and increases in expenses and working capital requirements, which
may reduce return on invested capital;
(6) Potential increases in debt, which may increase operating costs as a result of higher interest
payments;
(7) Difficulties in integrating acquired businesses into existing operations, which may prevent it
from achieving, or may reduce the anticipated synergy.
Mergers and acquisitions (M&As) may have an immediate financial impact to IMI due to:
(1) Dilution of the percentage of ownership of current stockholders;
(2) Periodic impairment of goodwill and other intangible assets; and,
(3) Liabilities, litigations, and/or unanticipated contingent liabilities assumed from the acquired
companies.
If IMI is not able to successfully manage these potential difficulties, any such acquisitions may not
result in any material revenues or other anticipated benefits.
To limit its exposure to these potential difficulties, IMI performs a thorough assessment of the upside
and downside of any M&As. IMI creates a team from Business Development, Business Units,
Finance, Legal, Engineering, and Advisers who examines the vision, long-term strategy, compatibility
with IMI’s culture, customer relationship, technology, and financial stability of the Company to be
acquired. All M&As have to be reviewed by the Executive Committee, Finance Committee, and
approved by the Board.
IMI’s production capacity may not correspond precisely to its production demand
IMI’s customers may require it to have a certain percentage of excess capacity that would allow it to
meet unexpected increases in purchase orders. On occasion, however, customers may require rapid
increases in production beyond IMI’s production capacity, and IMI may not have sufficient capacity at
any given time to meet sharp increases in these requirements. To soften the impact of this, IMI
closely coordinates with customers which provides them regular capacity reports and action plan/s for
common reference and future capacity utilizations.
IMI may be subject to reputation and financial risks due to product quality and liability issues,
respectively; and may be involved in intellectual property disputes
The contracts the Company entered into with its customers, especially customers from the automotive
and medical industry, typically include warranties that its products will be free from defects and will
perform in accordance with agreed specifications. To the extent that products delivered by IMI to its
29
customers do not, or are not deemed to, satisfy such warranties, IMI could be responsible for
repairing or replacing any defective products, or, in certain circumstances, for the cost of effecting a
recall of all products which might contain a similar defect, as well as for consequential damages.
There can be no assurance that IMI will be able to recover any losses incurred as a result of product
liability in the future from any third party, or that defects in the products sold by IMI, regardless of
whether or not it is responsible for such defects, would not adversely affect its customer relations,
standing and reputation in the marketplace, result in monetary losses, and have a material adverse
effect on its business, financial condition, and results of operations.
Furthermore, IMI’s business depends in part on its ability to provide customers with technologically
sophisticated products. IMI’s failure to protect its intellectual property or the intellectual property of its
customers could hurt customer relationships and affect its ability to obtain future business. There is
also a risk that IMI may infringe on the intellectual property rights of others. IMI could incur costs in
either defending or settling any intellectual property disputes alleging infringement. In addition,
customers typically require that IMI indemnify them against claims of intellectual property
infringement. If any claims are brought against IMI’s customers for such infringement, whether these
have merit or not, IMI could be required to expend significant resources in defending such claims. In
the event IMI is subjected to any infringement claims, IMI may be required to spend a significant
amount of money to develop non-infringing alternatives or obtain licenses. IMI may not be successful
in developing such alternatives or in obtaining such licenses on reasonable terms or at all, which
could disrupt manufacturing processes, damage IMI’s reputation, and affect its profitability.
IMI is not positioned as an ODM manufacturer so the risk of infringing upon product-related
intellectual property is significantly reduced. IMI’s designs and intellectual properties are used to
attract customers but ultimately, the designs that IMI produces will be owned by the customer. When
IMI helps its customers design their products, IMI exercises proper caution in ensuring that no
intellectual property infringements are committed. It is highly unlikely IMI will enter into any such
disputes.
IMI provides appropriate controls to ensure that quality is maintained and continuously improved; and
would not result to losses for the customers and the Company. In addition, IMI and some of its
customers maintain projects that are covered by product recall insurance.
Among others, IMI is certified on ISO 9001:2000 quality management systems and TS 16949:2002, a
quality management system for automotive products. It also received several recognitions from its
customers for its commitment to quality.
IMI operates in a highly competitive industry
Some of IMI’s competitors in the industry may have greater design, engineering, manufacturing,
financial capabilities, or other resources than IMI. Customers evaluate EMS and ODMs based on,
among other things, global manufacturing capabilities, speed, quality, engineering services, flexibility,
and costs. In outsourcing, OEMs seek, among other things, to reduce cost. In addition, major OEMs
typically outsource the same type of products to at least two or three outsourcing partners in order to
diversify their supply risks. The competitive nature of the industry has resulted in substantial price
competition. IMI faces increasing challenges from competitors who are able to put in place a
competitive cost structure by consolidating with or acquiring other competitors, relocating to lower cost
areas, strengthening supply chain partnerships, or enhancing solutions through vertical integration,
among others. IMI may lose its customers to its competitors if it fails to keep its total costs at
competitive levels for comparable products.
IMI may also lose customers if it fails to develop and provide the technology and skills required by its
customers at a rate comparable to its competitors. There can be no assurance that IMI will be able to
competitively develop the higher value add solutions necessary to retain business or attract new
customers. There can also be no assurance that IMI will be able to establish a compelling advantage
over its competitors.
The industry could become even more competitive if OEMs fail to significantly increase their overall
levels of outsourcing. Increased competition could result in significant price competition, reduced
revenues, lower profit margins, or loss of market share, any of which would have a material adverse
effect on IMI’s business, financial condition, and results of operations.
IMI regularly assesses the appropriate pricing model (strategic/value based, demand based, etc.) to
be applied on its quotation to existing or prospective customers. The Company is also strengthening
30
its risk management capabilities to be able to turn some of the risks (e.g., credit risks) into
opportunities to gain or maintain new or existing customers, respectively.
IMI’s industry is dependent on the continuous growth of outsourcing by the original equipment
manufacturers
IMI belongs to an industry that is dependent on the strong and continuous growth of outsourcing in the
computing, communications, consumer automotive, industrial, and medical electronics industries.
IMI’s industry exists because customers choose to outsource certain functions in the production
process of certain machines and equipment in these industries. A customer’s decision to outsource is
affected by its ability and capacity for internal manufacturing and the competitive advantages of
outsourcing.
IMI’s industry depends on the continuing trend of increased outsourcing by its customers. Future
growth in IMI’s revenue depends on new outsourcing opportunities in which IMI assumes additional
manufacturing and supply chain management responsibilities from its customers. To the extent that
these opportunities do not materialize, either because the customers decide to perform these
functions internally or because they use other providers of these services, IMI’s future growth could be
limited.
IMI believes that its manufacturing operations in Singapore, Philippines, Europe, Mexico and several
parts of China, and its enhanced supply chain systems and capabilities will continue to provide
strategic advantages for customers to outsource certain functions of their manufacturing processes to
IMI.
Demand for services in the EMS industry depends on the performance and business of the industry’s
customers as well as the demand from end consumers of electronic products
The profitability of companies in the same industry as IMI depends on the performance and business
of the industry’s customers, driven by the demand for electronic products by end consumers. If the
end-user demand is low for the industry’s customers’ products, companies in IMI’s industry may see
significant changes in orders from customers and may experience greater pricing pressures.
Therefore, risks that could seriously harm the customers of IMI’s industry could, as a result, adversely
affect IMI as well. These risks include:
(1)
Their inability to manage their operations efficiently and effectively;
(2)
Reduced consumer spending in key customers’ markets;
(3)
Seasonal demand for their products; and,
(4)
Failure of their products to gain widespread commercial acceptance.
The impact of these risks was very evident in the aftermath of the global financial crisis which resulted
in global reduction of demand for electronics products by end customers. IMI mitigates the impact of
industry downturns on demand by rationalizing excess labor and capacity to geographical areas that
are most optimal, and by initiating cost containment programs. With indications of global financial
recovery already in place, the Company has been able to re-hire some of its employees. However,
IMI remains cautious and is continuously monitoring improvements resulting from its cost containment
programs.
IMI’s industry may experience shortages in, or rises in the prices of components, which may adversely
affect business
There is a risk that IMI will be unable to acquire necessary components for its business as a result of
strong demand in the industry for those components or if suppliers experience any problems with
production or delivery.
IMI is often required by its customers to source certain key components from suppliers on approved
vendor lists who have been qualified by its customers, and IMI may not be able to obtain alternative
sources of supply should such qualified suppliers be unable to meet the supply in the future.
Shortages of components could limit IMI’s production capabilities or cause delays in production, which
could prevent it from making scheduled shipments to customers.
If IMI is unable to make scheduled shipments, it may experience a reduction in its sales, an increase
in costs, and adverse effects on its business. Component shortages may also increase costs of
goods sold because IMI may be required to pay higher prices for components in short supply and
redesign or reconfigure products to accommodate substitute components.
To the extent possible, IMI works closely with customers to ensure that there is at least one back up
supplier or manufacturer for customer-supplied components or components supplied by customer31
nominated suppliers. In addition, IMI has established supplier certification and development programs
designed to assess and improve suppliers’ capability in ensuring uninterrupted supply of components
to IMI.
IMI may be exposed to risk of inventory obsolescence and working capital tied up in inventories
Like other EMS and ODMs, IMI may be exposed to a risk of inventory obsolescence because of
rapidly changing technology and customer requirements. Inventory obsolescence may require IMI to
make adjustments to write down inventory to the lower of cost or net realizable value, and its
operating results could be adversely affected. IMI realizes these risks and as a result, IMI exercises
due diligence in materials planning and provides provision in its inventory systems and planning. IMI
is working with key suppliers to establish supplier-managed inventory arrangements that will make the
supplier responsible for carrying inventory.
IMI’s international operations expose it to various business, economic, political, regulatory, and legal
risks
IMI has operations in Singapore, Hong Kong, China, Bulgaria, Czech Republic, Mexico and United
States of America. These international operations expose IMI to numerous risks and challenges,
including:
(1)
Managing operations that require coordination of communications, directions for the
manufacture and delivery of products, coordination regarding procurement and delivery of
components and raw materials, and other activities and decisions of different management
teams;
(2)
Coordinating the activities of senior management who are spread out internationally;
(3)
Reversal of currently favorable policies encouraging foreign investment or foreign trade by host
countries could lead to the imposition of government controls, changes in tariffs or trade
restrictions on component or assembled products;
(4)
The burden of complying with a variety of foreign laws, including delays or difficulties in
obtaining import and export licenses, and regulations and unexpected changes in legal and
regulatory environments, including changes to import and export regulations and duties;
(5)
Lower levels of protection for intellectual property rights in some countries;
(6)
Potentially adverse tax consequences, including tax consequences which may arise in
connection with inter-company pricing for transactions between separate legal entities within a
group operating in different tax jurisdictions, and overall increases in duties and taxation;
(7)
Potential foreign exchange and repatriation controls on foreign earnings, exchange rate
fluctuations, and currency conversion restrictions;
(8)
Lack of developed local infrastructure, transportation and water supply, and difficult and costly
local staffing and sourcing of raw materials or components in some countries;
(9)
Actions which may be taken by foreign governments pursuant to any trade restrictions; and
(10) Possible labor unrest and political economic instability.
A substantial portion of IMI’s manufacturing operations is located in China, which has regulated
financial and foreign exchange regime. The Company continuously evaluates the options available to
the organization to ensure maximum usage of excess liquidity. Among others, excess liquidity may be
repatriated out of China through dividend payments, payment of management service or royalty fees,
use of leading and lagging payment, and transfer pricing.
IMI applies conservative financial and operational controls in the management of its business risks.
Organizationally, it is the lead director/company president/chief risk officer who has ultimate
accountability and responsibility to ensure risk management initiatives at subsidiaries operating in
various countries all over the world are aligned with IMI and are responsible for submission of risk
reports to ensure key risks are well understood, assessed/measured and reported. Providing support
is the internal audit unit who regularly process audits and process improvements.
The Audit & Risk Committee of the Board meets regularly and performs its oversight role in managing
the risks involved in the operations of IMI. The Board appointed a Chief Risk Officer who oversees the
entire risk management function and is responsible for overall continuity. Moreover, SGV has been
engaged as a risk management consultant which is overseen by the Finance Committee of the Board.
In terms of internal control risks, control mechanisms, systems and policies had been put in place in
order to address any control lapses. The Audit & Risk Committee sees to it that these internal control
risks are properly addressed through strict compliance with these system controls, policies and
procedures. Moreover, IMI has a culture and systems for transparency, corporate governance,
disclosure and checks-and-balances between various decision-making personnel that minimize the
risks described above.
32
IMI has adopted various Risk Management Policies like hedging policy that will protect company’s
position on different currencies against movements of the U.S. dollars. Limits on business
transactions have been set with different sites following the Company guidelines on limit of authorities
granted to Company officers and executives. The Company has also introduced and adopted the
Enterprise Risk Management (ERM) program that will identify the universe of risks related to the
business and draw action plans to mitigate and manage the risk exposures.
While the Company tries to keep its local expertise, it also established global functions to ensure that
there is adequate coordination of activities. In addition, the availability and use of cell phones, emails, and internet based communication tools by the Company resulted in more efficient and timely
coordination of activities and decision making by Management from different sites and countries.
Moreover, on a need be basis, the Company seeks the help of consultants and subject matter experts
for changes in laws and regulations that may have a significant impact in the Company’s business
operations. It also maintains good relationship with local government, customs, and tax authorities
through business transparency and compliance and/or payment of all government related dues on
time.
IMI’s subsidiary in China has created a full-time tax management function to ensure compliance with
tax rules and regulations. It also aggressively pursued hiring of experienced logistics managers and
staff from global electronics companies operating in China. This enables the Company to ensure that
it has sufficient manpower complement possessed with the required skills and experience to find
vendors in and out of China for its global materials requirements.
The Company signs unilateral and bilateral agreements with customers, vendors, and partners to
restrict or limit the use of the recipient of confidential information.
With respect to legal proceedings involving the Company, Ayala Corporation’s General Counsel and
Corporate Governance & Legal Affairs group analyze the Company’s transactions and activities to
ensure compliance with law, regulation, and contractual obligations. In the event that material litigation
against it does arise, IMI assesses the merits of the case and its impact on company operations. IMI
refers the case to Ayala Corporation’s General Counsel and Corporate Governance & Legal Affairs
and if needed, the Company retains external counsel to help in the analysis or handle the actual
litigation of the case.
IMI has a Business Continuity Plan composed of, among other components, the ICT Systems
Continuity Plan and the Disaster Recovery Plan. The Company backs-up data in its servers on a
daily basis. Data is backed-up on tape drives for critical and non-critical applications. For SAP-R3
Financials, data is replicated to a back-up site every hour. Critical systems are recoverable within four
to eight hours; regular systems can be recovered within 24 hours. IMI continually invests in business
continuity technology in order to reduce the recovery time of servers at the back-up site, maximize the
reliability, efficiency and manageability of the back-up system. All these are designed for the recovery
of IMI’s critical production systems in its principal office in the event said office becomes unavailable
due to disaster. As part of the Company’s strategic initiatives, there is an on-going upgrade of the
ERP system from SAP-R3 to ECC 6.0 version.
IMI’s HR ensures that the Company is able to inspire all its employees from different sites through a
common vision, that employees find greater meaning in the work they do, and more importantly, that
employees are convinced that rewards and recognition are linked to contribution and performance.
As part of the Company’s succession planning initiatives, it has instituted various employee
development programs, including cross-posting, foreign immersions, educational assistance,
mentoring and leadership development training. These programs equip the middle-managers with the
right tools needed not only for their present responsibilities, but also those required for them to
assume higher positions in the organization. These programs minimize the risks associated with the
turn-over of experienced management, as IMI would be able to find competent people to take their
place.
The Company has been able to overcome major crises brought about by economic and political
factors affecting the country where it operates. The strong corporate governance structure of the
Company and its prudent management team are the foundations for its continued success. IMI also
constantly monitors its macroeconomic risk exposure, identifies unwanted risk concentration, and
modifies its business policies and activities to navigate such risks. Severe macroeconomic
contractions may conceivably lead IMI to tweak or modify its investment decisions to meet the
33
downturn. As a holding company, IMI affirms the principles of fiscal prudence and efficiency in the
operations to its subsidiaries operating in various countries.
IMI faces risks related to foreign currency exchange rates
Because IMI does business in various countries, IMI is exposed to foreign currency fluctuations, which
IMI may not be able to control by matching currencies for its assets and liabilities, and forward foreign
currency exchange rate arrangements. IMI also faces the risk that foreign exchange policies in the
countries where it operates may change in ways that could adversely affect its business. IMI regularly
performs cash flow analysis from each site to determine the amount of foreign currency exposure to
be hedged. IMI’s Finance Committee of the Board regularly reviews IMI’s foreign currency strategies
for guidance and proper execution.
IMI may suffer business interruptions resulting from “Acts of God” and global events
“Acts of God” and global events like health pandemics may disrupt production activities,
transportation, and distribution. In addition, external factors such as potential terrorist attacks, acts of
war, or geopolitical and social turmoil in parts of the world where IMI operates or that serve as
markets for its products could significantly and adversely affect its business and operating results in
ways that cannot presently be predicted. These uncertainties could limit the capabilities of IMI to
accurately plan future business activities.
IMI continues to look for opportunities to expand its operations to other location or countries that will
provide competitive advantages through its location, products, labor skills, and costs. While these
expansions may bring in new risks, it also reduces the risk that the Company may be adversely
affected by political and regulatory risks specific to each location or country.
In addition, IMI has well established business contingency plans to reduce the impact of these events
in its operations. IMI is also adequately covered with insurance against possible losses resulting from
these disasters.
Risks relating to the Philippines or other country where IMI operates
The financial performance of the Company and its subsidiaries, as well as their business prospects,
may be influenced by the general political, peace and order situation, and the state of the economy in
the Philippines or in the country in which the Company operates, all of which are beyond the
Company’s control. Any actual or perceived political and economic instability may adversely affect,
directly or indirectly, the Company’s business and ultimately, its financial performance. Any potential
investor in, and buyer of, the subject shares should pay particular attention to the fact that the
Company and its subsidiaries are governed in the Philippines or in the country in which they
respectively operate by a legal and regulatory system which, in some respects, may differ from those
obtained in other countries.
MANILA WATER COMPANY, INC.
Background and Business
Manila Water Company, Inc. (alternately referred to as MWC or “the Company” in the entire
discussion of Manila Water Company, Inc), is principally engaged in the business of providing water,
sewerage and sanitation services to over six million people in the East Zone of Metro Manila in the
Philippines, covering 16 cities and municipalities, including Makati, Mandaluyong, San Juan, Taguig,
Pateros, Marikina, Pasig, most of Quezon City and Rizal Province, as well as some parts of Manila.
Manila Water was established and incorporated on 6 January 1997. On 21 February 1997, under a
25-year Concession Agreement with the MWSS, Manila Water was given the exclusive right to
provide services to the East Zone of Metro Manila, as an agent and contractor of the MWSS. The
Concession Agreement, originally set to expire in 2022, was extended to 2037.
The Company provides water treatment, water distribution, sewerage and sanitation services to more
than six million people in the East Zone, comprising a broad range of residential, commercial and
industrial customers. The East Zone encompasses Makati, Mandaluyong, Pasig, Pateros, San Juan,
Taguig, Marikina, most parts of Quezon City, portions of Manila, as well as the following towns of
Rizal: Angono, Antipolo, Baras, Binangonan, Cardona, Jala-Jala, Morong, Pililia, Rodriguez, San
Mateo, Tanay, Taytay and Teresa.
Under the terms of the CA, the Company has the right to the use of land and operational fixed assets,
and the exclusive right, as agent of MWSS, to extract and treat raw water, distribute and sell water,
and collect, transport, treat and dispose used water, including reusable industrial effluent discharged
34
by the sewerage system in the East Zone. The Company is entitled to recover over the concession
period its operating, capital maintenance and investment expenditures, business taxes, and
concession fee payments, and to earn a rate of return on these expenditures for the remaining term of
the concession.
Aside from the East Zone, the Group currently has three operating subsidiaries in the Philippines,
namely Laguna AAAWater Corporation (“LWC”), Boracay Island Water Company (“BIWC”) and Clark
Water Corporation (“CWC”).
It also has presence in Vietnam through a leakage reduction project in Ho Chi Minh City and two bulk
water companies, namely Thu Duc Water B.O.O Corporation (“TDW”) and Kenh Dong Water Supply
Joint Stock Company (“KDW”).
The Group continues to explore new business opportunities. In the first quarter of 2012, the Company
through Manila Water Consortium (formerly Northern Waterworks and Rivers of Cebu), signed a Joint
Investment Agreement with the Provincial Government of Cebu for the development and operation of
a bulk water supply system in the province. Construction of the transmission line is ongoing and is
expected to start operations in the second quarter of 2014.
In October 2013, Manila Water South Asia Holdings Pte. Ltd. (“MWSAH”), a wholly-owned subsidiary
of Manila Water in Singapore, completed its subscription to 18,370,000 primary shares of Saigon
Water Infrastructure Corporation (“Saigon Water”), equivalent to 31.47% of the outstanding capital
stock of Saigon Water. Saigon Water is a Vietnamese company listed in the Ho Chi Minh City Stock
Exchange. It aims to become the first fully integrated company in the Vietnam water and used water
infrastructure sector.
The Concession
The following are some of the key terms of the CA:
• Term and Service Area of Concession. The CA took effect on August 1, 1997 (“Commencement
Date”) and will expire on May 6, 2037 or on an early termination date as provided therein. By
virtue of the CA, MWSS transferred its service obligations (i.e., water supply, sewerage and
sanitation, and customer service) in the East Zone to the Company.
• Ownership of Assets.
While the Company has the right to manage, operate, repair,
decommission and refurbish specified MWSS facilities in the East Zone, legal title to these assets
remains with MWSS. The legal title to all fixed assets contributed to MWSS by the Company
during the concession remains with the Company until the expiration date (or an early termination
date), at which time, all rights, titles and interests in such assets will automatically vest in MWSS.
• Ownership of the Company. Under the CA, MWSS granted concessions for water distribution to
private-sector corporations at least 60% of the outstanding capital stock of which is owned and
controlled by Philippine nationals. In addition, the Company represents and warrants to MWSS
that its outstanding voting capital is at least 60% owned by citizens of the Philippines or by
corporations that are themselves at least 60% owned by citizens of the Philippines.
• Sponsor Commitment. Ayala, as local sponsor, and United Utilities PLC, as international
operator, are each required to own, directly or through a subsidiary that is at least 51% owned or
controlled, at least 20.0% of the outstanding capital stock of the Company for the first five years
(through December 31, 2002), and thereafter at least 10% each.
• Operations and Performance. The Company has the right to bill and collect for water and
sewerage services supplied in the East Zone. In return, the Company is responsible for the
management, operation, repair and refurbishment of MWSS facilities in the East Zone and must
provide service in accordance with specific operating and performance targets described in the
CA.
• Concession Fees. The Company is required to pay MWSS the following:
o Concession fees consisting of the peso equivalent of (i) 10% of the payments due under
any MWSS loan that was disbursed prior to the Commencement Date; (ii) 10% of
payments due under any MWSS loan designated for the Umiray-AngatTransbasin Project
(UATP) that was not disbursed prior to the Commencement Date; (iii) 10% of the local
component costs and cost overruns related to the UATP; (iv) 100% of the payments due
under any MWSS designated loans for existing projects in the East Zone that were not
disbursed prior to the Commencement Date and were awarded to third party bidders or
elected by the Company for continuation; and (v) 100% of the local component costs and
cost overruns related to existing projects in the East Zone; and
o Share in the annual operating budget of MWSS amounting to P396 million each year
subject to annual inflation adjustments
35
•
•
•
•
MWSS is required to provide the Company with a schedule of concession fees payable during
any year by January 15 of that year and a written notice of amounts due no later than 14 days
prior to the scheduled payment date of principal, interest, fees and other amounts due.
Currently, MWSS gives monthly invoices to the Company for these fees.
Appropriate Discount Rate. The Company is entitled to earn a rate of return equal to the
Appropriate Discount Rate (“ADR”) on its expenditures prudently and efficiently incurred for the
remaining term of the concession. The ADR is the real (net of inflation) weighted average cost of
capital after taxes as determined by the MWSS Regulatory Office (MWSS-RO) based on
conventionally and internationally accepted methods, using estimates of the cost of debt in
domestic and international markets, the cost of equity for utility business in the Philippines and
abroad with adjustments to reflect country risk, exchange rate risk and any other project risk. The
Company’s ADR from 2003 to 2007 was 10.4%. Pursuant to MWSS Resolution No. 2007-278
dated December 14, 2007, the new ADR applicable for 2008 to 2012 is 9.3%.
Tariff Adjustments and Rate Regulation. Water tariff rates are adjusted according to mechanisms
that relate to inflation, extraordinary events, foreign currency differentials and Rate Rebasing
exercises.
Early Termination. MWSS has a right to terminate the concession under certain circumstances
which include insolvency of the Company or failure to perform an obligation under the CA, which,
in the reasonable opinion of the MWSS-RO, jeopardizes the provision of essential water and
sewerage supply services to all or any significant part of the East Zone. The Company also has
the right to terminate the concession for the failure of MWSS to perform an obligation under the
CA, which prevents the Company from carrying out its responsibilities or upon occurrence of
certain events that would impair the rights of the Company.
Reversion. On the expiration of the CA, all the rights, duties and powers of the Company
automatically revert to MWSS or its successors or assigns. MWSS has the option to rebid the
concession or renew the agreement with the express written consent of the government.
Under the CA, the Company and the concessionaire of the West Zone of Metro Manila, Maynilad
Water Services, Inc. (“Maynilad”), were required to enter into a joint venture or other arrangement that
identifies the responsibilities and liabilities of each with regard to the operation, maintenance, renewal
and decommissioning of Common Purpose Facilities (CPF), as well as an interconnection agreement
which governs such matters as water supply transfers between the East and West Zones and
boundary definitions and identifies the responsibilities and liabilities of parties with regard to the
management, operation and maintenance of certain interconnection facilities. Pursuant to this, the
Concessionaires entered into the Common Purpose Facilities Agreement and the Interconnection
Agreement in July 1997.
The Regulatory Office of MWSS
The CA also provided for the establishment of the MWSS Regulatory Office (MWSS –RO) under the
jurisdiction of the MWSS Board of Trustees (MWSS-BOT), to oversee and monitor the operations of
the Concessionaires. The MWSS-RO is composed of five members with five-year term and no
member of the MWSS-RO may have any present or prior affiliation with MWSS, the Company or
Maynilad. The MWSS-RO is funded by MWSS through the concession fee payments of the
concessionaires. The CA provides that major disputes between the Company and the MWSS-RO be
referred to an appeals panel consisting of two (2) members appointed by each of the MWSS-RO and
the Company and a third member appointed by the Chairman of the International Chamber of
Commerce. Under the CA, both parties waive their right to contest decisions of the appeals panel
through the courts.
Key Performance Indicators and Business Efficiency Measures
The CA initially set service targets relating to the delivery of services by the Company. As part of the
Rate Rebasing exercise that ended on December 31, 2002, the Company and MWSS mutually
agreed to amend these targets based on the Company’s business and capital investment plan
accepted by the MWSS-RO. In addition, the Company and MWSS adopted a new performancebased framework. This performance-based framework, designed to mimic the characteristics of a
competitive market and help the MWSS-RO determine prudent and efficient expenditures, utilizes Key
Performance Indicators (KPI) and Business Efficiency Measures (BEM) to monitor the implementation
of the Company’s business plan and will be the basis for certain rewards and penalties on the 2008
Rate Rebasing exercise.
Fourteen KPIs, representing critical performance levels for the range of activities the Company is
responsible for, relate to water service, sewerage and sanitation service and customer service. The
BEMs are intended to enable the MWSS-RO to evaluate the efficiency of the management and
operation of the concessions and gauge progress toward the efficient fulfillment of the
36
concessionaires’ business plans. There are nine (9) BEMs relating to income, operating expenses,
capital expenditures and NRW. The BEMs are evaluated for trends and annual forecasts.
Amendment to the Concession Agreement
The CA was amended under Amendment No. 1 to the Concession Agreement executed on October
26, 2001 (“Amendment No. 1”). Amendment No. 1 adjusted water tariffs to permit adjustment for
foreign exchange losses and reversal of such losses, which under the original CA were recovered
only when the concessionaire petitioned for an Extraordinary Price Adjustment (EPA).
Organization
The Company is organized into nine functional groups: (i) Operations (ii) Project Delivery; (iii) East
Zone Business Operations; (iv) Corporate Strategic Affairs; (v) Corporate Strategy and Development;
(vi) Corporate Human Resources; (vii) Corporate Finance and Governance; (viii) Strategic Asset
Management; and (ix) Information Technology
•
The Operations Group operates and maintains all of Manila Water’s water and Used Water
facilities. It constantly seek ways to further improve the efficiency and reliability in managing all of
Manila Water’s facilities by developing high quality engineering standards, delivering innovative
technology solutions and support, exploring new technologies and promoting a culture of a safe
work environment while remaining compliant to environmental and regulatory standards. The
Operations Group is committed to protect the environment through environmental sustainability
programs such as the Three-River Master Plan, the protection and development of our
watersheds, and other various environmental efforts.
o The Operations Group, in cooperation with counterparts from Maynilad, manages the
Common Purpose Facilities (CPF)/Water Source which includes headworks upstream of the
La Mesa Dam: Angat Dam, Ipo Dam and the Novaliches portals. CPF/Water Source ensures
that sufficient raw water allocation is maintained throughout the year.
o From the La Mesa Dam, Water Supply Operations manages the water treatment facilities,
primary transmission lines, pumping stations and service reservoirs to provide 24/7 water
supply at a reliability level of, at least, 99.99% while maintaining 100% compliance in water
quality as defined in the Philippine National Standards for Drinking Water. It is also
responsible for ensuring that water supply meets demand by means of accurate forecasting
from source to production, despite variability in consumer demand or environmental
pressures.
o Used Water Operations manages the wastewater treatment facilities and lift stations to
ensure that treated wastewater discharge is consistently compliant to environmental
standards. It is responsible for implementing the wastewater service expansion plan,
advocating the Three-River System targeted to be completed by 2022.
o Encompassing the roles of Water Supply and Used Water, Bonifacio Water Corporation
manages the water and wastewater needs of the Bonifacio Global City, applying the same
philosophies in the regard for quality, efficiency and reliability of its services to this developing
community.
o Maintenance Services provides planned, proactive, reactive maintenance support for all
operations facilities as well as all of the company's physical structures.
o The Business Continuity Department is committed to develop a culture of preparedness,
resiliency and continual improvement towards a world-class water utility company. Thus
ensuring coordination, integration and alignment of national, local and company emergency
plans and protocols. BCD enables Manila Water to immediately respond to emergencies,
especially when there is a need to provide potable water to disaster-stricken areas. Through
BCD, Manila Water is able to extend help even beyond its concession area by providing
mobile water treatment assistance to various flood-stricken areas in the country.
o The Laboratory carries out physical, chemical and microbiological analysis of water and
wastewater samples to true world-class standards. Aside from being accredited by the
Department of Health (DoH), PAO Philippine Accreditation Office, and the Department of the
Environment and Natural Resources (DENR), the Laboratory is also certified to ISO
standards.
o The Environment Department ensures that Manila Water facilities are not only compliant with
current legislation but are also constructed and maintained within environmental sustainability
parameters. It also undertakes projects to protect and develop watersheds that directly affect
its water sources.
o The Fleet Management is responsible for the dispatch and maintenance of company vehicles
and equipment. It also provides vehicle assistance during incidents / emergencies and special
events of the company.
37
o
o
o
The Energy Department monitors power consumption and recommends power-efficiency
measures. It also develops and implements strategies for the company to enjoy
advantageous power rates in all its facilities.
The Innovations Department supports optimization initiatives throughout the Operations
Group, most especially for the Water Supply and Used Water. It helps create value (of
systems and processes) through a collaborative approach, as well as provides linkages and
resources to ensure optimum efficiency, quality and reliability of operations.
Operations Management Department strategizes a unified management system to ensure the
effectiveness and efficiency of group targets and programs. Operations Management is
accountable for the ISO certifications (Quality, Environment, Health and Safety) and serves
as a framework in order to produce and promote well-balanced implementation of all policies
and processes across Operations Group including specific requirements of the international
standards (ISO 9001,ISO 14001, and OHSAS 18001.
•
The Project Delivery Group (PDG) is tasked with the execution of the major infrastructure
projects that are crucial for the company to achieve regulatory commitments as stipulated in the
Concession Agreement and Rate Rebasing plans. The careful delivery of projects, while strictly
adhering to the target timelines, prudent and efficient cost and highest standards of quality and
safety, is the basis for the achievement of corporate business objectives aligned with the
sustainable expansion of services that improve people's lives and support regional economic
growth. PDG is organized for an integrated, collaborative approach to project execution. It is
composed of five (6) departments namely Engineering, Projects, Quality Assurance, Project
Stakeholders Management, Safety Solutions and PDG Support.
o The Engineering Department ensures the compliance of projects to established engineering
standards by reviewing design concepts and cost estimates, conducting preliminary and
detailed design (as necessary), spearheading the technical evaluation of technical proposals
during bidding and design submissions during execution and developing high-quality and
cost-effective engineering standards that are used across the business. It is also at the
forefront of studying the latest construction technologies and methodologies in view of valueengineering.
o The Projects Department is tasked with managing the multi-billion project portfolio of the
company. Project Delivery Managers (PDMs) are accountable for keeping the project in line
with time, cost and quality, safety and environmental standards by leading a cross-functional
team that manages the numerous interconnected components of execution. The department
is also a fertile ground for developing project managers not only for the East Zone but also
expansion efforts in and out of the Philippines.
o The Quality Assurance Department is in charge of development and implementation of quality
management procedures and system across PDG through (1) process documentation,
including policy formulation and system rollout, (2) management of the Quality Execution
Academy and, (3) review/analysis of quality execution metrics/statistics for continuous
improvement of PDMs.
o The Project Stakeholders Management Department ensures that the projects have the
support of critical stakeholders such as local governments, national agencies and the public
through proactive project pre-selling and relationship building that ensure the timely
acquisition of stakeholder approvals and smooth resolution of any project concerns.
o Safety Solutions Department provides a vital role in ensuring that not only are Manila Water
employees empowered to work safely, but also to ensure that our vendors and contractors
are well-trained in keeping worksites safe for employees and the wider public, especially
during construction activities. This utmost regard for a safety environment and mindset has
top management support and carried-out by its employees and contractors.
o PDG Support Department provides performance monitoring, efficiency analysis, quality
assurance and administrative support. The department is the knowledge manager of the
group and is also in-charge of the continuous improvement efforts.
•
The East Zone Business Operations (EZBO) deals with the Company’s customers and is
responsible in the operations of the business. It is composed of four departments in the EZBO
Headquarters (HQ) namely: East Zone Business Area Operations, East Zone Business Support,
Technical Support Services for Water Network and Technical Support Services for Wastewater.
o The East Zone Business Area Operations is composed of eight (8) business areas, which are
responsible in the delivery of water, wastewater and sanitation services to the customers
geared towards customer satisfaction.
o The East Zone Business Support Department is composed of four sections: Demand
Forecasting and TMS Management, Billing and Collection, Customer Service and
Stakeholder Management and Program and Policy Development. The Demand Forecasting
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o
and TMS Management section is responsible for the performance management of all EZBO
employees. It ensures that targets are achieved and opportunities are maximized in order to
grow the business. The Billing and Collection section ensures that there are adequate
payment options and facilities that cater to the needs of the customer for payment
convenience and develops monitoring tools to ensure the quality of the customers’ bills. The
Customer Service and Stakeholder Management section reviews and enhances customer
service processes and standards aimed to drive customer satisfaction. It regularly monitors
customer centricity metrics to ensure that all customers concerns are attended efficiently and
effectively. The Program and Policy Development section handles the rewards and
recognition programs, organization, talent development and policy review and development
for EZBO employees.
The Technical Support Services Department for Water Network oversees the water network
and ensures reliability by developing programs and conducting research on the latest
technologies to reduce the water losses. Lastly, the Technical Support Services Department
for Wastewater, manages the maintenance of the network for sewer lines and the
implementation of the company’s desludging services. All of the Business Areas and the HQ
Departments are aimed towards driving business growth, reducing water losses, and
delivering quality customer service.
•
The Corporate Strategic Affairs Group (CSAG) is responsible for creating consistent corporate
messaging, harmonizing communication channels, and leveraging on sustainability initiatives that
are aligned with the Company’s objectives in order to effectively connect with customers and
stakeholders. The group is composed of three departments: Branding and Market Research,
Corporate Communications, and Sustainable Development. The Branding and Market Research
Department is in charge of building and differentiating the Manila Water brand through strategic
communications research and development, visual standards management and advocacies. It
also handles the Lakbayan or Water Trail program as the Company’s information, education and
communication program on water and wastewater appreciation. The Corporate Communications
Department handles the execution of the Company’s strategic as well as tactical or crisis
communication programs through publicity, events and other stakeholder services. The
department handles all Company publicity in the media (TV, radio, print and below-the-line), as
well as media relations and engagement. It is also responsible for ensuring a well-informed
workforce through the development and implementation of relevant internal communications.
Lastly, it handles new media establishment through social media and web presence. The
Sustainable Development Department develops the Company’s corporate social responsibility
programs within the East Zone with focus on water supply provision to the urban poor, water
education and environmental protection. The Sustainable Development Department also houses
the Manila Water Foundation which is the expanded corporate social responsibility arm outside
the East Zone, targeting Base of the Pyramid (BOP) communities. The Manila Water Foundation
focuses on water supply and sanitation for BOP communities, water and environmental
education, and community assistance and livelihood.
•
The Corporate Strategy and Development Group (CSDG) handles three core functions: (1)
regulatory affairs, (2) new business development and (3) corporate strategy. In relation to
regulatory affairs, the Group’s Regulatory Development Department interfaces with the MWSSRO on all matters relating to the Concession Agreement, including submitting reports and
disclosures relating to compliance, handling negotiations with the MWSS-RO relating to the
Company’s service targets and distilling information from the Company’s other groups to produce
and periodically update financial projections, which serve as the bases for petitions submitted to
the MWSS-RO for quarterly, annual, and five-year tariff adjustments. The Group’s New Business
Development Department is responsible for identifying and pursuing new business opportunities
both locally and abroad. The Group’s newly formed Corporate Strategy Department handles the
corporate planning process and special projects identified by the Management Committee.
•
The Corporate Human Resources Group is organized into four core departments: (1) Talent
Management and Leadership Development, (2) Total Rewards Management, (3) Employee
Engagement, and (4) Security Management. The Talent Management and Leadership
Development Department is responsible for Strategic Staffing, Training and Development,
Succession, Competency Management, Corporate University Development and Management as
well as Manpower Planning and Organization Development. The Total Rewards Management
Department is responsible for the design and implementation of programs in Performance
Management, Compensation and Benefits, and HR Service Delivery functions. The Employee
Engagement Department handles Employee Programs (employee recognition and sports
programs), Wellness Management (employee wellness and occupational health programs), and
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Employee Relations (Code of Conduct and CBA administration). The Security Management
Department is responsible for employee, asset and facility security.
•
The Corporate Finance and Governance Group, which is headed by the Chief Finance Officer
and Treasurer, provides financial and legal services to the Company. The Group is composed of
eleven departments namely: Accounting, Financial Controllership, Financial Planning and Investor
Relations, Treasury, Tax Management, Capex Control and Support, Contracts and Vendor
Management, Logistics, Internal Audit, Legal and Corporate Governance, and Enterprise Risk
Management.
o The Accounting Department is responsible for the establishment and implementation of the
Company’s accounting systems to ensure the generation of accurate, complete and timely
financial reports. It also responsible for the management of the accounting records and
preparation of financial statements and reports which reflects the true financial performance
and condition of the Company. The Accounting Department is ISO 9001:2008 certified.
o The Financial Controllership Department ensures implementation of stringent financial
systems and controls in the East Zone but also in the New Business Operations. The
department monitors the performance of the East Zone and the subsidiaries and associates
with particular focus on revenue growth, improvement of operating margins, asset efficiency
and future growth prospects.
o The Financial Planning and Investor Relations Department is responsible for the budget and
forward plan preparation of the Company and provides management reports on the financial
performance of the company. The department also reviews CAPEX and investments and
ensure that the Company’s investment parameters are met. In addition, the department
implements investor-related programs to ensure that information requirements of investors
and analysts are met.
o The Treasury Department is primarily responsible for managing the Company's overall
liquidity by efficiently managing the Company’s daily cash position, as well as ensuring that
funding is available for the Company’s short-term and long-term cash requirements. The
department is also responsible for managing financial risks inherent to Treasury-related
transactions. The Treasury Department is ISO 9001:2008 certified.
o The Tax Management Department provides assistance to the business units of the Company
on the proper interpretation and application of tax laws, rules and regulations and ensures
completion and application of tax saving programs of the Company. The department also
provides tax-related legal and strategy advisory services, and liaises with regulatory agencies
such as the Bureau of Internal Revenue, Board of Investments and local government units
within the area of operation.
o The CAPEX Control and Support Department is responsible for the acquisition of properties
required for the implementation of water and wastewater projects. It is also responsible for the
clearing and recovery of right-of-way owned by the Company and MWSS. The department is
also in-charge of the management and monitoring of the the Company’s CAPEX program
through reliable CAPEX forecasting, implementation of review processes and providing
feedback mechanisms to project proponents and management, and ensures the integrity of
contractors’ billings through control systems.
o The Contracts and Vendor Management Department is responsible for the procurement of the
service requirements for the Company’sprojects and operations. It is responsible for
implementing a procurement process that meets quality and cost standards and is carried out
with integrity and transparency. The department implements vendor management programs
to ensure availability of quality vendors, contractors and service providers. The Contracts
and Vendor Management Department is ISO 9001:2008 certified.
o Logistics Department is responsible for the procurement of supplies and materials to support
operations and project requirements. It ensures integrity in the procurement process and
ensures that supplies and materials are sourced at optimal cost and comply with quality
standards. The department is also responsible for the efficient management of materials
inventory. The Logistics Department is ISO 9001:2008 certified.
o The Internal Audit Department provides an independent and objective assurance and
consulting services and evaluates the effectiveness of the Company’s risk management,
control and governance processes. The department reports functionally to the Audit and
Governance Committee (AGC) and administratively to the Chief Finance Officer. It supports
the Committee in the effective discharge of the Committee’s oversight role and responsibility
and provides the management and the Board of Directors, through the Committee, with
analyses, recommendations, advice and information concerning the activities/ processes
reviewed. The department obtained a “Generally Conforms” rating from the External Quality
Assurance Review performed by IIA-Philippines in June 2012.
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o
o
The Legal and Corporate Governance Department provides legal services, advice and
support across the entire organization and ensures prompt compliance with the disclosure
requirements of the Securities and Exchange Commission and the Philippine Stock Exchange
for listed companies. It also provides corporate secretarial services to the Board of Directors
and the Board Committees and assists the Office of the Corporate Secretary in the
preparation and conduct of the stockholders’ meeting and board meetings.
The ERM Department is responsible for the sustained implementation of the Enterprise Risk
Management system of the Company and ensures that key risks are identified and managed
by the respective risk owners. The department also manages the insurance program of the
Company with the objective of making the program optimal, risk-based and responsive to the
Company’s needs. The department reports functionally to the AGC and administratively to
the Chief Finance Officer.
•
The Strategic Asset Management Group is formed to achieve the optimal and sustainable
delivery of services and profitability through the efficient and effective management and
development of assets. The group is mandated to provide a comprehensive, holistic and
integrated master plan that will address capital investments both for water and wastewater
systems, the operation and maintenance of existing and new assets, and the rationalization and
disposal of surplus assets. To deliver these services, the group is organized into four(4)
departments namely, (1) Strategic Asset Planning, (2) Program Management, (3) Asset
Management and (4) the Asset Information Management and Support. The Strategic Asset
Planning Department is responsible for the development of the master plan both for water and
wastewater systems and shall ensure the attainment of business and regulatory commitments.
The department’s scope is not be limited to East Zone alone but will include services to Manila
Water subsidiaries. The Program Management Department is entrusted to manage the
execution of capital expenditure programs of the company. The department ensures timely, costefficient delivery of all planned infrastructure projects. The Asset Management Department is
tasked to provide a systematic integration of advance management techniques to sustain
optimum performance of assets at least cost. Lastly, the Asset Investment Management and
Support will provide value adding and accurate information, analytics, policies, framework and
processes to each of the departments in the group. Their operation enables the whole Strategic
Asset Management Group to deliver its corporate commitments with efficiency and effectiveness.
•
The Information Technology Group is responsible for providing innovative technology solutions
that support the company’s initiatives towards greater efficiency and growth. It is composed of
four (4) Departments: Systems and Solutions, Service Management, Information Security, and IT
Governance. The Systems and Solutions Department is responsible for the development and
maintenance of all projects and systems supporting the business. It is in charge of identifying,
designing, and delivering technology solutions and applications that support the success of the
business. The Service Management Department oversees the day-to-day operations of ITG
including the availability, performance, and capacity of ITG resources. It is responsible for the
development of tactical plan for Infrastructure and the continuity framework. The Information
Security Department is in charge of developing and enforcing the enterprise wide Information/IT
security strategies, policies, standards, procedures, and awareness program and in ensuring
compliance with relevant information security standards. It also implements and maintains
technical and procedural controls to protect information flow across networks. The IT Governance
Department handles the governance functions on program management, financial planning and
control, risk management and other IT processes.
Water Operations
The supply of water by the Company to its customers generally involves abstraction from water
sources and the subsequent treatment and distribution to customers’ premises. In 2013, the East
Zone Business Operations supplied approximately 1,354 million liters per day (MLD) and billed 433.6
MCM of water compared to 1,333 MLD of water supplied and 427.3 MCM billed in 2012. The
Company served a total of 1,299,862 households through 921,898 water service connections as of
December 31, 2013, as compared to last year’s level of 1,254,607 households and 896,148 water
service connections.
41
Water Resources
Under the CA, MWSS is responsible for the supply of raw water to the Company’s distribution system
and is required to supply a maximum quantity of water, currently pegged at 1,600 MLD. In case
MWSS fails to supply the required quantity, the Company is required to distribute available water
equitably.
The Company substantially receives all of its water from MWSS, which holds permits to the raw
surface waters of the Angat and Umiray Rivers. The raw surface water which MWSS supplies to the
Company comes from the Angat and Umiray Rivers, abstracted from the Angat Dam, and conveyed
to the Ipo Dam through the Ipo River. Only a very small amount of the Company’s water supply is still
ground-sourced through deep wells, these are for the far reaches of Rizal wherein conveyance from
the existing treatment plants would be impractical. As of December 31, 2013, the Company has only
three (3) operational deep wells with an average production of 1.6 MLD.
Water Treatment
Raw water is stored at the La Mesa reservoir located immediately downstream of the Novaliches
portal interconnection before going to the three (3) treatment plants, two (2) of which are in Balara
located seven (7) kilometers away. The other is the newly constructed East La Mesa Treatment Plant
nestled just at the northeast of La Mesa Dam.
The Balara treatment plants have a total design capacity of 1,600 MLD and consist of two (2)
separate treatment systems: Balara Filter 1, which was commissioned in 1935 and Balara Filter 2
which was commissioned 1958. These treatment plants have common use of chemical preparation
equipment and dosing facilities. The treatment process in these plants involves coagulation,
flocculation, sedimentation, filtration and chlorination. The facilities consume higher quantities of
chemicals during the rainy season when the turbidity of water increases, which leads to increased
costs of operations.
Both plants are operating with an on-line monitoring system which enables real-time monitoring of
water quality data which, in turn, provide an enhancement in chemical dosing efficiency. All of the filter
beds have been recently upgraded to improve efficiency. The beds were modified using a multi-block
underdrain system that includes an air-scour wash system, a more efficient method of cleaning the
media using less water. Bulk of the sludge management plant was constructed in 2010 and started
operating in 2011. Both plants are currently undergoing a structural retrofit to make the facilities more
resilient to earthquakes.
Water Distribution
After treatment, water is distributed through the Company's network of pipelines, pumping stations
and mini-boosters. As of December 31, 2013, the Company's network consisted of approximately
4,700km of total pipeline, comprising of primary, secondary and tertiary pipelines ranging in diameter
from 50 to 2,200 mm. The pipes are made of steel, cast iron, asbestos cement pipe, polyvinyl
chloride and other materials. Due to pipes' excessive tendency to leak, the Company have replaced
most of its Asbestos Cement Pipes (ACP) down to 0.002% which at the start were estimated to
comprise approximately 25.5% of the total pipeline length from the start of the concession in 1997
until the end of 2013, the Company has laid almost 4,700 km of pipeline through expansion or
replacement. This holistic pipe replacement supported with effective area management has led to a
non-revenue water percentage of 11.2%, far from the 1997 value of 63%.
Pumping stations also play a critical part in water distribution. Approximately 65% of the surface
water supplied by the Company is pumped to ensure supply in high elevation areas. Currently, the
Company operates nineteen (19) pumping stations with a combined maximum pumping capacity of
3000 MLD and an average plant output of 907 MLD. Most of the major pumping stations have
reservoirs with a combined capacity of almost 400 ML. 2012 welcomed three (3) new reservoirs,
namely: Maguey, East Ridge, and the San Juan Reservoir.
The Company operates twenty-one (21) line boosters in order to reach the fringe areas, which are
quite distant from the treatment plants. Line boosters typically are small facilities aimed at augmenting
water supply for areas that are not sufficiently supplied during the regular pumping operations of the
pump stations.
Non-Revenue Water
NRW refers to the volume of water lost in the Company’s distribution system due to leakage,
pilferage, illegal connections and metering errors. As determined by the MWSS-RO, NRW is
calculated as a percentage of the net volume of water supplied by the Company. The net volume of
42
water supplied by the Company comprises the total volume of water supplied by the Company net of
Cross Border Volume. Cross Border Volume is the volume of water transferred to the West Zone
concessionaire less transfers received by the East Zone from the West Zone Concessionaire in the
past. To date, the cross border flows have completely stopped.
The Company’s NRW levels have been significantly reduced from an average of 63% at the date of
commencement of operations under the CA to 11.2% for the year ended December 31, 2013. The
significant improvement in the Company’s system losses was accomplished through effective
management of water supply coupled with massive pipe replacement projects.
Water Quality
Since 1998, the Company’s water quality has consistently surpassed the Philippine National
Standards for Drinking Water (PNSDW) set by the Department of Health (DOH) and based on World
Health Organization (WHO) water quality guidelines. The Company’s rating is based on a series of
tests conducted regularly at 847 (5% above the PNSDW requirement of 803 as of end of 2013)
regulatory sampling points within the East Zone. The Company’s water samples scored an average
bacteriological compliance of 100%, surpassing the threshold of 95% set in the PNSDW. In 1997,
when the concession began, only 87% of water samples complied with these quality standards. The
Company collects and tests samples for microbial examination and physico-chemical examination
from our water sources, (Angat, Ipo, Bicti and La Mesa reservoirs) and ground water sources (
Deepwells), water treatment plants and as well as from the distribution networks on frequencies as
required in the standard.
Water quality at the Company’s water treatment plants undergoes daily microbial (bacteriological) and
physico-chemical analysis and consistently is 100% compliant on the basic and health significant
parameters required in the PNSDW. Regulatory sampling points are designated at strategic locations
across the distribution system within the coverage area wherein sampling is conducted daily by
MWCI. The MWSS-RO, Local Government Units (LGUs) and DOH likewise conducts random
sampling from this designated sampling points and have it tested by third party laboratories and
designated government laboratories. Most often, the results were consistently beyond the 95% set in
the PNSDW.
Samples are tested at our own Laboratory, which is accredited by the DOH and a recognized EMBDENR testing laboratory. The Laboratory has also gained its recognition as an ISO/IEC 17025:2005
accredited laboratory (meeting the principles of ISO 9001:2008 obtained by the Company’s laboratory
for water/wastewater testing and sampling in October 2006) granted by the Philippine Accreditation
Office, Department of Trade and Industry (DTI). These recognition and accreditations subject the
laboratory to regular surveillance audits. Consistently, the Laboratory has gained excellent and
satisfactory ratings on most proficiency testing programs it has participated in which are provided by
local and international proficiency testing program providers. In 2010, the Laboratory also gained
certifications for ISO 9001:2008, ISO 14001:2004 and OSHAS 18001:2007. These recognitions have
gained the confidence of the MWSS-Regulatory Office, the DOH and DENR in the tests results the
Laboratory is providing them.
Sewerage Operations
The Company is responsible for the provision of sewerage and sanitation services through the
operation of new and existing sewerage systems and a program of regular maintenance of household
septic tanks in the East Zone.
Sewerage and Sanitation System
Since 1997, the Company has significantly improved and expanded the limited wastewater
infrastructure originally operated and maintained by the MWSS. Sewerage services are provided in
areas where treatment facilities are available. Sewered areas are currently located in Quezon City
and Makati, but parts of Manila, Taguig, Cainta, Pasig and Mandaluyong are also connected to sewer
networks.
The Company had few facilities for sewerage services in 1997. The Sewage Treatment Plant (STP)
in Magallanes Village is the largest treatment facility in the country with a 40 MLD capacity. The STP
in Magallanes provides sewerage services to the Makati central business district and some residential
villages. Prior to privatization, this facility had poor treatment efficiency and did not meet effluent
quality standards. The Karangalan Bio-module in Karangalan Village serves approximately 100
households but also produced substandard effluent quality before 1997. An Imhoff tank in Phil-Am
Village and thirty-one communal septic tanks (“CSTs”) in Quezon City were also turned-over in 1997.
43
These facilities serve approximately 19,000 households. These facilities have been upgraded to
secondary treatment and now meet effluent standards set by the DENR.
In 2001, the Company constructed two (2) pilot package plants to determine if they were feasible in
terms of social, financial, and environmental aspects. These are located in Valle Verde Homes, Pasig
that serves approximately 100 households and another serves some 400 households of the housing
project in Makati together with approximately 4,000 students and employees in Rizal Elementary
School.
With the success of the two (2) pilot STPs, the Company implemented the Manila Second Sewerage
Project (MSSP) funded by World Bank. Under the MSSP, twenty-six (26) STPs were constructed.
Sixteen (16) of these STPs were formerly CSTs and the rest are on-site STPs for medium and high
rise housing establishments and for the UP campus. Takeover and upgrade of the STP in Diego
Silang, Taguig was also part of the MSSP.
In 2007, the Company took over the operations and maintenance of the Bonifacio Water Sewage
Treatment Plant in Fort Bonifacio Taguig City. This facility brought an additional 5MLD treatment
capacity.
As of the end of 2013, the Company has already served through sewer service, 160,748 households
within the East Metro Manila. As of year-end 2013, the Company operates 37 Wastewater Facilities
including two (2) SpTPs, with a total capacity of 131.065 MLD, compared to 40 MLD in 1997.
Customers who are not connected to the sewer network are provided with septic tank maintenance
services through the “Sanitasyon Para Sa Barangay” (SPSB) program. Through cooperation with the
barangays the program aims to desludge all septic tanks in a barangay without charge over a
specified, set schedule.
As part of its commitment to expand this service, the Company constructed and subsequently
operated in 2008 under the Manila Third Sewerage Project (MTSP) two (2) SpTPs aimed at managing
septic tank materials siphoned from the East Concession customers. A total of 77 desludging trucks
operate daily to ensure the desludging service is rendered to the entire East Zone population over the
next five years. Since 1997, the Company has already provided such service to more than 1,000,000
households.
The MTSP is a follow-up to the MSSP and has the ultimate objective of improving sewerage and
sanitation conditions in the East Zone. It was developed as a means of achieving the Company’s
sewerage and sanitation service targets. The remaining components of the MTSP include the
construction of sewer networks and treatment plants in several locations in the East Zone including
upgrading of existing communal septic tanks with secondary treatment levels.
The technical assistance component will focus on information and education campaigns on proper
liquid waste disposal and environment preservation and the preparation of follow-up programs on
sewerage and sanitation, with emphasis on low-cost sanitation systems.
New Business/ Investments Outside of the East Zone
It is also the Company’s objective to further bring its expertise in NRW reduction outside of the East
Zone by establishing partnerships with private companies, local water districts and local government
units in top metros of the country and in selected cities in the Asian region. Other water business
models, such as bulk arrangements, operations and maintenance are also being explored and
implemented. Towards this end, the Company has signed joint venture agreements and/or investment
agreements with local and international partners in the last few years.
LAWC is a Joint Venture (“JV”) between AAA Water Corporation, a wholly-owned subsidiary of Manila
Water, and the Province of Laguna (“POL”), with shareholdings of 70% and 30%, respectively. The JV
is for the purpose of undertaking the development, design, construction, operation, maintenance and
financing of the water facilities that will service the needs of the cities of Sta. Rosa and Biňan, and the
municipality of Cabuyao in Laguna. Towards this end, LAWC entered into a Concession Agreement
with the POL on April 9, 2002 for an operational period of 25 years.
BIWC is a JV between Manila Water and the Philippine Tourism Authority (“PTA”) with shareholdings
of 80% and 20%, respectively. In December 2009, BIWC entered into a concession agreement with
the PTA (now Tourism Infrastructure and Enterprise Zone Authority) covering the provision of water
and wastewater services in the Island of Boracay.
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CWC is the water and wastewater concessionaire of Clark Development Corporation (“CDC”) in the
Clark Freeport Zone in Angeles, Pampanga. It has a 25-year concession agreement with the CDC
until October 2025 with the option to extend the period subject to mutual agreement. In November
2011, Manila Water acquired 100% ownership of CWC through a Sale and Purchase Agreement with
Veolia Water Philippines, Inc. and Philippine Water Holdings, Inc.
In July 2008, the Company won a contract for performance-based leakage reduction project with
Saigon Water Company (“SAWACO”) covering the latter’s Zone 1 service area in Ho Chi Minh City,
Vietnam.
In December 2011, Manila Water purchased a 49% share ownership of Thu Duc Water BOO
Corporation (“TDW”) which owns the second largest water treatment plant in Ho Chi Minh City. TDW
has a bulk water supply contract with SAWACO for a minimum consumption of 300 MLD on a take-orpay arrangement.
In the first quarter of 2012, the Company through Northern Waterworks and Rivers of Cebu, Inc. (now
“Manila Water Consortium, Inc.”, a consortium of Manila Water, Metropac Water Investments
Corporation and Vicsal Development Corporation), signed a Joint Investment Agreement (“JIA”) with
the Provincial Government of Cebu (“PGC”) for the development and operation of a bulk water supply
system in the province. The JIA resulted in the incorporation of Cebu Manila Water Development, Inc.
(“CMWD”), a corporation owned by the consortium and the PGC in the proportion of 51% and 49%
respectively.
In July 2012, the Company completed the acquisition of a 47.35% stake in Kenh Dong Water Supply
Joint Stock Company (“KDW”), a Vietnamese company established in 2003 to build, own, and operate
major water infrastructure facilities in Ho Chi Minh City. .
For 2013, Manila Water continues to expand its new business operations outside the East Zone. In
October 2013, Manila Water South Asia Holdings Pte. Ltd., a wholly owned subsidiary of Manila
Water in Singapore, completed the acquisition of 31.47% stake in Saigon Water Infrastructure
Corporation (“Saigon Water”), a listed company in Vietnam. In December of the same year, CMWD
signed a 20-year Bulk Water Supply Contract with the Metropolitan Cebu Water District for the supply
of 18 million liters per day of water for the first year and 35 million liters per day of water for years two
up to twenty. Thereafter, in the same month, LAWC signed an Asset Purchase Agreement with the
Laguna Technopark, Inc. (“LTI”) for the acquisition of the water reticulation system of LTI in Laguna
Technopark, a premier industrial park located in Sta. Rosa and Binan, Laguna which is home to some
of the region’s largest and more successful light to medium non-polluting industries.
Environmental Compliance
The Company’s water and wastewater facilities must comply with Philippine environmental standards
set by the Department of Environment and Natural Resources (DENR) on water quality, air quality,
hazardous and solid wastes, and environmental impacts.
In keeping with the Company’s
commitment to sustainable development, all projects are assessed for their environmental impact and
where applicable, must obtain an Environmental Compliance Certificate (ECC) from the DENR prior to
construction or expansion and the conditions complied with, along with all other existing
environmental regulations. During and subsequent to construction, ambient conditions and facilityspecific emissions (e.g. air, water, hazardous wastes, treatment by-products) from water and
wastewater facilities are routinely sampled and tested against DENR environmental quality standards
using international sampling, testing and reporting procedures.
The Company has made efforts to meet and exceed all statutory and regulatory standards. The
Company employs the appropriate environmental management systems and communicates to its
employees, business partners and customers the need to take environmental responsibility seriously.
The Company uses controlled work practices and preventive measures to minimize risk to the water
supply, public health and the environment. The Company’s regular maintenance procedures involve
regular disinfection of service reservoirs and mains and replacement of corroded pipes. The
Company’s water and wastewater treatment processes meet the current standards of the PNSDW,
DOH, DENR and LLDA. The Company continues to undertake improvements in the way it manages
both treated water and wastewater as well as treatment by-products such as backwash water, sludge
and biosolids.
The Company has contingency plans in the event of unforeseen failures in the water and wastewater
treatment or chemical leakage and accidental discharge of septage and sewage. The Company’s
45
Customer Care Center is used to ensure that environmental incidents are tracked, monitored and
resolved.
A policy on climate change was formulated to define the Company’s commitment to the National
Framework Strategy for Climate Change. While the company is undertaking climate change
mitigating measures such as greenhouse has accounting and reporting along with initiatives to
optimize consumption of fuel and electricity to reduce its carbon footprint, there is a current emphasis
towards climate change adaptation such as intensifying watershed rehabilitation work, vulnerability
assessment of water sources and assets, climate-proofing existing and future water and wastewater
facilities, strengthening risk reduction and management systems with a business continuity plan, and
development of new water sources.
Sustainable Development Projects
Sustainability for Manila Water means that while providing excellent water and wastewater services to
its over six million customers, it ensures that it uses water resources efficiently so that its future
customers will have the same level of services that its present customers, including low-income
communities, enjoy.
As part of its efforts to strengthen sustainability in its organization, Manila Water updated its
Sustainability Policy to make it more comprehensive and inclusive, and to align it to international
frameworks such as the ISO26000 guidance on social responsibility. The Company likewise revised
its Climate Change Policy, consistent with the national government’s anchor strategy of adaptation.
Manila Water also championed sustainability among its operating subsidiaries, Laguna Water,
Boracay Water and Clark Water, by assisting them to develop their respective sustainability
frameworks and programs. It was also the first time they released their Sustainability Reports, which
complied with the GRI G3.1 Level C standards. For its part, Manila Water again conformed to the GRI
G3.1 Level A and ISO 26000 frameworks.
While continuing to implement its flagship programs for the urban poor such as ‘Tubig Para Sa
Barangay’ (TPSB) and ‘Lingap’ programs for public service institutions, Manila Water initiated
Greening our Future, an environmental education program for employees, and participated in the
week-long Global Handwashing Day celebration in Metro Manila, Laguna, Pampanga and Boracay.
Employees
As of December 31, 2013, the Company had 1,313 employees. Approximately 17% were nonmanagement employees and 83% held management positions. Six (6) employees are seconded from
Ayala.
The following table presents the number of employees as of the end of the period indicated:
Former
Direct
Seconded
Year
MWSS
Hires from Ayala
Total
2013
675
632
6
1,313
The following table presents the number of employees by function as of the December 31, 2013:
Group
Office of the President
Corporate Finance & Governance
Corporate Strategy & Development
Corporate Human Resources
Corporate Strategic Affairs
East Zone Business Operations
Information Technology
Operations
Project Delivery
Strategic Asset Management
Total
Management
4
117
58
26
21
498
23
194
98
48
1,091
NonManagement
3
1
1
106
107
222
Total
4
120
58
27
22
604
23
301
98
48
1,313
46
Before privatization, the MWSS had 8.4 employees per 1,000 service connections. Manila Water
Company has improved this ratio to 1.7 employees per 1,000 service connections as of December 31,
2013. This was accomplished through improvements in productivity achieved through, among other
initiatives, value enhancement programs, improvements in work processes, employee coaching and
mentoring, transformation of employees into knowledge workers, and various training programs.
Manila Water’s organizational structure has been streamlined, and has empowered employees
through decentralized teams with responsibility for managing territories. In addition, the company
formed multi-functional working teams which are composed of members of the management team
tasked with addressing corporate issues such as quality and risk, and crisis management.
As of December 31, 2013, 212 or 16% of the employees of the company are members of the Manila
Water Employees Union (MWEU). The company and the MWEU concluded negotiations on a new
collective bargaining agreement (CBA) covering a three-year period from 2013 to 2016. The CBA
provides for a grant of P500 million in compensation and benefits spread over three years to
employees categorized as non-management collective bargaining unit (CBU) employees. The
company believes that its management maintains a strong relationship with union officials and
members as it has not had any strikes since its inception. Grievances are handled in managementled labor councils. The CBA also provides for a mechanism for the settlement of grievances.
The Company continues to maintain two-pronged strategy in talent development – Strengthening
Leadership Capabilities and Building and Fortifying Technical Expertise to maintain its leadership in
the water industry and contribute to national development.
On the leadership front, several initiatives were undertaken to ensure a strategic, well rounded
approach to leadership development:
• Succession Management: Manila Water continued to strengthen its succession management
initiatives to ensure a steady stream of talents in the leadership pipeline. To establish objectivity
of the process, identifying the talent pool for succession is done in partnership with a third party.
• Advanced Management Development Program (AMDP) focuses on strengthening leadership
competencies and enabling talents to understand the changing business and customer needs. It
helps the talents transition smoothly to their new leadership roles.
• Business Zone Leadership School (BZLS) aims to develop Business Zone Managers with the
right mix of leadership, technical knowledge, and experience.
• Management Development Training Program (MDTP) enables new talents to be men on the
ground – meeting business objectives, gaining exposure on water networks, and knowing
intimately the customers.
• The members of the Management Committee (MANCOM) champion an executive Coaching and
Mentorship Program with key talents of the organization.
To build and fortify technical capabilities, we implemented a Technical Coaching Program involving
identified talents in our operations and technical groups. The primary purpose of the program is to
equip the talents with the skills required to efficiently perform their current roles, and to ensure a sharp
and seamless knowledge transfer to their respective successors.
As the business landscape becomes more complex and customers’ expectations become increasingly
high, the organization is currently in the process of transitioning to competency-based development
and to the Manila Water University to ensure industry leadership.
The Company ensures that its reward system is market competitive, performance-based, aligned with
business strategies and results, and within regulatory parameters. In 2005, the company extended an
equal cash incentive to each employee covered by the reward system. In succeeding years, the
company further improved the system by taking care of the gaps in the distribution system and
aligning the reward system with the yearend goals of the company, which are anchored on the KPI/
BEM targets. In 2013, line managers were engaged to take ownership and to champion the
implementation of the enhanced rewards programs.
Pursuant to the concession agreement (CA), the company adopted the Employee Stock Option Plan
(ESOP). The ESOP was instituted to allow employees to participate directly in the growth of the
company and enhance the employees’ commitment toward its long-term profitability. In 2005, the
company adopted an Employee Stock Ownership Plan as part of its incentives and rewards system.
47
At the company’s inception, the company instituted a welfare fund to which it must contribute no less
than five percent of the monthly basic salary of a member who has authorized the company to do so.
In 2005, the company's Board of Directors approved the establishment of an enhanced retirement and
welfare plan. The plan is being administered by a Retirement and Welfare Plan Committee, which
also has the authority to make decisions on the investment parameters to be used by the trustee
bank.
Over and above these benefit and reward schemes, the company gives recognition for employees
who best exemplify its culture of excellence through the Chairman’s Circle (C2) Awards for senior
managers, the President’s Pride due to Performance (P3) honors for middle managers and the
Huwarang Manggagawa (Model Employee) Awards for the rank-and-file. Eight of the company’s
model employee awardees have also been awarded The Outstanding Workers of the Republic
(TOWER) Award by the Rotary Club of Manila from 1999 to 2009, by far the most won by any single
company over that period.
Over the past fifteen years, the company has been the recipient of numerous awards that include the
following: the Global Grand Prize in the 2010 International Water Association Project Innovation
Awards for the company’s creative approaches in reducing systems losses to benefit its customers,
the “Water Efficiency Project of the Year” from Global Water Intelligence and Water Desalination
Report for the “Manila Water NRW Strategy” that reduced systems losses significantly and improved
customer satisfaction, the Honour Award in the 2010 International Water Association Project
Innovation Awards for the Olandes Sewage Treatment Plant project, 1st Philippine Stock Exchange
Bell Awards for Corporate Governance, Platinum Plus award from the Institute of Corporate Directors,
the four Best-Managed Company Awards from Asiamoney Magazine, the seven corporate
governance awards from CorporateGovernance Asia, the Best-Managed Mid-Cap Company Award
from FinanceAsia Magazine, twenty Anvil awards from the Public Relations Society of the Philippines
from 2004 to 2012, twelve Quill Awards from the International Association of
Business
Communicators Philippines from 2006 to 2012, the Distinction Award for the Water Deal of the Year
from Global Water Intelligence, the Asia Water Management Excellence Award-Industry Category, the
Intel-Asian Institute of Management Corporate Responsibility Award in 2009, the Most Integrated into
the Core Business Award from the Management Association of the Philippines and League of
Corporate Foundations, and the 2002 Model Company Award and 2010 Hall of Fame Award from the
Department of Trade and Industry, which singled out the company’s “consistency and passion” in
pursuing programs on labor and management cooperation, quality and productivity improvement, and
family welfare and community relations.
But these awards have to take a backseat to the landmark recognition the company earned as 2006
Employer of the Year from the People Management Association of the Philippines, as well as to the
Asian Human Capital Award given by the Singaporean government in 2012.
The 2006 Employer of the Year honors were bestowed upon Manila Water for providing a remarkable
example of how a group of much-maligned government workers was transformed into a thoroughly
efficient organization that is now a leader in its industry.
The Asian Human Capital Award, meanwhile, may be the biggest recognition yet earned by the
company for simply being an award that is so difficult to obtain with the stringent standards being
employed by its giver, the Singaporean Ministry of Manpower, whose comprehensive selection
process nevertheless didn’t prevent Manila Water from becoming the first-ever Filipino company to
capture the elite honors. The Singaporean government deemed the company worthy of the award for
harnessing its people in transforming from a languishing water service provider into a world-class
water and wastewater company, citing not only its accomplishments but also the way it turned around
its business using its human resource.
Related Party Transactions
In the normal course of business, the Company has transactions with related parties. The sales and
investments with related parties are entered into and/or executed at normal market prices.
Furthermore, service agreement fees are based on rates negotiated and agreed upon by the parties.
As of December 31, 2013, outstanding balances for related party transactions are unsecured and
interest-free. The Company has not made any provision for probable losses relating to amounts owed
by related parties. This assessment is undertaken each financial year by examining the financial
position of the related party and the market in which the related party operates.
48
The Company has an existing contract with Ayala Corporation for the provision of administrative,
technical and support services in relation to human resources, treasury, accounting, capital works,
corporate services and regulatory affairs and administrative management of the Company. On the
other hand, the Technical Services Agreement with United Utilities B.V. (an affiliate of United Utilities
Pacific Holdings B.V.) for the provision of technical services to the Company has been terminated
effective July 31, 2012.
No other transaction was undertaken by the Company in which any director or executive officer was
involved or had a direct or indirect material interest.
49
Risks Disclosure
2013 TOP CORPORATE RISK
EAST ZONE BUSINESS ENVIRONMENT
Failure to adapt to the changing business
environment in the East Zone as a result of market
saturation, increasing cost of operations and
increasingly demanding political and consumer
environment.
MITIGATION STRATEGIES
Weekly quarterbacks are in place to review
operational highlights. Power-saving initiatives
were implemented and management of key
accounts was strengthened. In addition, the
Manila Water Total Solutions have undergone a
re-organization to further focus on generating new
revenue sources.
INVESTMENT PLAN EXECUTION
Failure to meet CAPEX targets within the approved
cost, time and quality.
Project Lifecycle processes, functions and
resources are being improved continuously to
assure projects stay within the agreed budget,
timeframe and quality level. There is an existing
Project Challenging Group and CAPEX Committee
to challenge and approve project’s variation order
and time extension. The Project Quality Plan
(PQP) is in place as a requirement from
contractors serving as a reference during project
implementation. Furthermore, there’s a random
safety audit for on-going projects.
Programs have been implemented to ensure
control of regulatory and socio-political risks at
both compliance and strategic levels. Monitoring of
the Company's compliance with various regulatory
requirements is done (all regulatory agencies)
through the Regulatory Compliance Council.
Activities are being done to further increase
reliability and efficiency of the current water supply
system such as the development of medium-term
water
sources,
weekly
monitoring
and
investigation of NRW contributors, preventive and
corrective maintenance of dam facilities and
aqueducts and implementation of metering at raw
water portal and tailrace metering.
REGULATORY
Failure to meet regulatory requirements and manage
threats/changes to such requirements which may
adversely affect the organization.
WATER SUPPLY
Failure to ensure adequacy and reliability of raw water
supply.
NEW BUSINESS OPERATIONS
Failure to manage risks/issues linked to operating
new businesses.
There were organizational changes to improve
Manila Water’s control and visibility in the
subsidiaries. To meet the talent requirements of
new businesses, services of third parties and head
hunters were employed.
Government Regulations
The Company has to comply with environmental laws and regulations which include:
• General Environmental Safeguards
o Presidential Decree No. 1586 (Philippine Environmental Impact Statement System)
o DENR Administrative Order No. 30, Series of 2003 (Implementing Rules and Regulations for
the Philippine Environmental Impact Statement System)
o DENR Administrative Order No. 26, Series of 1992 (Appointment/Designation of Pollution
Control Officers).
o DENR Administrative Order No. 27, Series of 2003 (Self Monitoring Report System)
• Water
o Republic Act No. 9275 or the Philippine Clean Water Act of 2004
o DENR Administrative Order No. 10, Series of 2005 (Implementing Rules and Regulations of
R.A. No. 9275)
o DENR Administrative Order No. 35, Series of 1990 (General Effluent Standards)
o DENR Administrative Order No. 39, Series of 2003 (Environmental Users Fees)
• Air
o Republic Act No. 8749 or the Philippine Clean Air Act of 1999
50
DENR Administrative Order No. 81, Series of 2000 (Implementing Rules and Regulations of
R.A. 8749)
Solid Waste
o Republic Act No. 9003 or the Ecological Solid Waste Management Act of 2000
o DENR Administrative Order No. 34, Series of 2001 (Implementing Rules and Regulations of
R.A. No. 9003)
Hazardous Wastes and Chemicals
o Republic Act No. 6969 or the Toxic Substances, and Hazardous and Nuclear Waste Control
Act of 1990
o DENR Administrative Order No. 29, Series of 1992 (Implementing Rules and Regulations of
R.A. No. 6969)
o Philippine Drug Enforcement Agency – Republic Act 9165- Regulatory Controls in Licit Trade
of Controlled Precursors and Essential Chemicals
o Philippine National Police – License to Possess/Purchase Explosives (Chemical used in the
laboratory that are ingredients/kind of explosives)
Others
o Republic Act No. 4850 or the Act Creating the Laguna Lake Development Authority (LLDA)
o Relevant LLDA Board Resolutions and Memorandum Circulars, including but not limited to
Resolution No. 25, Series of 1996 (Environmental User Fee System in the Laguna de Bay
Region) and Resolution No. 33, Series of 1996 (Approving the Rules and Regulations
Implementing the Environmental User Fee System in the Laguna de Bay Region)
o Presidential Decree No. 856 or the Philippine Sanitation Code
o Implementing Rules and Regulations of the Philippine Sanitation Code
o
•
•
•
Other Matters
The Company has not been involved in any bankruptcy, receivership or similar proceeding as of
December 31, 2013. Further, except as discussed above, the Company has not been involved in any
material reclassification, consolidation or purchase or sale of a significant amount of assets not in the
ordinary course of business. The Company is not engaged in sales to foreign markets.
The Company is not dependent on a single customer or a few customers, the loss of any or more of
which would have a material adverse effect on the Company.
Bank of the Phil. Islands (BPI or the Bank), and Globe Telecom (Globe) are significant joint ventures
of the Group. Their summarized financial information are therefore presented separately.
BANK OF THE PHILIPPINE ISLANDS
Bank of the Philippine Islands (BPI or the Bank) – highlights of balance sheets and income statements
are shown below:
Balance Sheets
(In Million Pesos)
December 2013
December 2012
(As restated)
Total Resources
1,195,364
985,241
Total Liabilities
Capital Funds Attributable to the Equity Holders of BPI
Noncontrolling Interest
1,089,557
104,535
1,272
887,119
96,696
1,426
Total Liabilities and Capital Funds
1,195,364
985,241
51
Statements of Income
(In Million pesos)
December 2013
December 2012
(As restated)
Interest income
Other Income
Total revenues
40,802
22,174
62,976
40,109
19,931
60,040
Operating expenses
Interest expense
Impairment losses
Provision for income tax
Total Expenses
26,703
10,478
2,648
4,153
43,982
24,802
12,655
2,923
3,158
43,538
Net income for the period
18,994
16,502
18,811
183
18,994
16,352
150
16,502
5.19
4.60
Attributable to:
Equity holders of BPI
Noncontrolling interest
EPS:
Based on 3,627 million shares as of December 31, 2013
and 3,556 million shares as of December 31, 2012
For further details on the BPI’s financial condition and operations, please refer to its 2013 Consolidated
Financial Statements which is incorporated herein as part of exhibits.
Background and Business
The Ayala Group conducts its financial services business through Bank of the Philippine Islands
(alternately referred to as BPI, “the Bank” or “the Company” in the entire discussion of Bank of the
Philippine Islands). BPI is a Philippine-based universal bank with an expanded banking license.
Founded in 1851, BPI is the country’s oldest bank. In the post-World War II era, BPI evolved, largely
through a series of mergers and acquisitions during the 1980s and 1990s, from a purely commercial
bank to a fully diversified universal bank with activities encompassing traditional commercial banking
as well as investment and consumer banking.
Together with its subsidiaries, BPI offers a wide range of financial services that include corporate
banking, consumer banking, consumer lending, investment banking, asset management, securities
distribution, insurance services and leasing. Such services are offered to a wide range of customers,
including multinationals, government entities, large corporations, SMEs and individuals.
According to data available from BSP, BPI is the third largest universal bank in the country in terms of
total assets. BPI also holds significant market share in the deposit, lending and asset management
markets. BPI Family Savings Bank, BPI’s primary subsidiary in retail lending, is the Philippines largest
savings bank in terms of total assets. BPI also enjoys a significant presence in the finance and
operating lease business, government securities dealership, securities distribution and foreign
exchange business. BPI’s overseas network includes five banking locations in Hong Kong, the United
Kingdom and Italy. In addition, BPI owns thirteen foreign remittance centres and maintains
correspondent relationships with several banks and financial institutions worldwide.
It is recognized as one of the top commercial banks in overseas Filipino (OF) remittances. BPI is a
market leader in electronic banking, where it has been a first mover and innovator in the use of
automated teller machines (ATMs), cash deposit machines (CDMs), point-of-sale debit systems, kiosk
banking, phone banking, internet banking and mobile banking
Business Evolution. For many years after its founding, BPI was the only domestic commercial bank in
the Philippines. BPI’s business was largely focused on deposit taking and extending credit to
exporters and local traders of raw materials and commodities, such as sugar, tobacco, coffee, and
indigo, as well as funding public infrastructure. BPI’s business developed throughout the late 1800s as
52
the economy and the prominence of the Philippines as an agricultural exporter developed. In keeping
with the regulatory model set by the Glass Steagall Act of 1932, the Bank operated for many years as
a private commercial bank. In the early 1980s, the Monetary Board of the Central Bank of the
Philippines (now the BSP) allowed BPI to evolve into a fully diversified universal bank, with activities
encompassing traditional commercial banking as well as investment and consumer banking. This
transformation into a universal bank was accomplished through both organic growth and mergers and
acquisitions with BPI absorbing an investment house, a stock brokerage company, a leasing
company, a savings bank, and a retail finance company.
BPI consummated three bank mergers since the late 1990s. In 1996, it merged with City Trust
Banking Corporation, a medium sized bank, which further solidified its stronghold in consumer
banking, and in 2000, it consummated the biggest merger then in the banking industry when it merged
with the former Far East Bank & Trust Company (FEBTC). This merger established its dominance in
the asset management & trust services and branch banking as well as enhanced its penetration of the
middle market. In 2000, it also formalized its acquisition of three major insurance companies in the
life, non-life and reinsurance fields, a move that further broadened its basket of financial products. In
2005, BPI acquired and merged with Prudential Bank, a medium sized bank with a clientele of middle
market entrepreneurs.
BPI evolved to its present position of eminence via a continuing process of enhancing its array of
products and services while attaining a balanced and diversified risk structure that guaranteed the
stability of its earning streams.
Business Milestones (2011-2013)
In March 2011, BPI became the first bank in the Philippines to acquire the trust business of a foreign
bank when it purchased the trust and investment management business and other related assets of
ING Bank N.V. Manila.
Principal Subsidiaries. The Bank’s principal subsidiaries are:
(1) BPI Family Savings Bank, Inc. (BFSB) serves as BPI’s primary vehicle for retail deposits,
housing loans and auto finance. It has been in the business since 1985.
(2)
BPI Capital Corporation is an investment house focused on corporate finance and the securities
distribution business. It began operations as an investment house in December 1994. It
merged with FEB Investments Inc. on December 27, 2002. It wholly owns BPI Securities
Corporation, a stock brokerage company.
(3)
BPI Leasing Corporation is a non-bank financial institution (NBFI) registered with SEC to
generally carry on the business of a financing company under the Financing Company Act. It
was originally established as Makati Leasing and Finance Corporation in 1970. It merged with
FEB Leasing & Finance Corporation on February 20, 2001. It wholly owns BPI Rental
Corporation which offers operating leases.
(4)
BPI Direct Savings Bank is a savings bank that provides internet and mobile banking services
to its customers. It started operating as such on February 17, 2000 upon approval by the
Bangko Sentral ng Pilipinas.
(5)
BPI International Finance Limited, Hong Kong is a deposit taking company in Hong Kong. It
was originally established in August 1974.
(6)
BPI Express Remittance Corp. (U.S.A) is a remittance center for overseas Filipino and was
incorporated on September 24, 1990.
(7)
Bank of the Philippine Islands (Europe) Plc was granted a UK banking license by the Financial
Services Authority (FSA) on April 26, 2007. It was officially opened to the public on October 1,
2007. In July 2008, BPI Europe was permitted by the FSA to carry out cross-border services in
other EEA Member States.
(8)
Ayala Plans, Inc. is a 98% owned pre-need insurance company acquired through the merger
with Ayala Insurance Holdings Corp (AIHC) in April 2000.
(9)
BPI/MS Insurance Corporation is a non-life insurance company formed through the merger of
FGU Insurance Corporation and FEB Mitsui Marine Insurance Company on January 7, 2002.
53
FGU and FEB Mitsui were acquired by the Bank through its merger with AIHC and FEBTC in
April 2000.
Business of Issuer
Principal Products & Services
The Bank offers a wide range of corporate, commercial and retail banking products. The bank has
two major categories for products & services. The first category covers its deposit taking and lending
/ investment activities. Revenue from this category is collectively termed as net interest income and
accounts for about 58% of revenues. The second category covers services other than and auxiliary to
the core deposit taking, lending, and investing business and from which it derives commissions,
service charges & fees from turnover volume. These include investment banking & corporate finance
fees, asset management & trust fees, foreign exchange, securities distribution fees, securities trading
gains, credit card membership fees, rental of bank assets, income from insurance subsidiaries and
service charges/ commissions earned on international trade transactions, drafts, fund transfers,
various deposit related services, etc. These services include traditional loan and deposit products, as
well as treasury, trust banking, investment banking, asset management, insurance and credit card
services.
Foreign Offices Contribution
Share in Total Revenue (%)
Hong Kong
USA
Europe
Share in Total Net Income (%)
Hong Kong
USA
Europe
2011
2012
2013
1.19
0.86
0.88
0.30
0.29
0.60
0.27
0.25
0.34
0.28
0.22
0.38
0.06
0.04
0.25
0.25
(0.02)
(0.17)
0.24
0.02
(0.23)
0.24
0.00
0.01
Distribution Network
BPI has 814 branches across the country, including 66 kiosk branches by the end of 2013. Kiosks
are branches much smaller than the traditional branch but fully equipped with terminals allowing direct
electronic access to product information and customers’ accounts as well as processing of self service
transactions. They serve as sales outlets in high foot traffic areas such as supermarkets, shopping
malls, transit stations, and large commercial establishments. Additionally, there are 6 BPI Globe
BanKO (BanKO) branches set up in strategic locations in the country. BanKO, a joint venture with
Ayala Corp. and Globe Telecom, is the country’s first mobile-based savings bank whose goal is to
extend financial services to the lower end of the market. Overseas, BPI has five (5) branches through
BPI International Finance Limited in Hong Kong and BPI Europe Plc’s four (4) branches in London.
BPI’s ATM network of 2,507 terminals complements the branch network by providing banking services
to its customers at any place and time of the day. The interconnection with Megalink and Bancnet in
1997 and 2006, respectively, gives BPI ATM cardholders access to over 15,200 ATMs. BPI’s ATM
network is likewise interconnected with the Cirrus International ATM network, China Union Pay (CUP),
Discover/Diners, JCB, and Visa International. Real-time Cardless Deposit is also made available in
almost 300 Cash Deposit Machines in the country. In addition, BPI operates Express Payment
System (point-of-sale/debit card system) terminals in major department stores, supermarkets, gas
stations, and merchant establishments. This facility, interconnected with the Maestro international
POS network, allows customers to pay for purchases electronically through their ATM cards.
The BPI Express Phone Facility enables BPI depositors to inquire account balances and latest
transactions, transfer funds to other BPI accounts real time, pay for their various bills (e.g., credit
cards, electricity, cable company, Telco/ISP, condominium dues, insurance premiums) and reload
prepaid cell phones. To further enhance the Express Phone facility, a Contact Center was
established in 1998 to provide phone banker assisted services to its customers. The Contact Center
also currently handles client feedback and inquiries through email, SMS and other digital media.
In 2000, BPI launched its B2C web-based platform, Express Online (EOL), which provides all the
transactional services available through the Express Phone plus the real-time convenience of viewing
transactional history and balances on screen. EOL now offers BPI Investment Online, the first full54
service online investment fund facility where clients can access portfolio information, apply for an
investment fund account, subscribe to additional funds, redeem investments, and make regular
contributions via the Regular Subscription Plan (RSP). BPI Trade, a separate investment platform of
the Bank but can also be accessed through EOL, allows customers to invest in equities without need
of any dealer or broker.
BPI Express Mobile, the bank’s mobile banking platform, provides access to accounts and bank
transactions using a mobile phone. BPI offers different variants of Mobile Banking, depending on
client’s mobile device and available technology. In 2013, BPI introduced an enhanced version of the
mobile banking app which can run on iOS, Android, and Blackberry devices.
BPI also maintains a specialized network of remittance centers for servicing overseas remittances
from Filipinos working abroad. To date, BPI has 13 Remittance Centers and Desks located in Hong
Kong, USA and Europe. BPI also maintains tie-ups with various foreign entities in locations where
this mode of operation is more effective and cost-efficient.
On the lending side, BPI maintains 14 Business Centers across the country to process loan
applications, loan releases, and international trade transactions, and provide after-sales servicing to
both corporate and retail loan accounts.
Competition
Mergers, acquisitions and closures trimmed down the number of players in the industry from a high of
50 upon the liberalization of rules on the entry of foreign banks to 36 universal and commercial banks
in 2013. Competition has remained intense despite the industry consolidation.
Lending by universal and commercial banks, excluding thrift banks, grew by 16.4% in 2013. The
sustained double-digit growth was primarily driven by robust credit demand from the power, real
estate, business process outsourcing, manufacturing, wholesale & retail trade, and construction
industries. Production loans were used to support the expansion in output of these sectors. Consumer
loans also grew though at a moderated pace than the previous year.
Domestic banks face the challenge of narrowing interest spreads to top tier corporate sector, which
have the option of accessing the capital market for their funding needs. Hence it is in the consumer
and SME market where lending opportunities are better, and where most of the domestic banks’ focus
has been directed. BPI, being a well-entrenched, long-term player enjoys the advantage of having an
undisputed depth of experience in this demanding business that spans origination/credit selection,
collection, and asset recovery activities.
Remittances remain one of the main growth drivers of the economy, accounting for around 10% of
GDP and boosting consumption that covers about 70% of GDP. In view of this, BPI continued to
strengthen its stake in the OF segment by actively cross selling products other than the remittance
service and exhibited growth in OF deposits and housing loans.
Based on required published statements by the Bangko Sentral ng Pilipinas (BSP) as of December
2013, BPI is the third largest bank operating in the country in terms of assets, deposits, loans and
capital and second in terms of consumer loans and asset management and trust business. Total
assets of BPI based on Philippine Financial Reporting Standards (PFRS) compliant audited financial
statement are higher though than the published statements prepared along BSP standards.
Patents, Trademarks, Licenses, Franchises, etc.
BPI sells its products and services through the BPI trademark and/or trade name. All its major
financial subsidiaries carry the BPI name e.g. BPI Family Savings Bank, BPI Capital, BPI Securities,
BPI Leasing, BPI Direct Savings, and so do its major product & service lines.
In addition to the BPI trademark, it markets its products through the “Express” brand name e.g.,
(1) BPI Express, for its banking kiosks
(2) Express Teller, for its ATM
(3) Express Deposit, for its cash acceptance machine
(4) Express Payment System or EPS, for its debit card payment facility
(5) ExpressNet, for its shared ATM network
(6) Express Credit, for its credit cards
(7) Express Cash, for its electronic cash card
(8) Express Phone, for its call center facility
(9) Express Online, for its internet based transaction platform for retail customers
55
(10)
(11)
(12)
(13)
Express Mobile, for its mobile banking facility
ExpressLink, for its internet based transaction platform for corporate customers
Expresslink Mobile, for its mobile banking for corporate customers
Express Collect, for its corporate deposit related services
At BPI Family Savings Bank, the product trademarks include the BPI Family Housing Loan with BPI
Family Housing Loan Paybreak variant, the BPI Family Auto Loan, the BPI Family Ka-Negosyo
Business Loans (BPI Family Ka-Negosyo Credit Line, BPI Family Ka-Negosyo Franchising Loan and
BPI Family Ka-Negosyo Term Loan) and the BPI Family Motorcycle Loan. Other product brands of
BPI, BFSB and BPI Direct are Maxi-One, Save-up, and Maxi-Saver.
All the Bank’s Trademark registrations are valid for 10 years with years of expiration varying from year
2013 to 2030. To secure these rights, the Bank files and pays corresponding fees within 1 year from
the Trademark’s 5th Anniversary of use at the IPO. The Bank closely monitors the expiry/renewal
dates of these trademark names to protect the Bank’s brand equity.
In terms of corporate business licenses, BPI has an expanded commercial banking license while BPI
Family Savings Bank and BPI Direct Savings have savings bank licenses. Both BPI and BPI Direct
Savings have e-banking licenses. BPI Capital Corporation has an investment house license. BPI
Leasing has a finance company license.
Related Parties
In the ordinary course of business, the Bank has entered into various transactions with its Directors,
Officers, Stockholders and their Related Interests or DOSRI including loan transactions. BPI and all
its subsidiaries have always been in compliance with the General Banking Act and the Bangko Sentral
ng Pilipinas Circulars and regulations on DOSRI loans and transactions. As of December 31, 2013,
DOSRI loans amounted to 1.04% of loans and advances as per Note 31 of the 2013 Consolidated
Financial Statements of BPI which forms part of the Annex of this SEC17A report.
Government Regulations
Under the General Banking Act, the Monetary Board of the BSP is responsible for regulating and
supervising financial intermediaries like BPI. The implementation and enforcement of the BSP
regulations is primarily the responsibility of the supervision and examination sector of the BSP.
The General Banking Act was revised in 2000. The revisions allow (1) the issuance of tier 2 capital
and its inclusion in the capital ratio computation, and (2) the 100% acquisition of a local bank by a
foreign bank. The second item removes the advantage of a local bank over a foreign bank in the area
of branching. In 2005, the BSP issued Circular no. 494 covering the guidelines in adopting the
provision of Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards
(PAS) effective the annual financial reporting period beginning 1 January 2005. These new
accounting standards aim to promote fairness, transparency and accuracy in financial reporting.
In July 2007, the risk-based Capital Adequacy Ratio (CAR) under the Basel II accord, which assigns
risk weights for credit, market and operational risks, was implemented by the BSP through BSP
Circular 538. The circular, which covers all universal and commercial banks including their subsidiary
banks and quasi-banks, also maintained the 10% minimum capital adequacy ratio for both solo and
consolidated basis. Subsequently, the Internal Capital Adequacy Assessment Process (ICAAP)
guidelines were issued in 2009 for adoption by January 2011.
On January 6, 2012, the BSP announced that universal and commercial banks will be required to
adopt the capital adequacy standards under Basel III starting January 1, 2014. On January 15, 2013,
the BSP issued Circular No. 781, which prescribes the new capital adequacy standards in accordance
with Basel III. This circular will take effect in January 1, 2014.
On March 29, 2012, the BSP issued Circular No. 753 mandating the unification of the statutory/legal
and liquidity reserves requirements on Peso deposits and Peso deposit substitutes. As such, effective
the week of April 6, 2012, non-foreign currency deposit unit deposit liabilities, including Peso demand,
savings and time deposits, negotiable orders of withdrawal of accounts and deposit substitutes, are
subject to required reserves equivalent of 18%. Likewise, a universal bank is required to set up
reserves of 18% against peso-denominated common trust funds and such other managed funds and
reserves of 15% against Peso-denominated “Trust and Other Fiduciary Accounts (TOFA) — Others.”
56
Research and Development Activities
BPI spent the following for the last three years:
2011
2012
2013
In P M
206.1
273.4
235.1
% of Revenues
0.5
0.6
0.4
Employees
Below is a breakdown of the manpower complement of BPI in 2013 as well as the approved
headcount for 2014.
Unibank
Consumer Banking
Corporate Banking
Investment Banking
Support
Insurance Companies
TOTAL
December 31, 2013 Actual
December 31, 2014 Plan
Officers
Staff
Total
Officers
Staff
Total
4,007
8,635 12,642
4,686
9,399
14,085
2,821
6,150
8,971
3,170
6,745
9,915
649
1,675
2,324
750
1,836
2,586
108
33
141
162
19
181
430
776
1,206
604
799
1,403
62
320
382
67
348
415
4,070
8,954 13,024
4,753
9,747
14,500
Majority or 95% of the staff are members of various unions and are subject to Collective Bargaining
Agreements (CBAs). The CBA of the parent company was concluded / signed last May 31, 2011 for
the various BPI Provincial Employees Unions and June 9, 2011 for the BPI Metro Manila Employees
Union. The new BPI CBA covers the period April 1, 2011 to March 31, 2014.
CBA for BPI Family Savings Bank was concluded / signed last December 20, 2013. The new BFSB
CBA covers the period November 1, 2013 to October 31, 2015.
Risk Management
The Bank employs a disciplined approach to managing all the risks pertaining to its business to
protect and optimize shareholder value. The risk management infrastructure covers all identified risk
areas. Risk management is an integral part of day-to-day business management and each operating
unit measures, manages and controls the risks pertaining to its business. Functional support on
policy making and compliance at the corporate level is likewise provided for the major risk categories:
credit risks, market risks and operating risks. Finally, independent reviews are regularly conducted by
the Internal Audit group, regulatory examiners and external auditors to ensure that risk controls are in
place and functioning effectively.
Credit risk, the largest single risk for a bank, involves the thorough evaluation, appropriate approval,
management and continuous monitoring of exposure risks, such as counterparty or borrower risk,
facility risk, and industry risk relating to each loan account. In BPI, the entire credit risk management
process is governed by policies, standards and procedures which are regularly reviewed and
updated given regulatory requirements and market developments. The loan portfolio is
continuously monitored and reviewed as to quality, concentration and utilization of limits. In 2013, the
Bank has completed its FIRB PD model for large corporate and PD-based behavioral scorecard for
retail housing segment, and is currently developing the corporate SME PD and LGD models for the
retail housing segment.
Market risk management involves liquidity risk and price risk. Both risks are managed using a set of
established policies and procedures guided by the Bank's overall market risk management framework
set by the Board. Liquidity risk is the risk that the Bank will be unable to meet its financial obligation to
a customer or market. Liquidity exposures on funding mainly come from the mismatches of asset,
liability, and exchange contract maturities. The Bank manages liquidity risk by setting a minimum
cumulative liquidity net inflow limit, conducting liquidity stress tests, and designing a contingency
funding plan. Price risk is the risk that the Bank's earnings will decline immediately or over time
because of a change in the level or volatility of interest rates, foreign exchange rates, or equity prices.
The Bank employs various methodologies in measuring and managing price risks, such as Value at
Risk, Management Action Triggers and Earnings at Risk, and is supplemented by regular stress tests.
The Bank’s market risk exposures measurement have been improved through the adoption of the
Historical Simulation methodology used for Value-at-Risk (VaR) calculation for all trading and
derivative instruments and through the full implementation of an automated market risk system.
57
Operational risk management involves creating and maintaining an operating environment that
ensures and protects the integrity of the assets, transactions, records and data of the Bank and its
customers, the enforceability of the Bank’s claims, and compliance with all pertinent legal and
regulatory parameters.
GLOBE TELECOM, INC.
Globe Telecom’s (alternately referred to as Globe, Globe Telecom or “the Company” in the entire
discussion of Globe Telecom, Inc), highlights of balance sheets and income statements are shown
below
Balance Sheets
(In Million Pesos)
December 2013
Current Assets
Noncurrent Assets
Total Assets
35,631
123,448
159,079
December 2012
(As restated)
34,028 *
113,984
148,012
Current Liabilities
45,826 **
54,989
Noncurrent Liabilities
56,488
62,451
Equity
45,698
41,639
Total Liabilities and Equity
148,012
159,079
*Includes Assets classified as held for sale amounting to P778 million
**Includes Liabilities directly associated with the assets classified as held for sale amounting to P460 million
Statements of Income
(In Million pesos)
December 2013
December 2012
(As restated)
Net Operating Revenues
Other Income
Total Revenues
95,141
1,228
96,369
86,446
1,339
87,785
Costs and Expenses
Provision for Income Tax
Total Expenses
89,504
1,905
91,409
78,034
2,906
80,940
4,960
6,845
Net Income
EPS:
Basic
Diluted
37.25
37.22
51.45
51.38
As of December 31, 2013 (in Thousand Number of Shares)
Basic based on 132,515 common shares
Diluted based on 133,283 common shares
As of December 31, 2012 (in Thousand Number of Shares)
Basic based on 132,394 common shares
Diluted based on 133,229 common shares
For further details on the Globe’s financial condition and operations, please refer to its 2013
Consolidated Financial Statements which is incorporated herein as part of exhibits.
58
Background and Business
The Ayala Group conducts its telecommunications business through Globe Telecom, Inc (alternately
referred to as Globe or “the Company” in the entire discussion of Globe Telecom, Inc.). Globe’s origin
can be traced back to Robert Dollar Company, a California company which provided wireless long
distance message services. After subsequent mergers and re-namings, the company was named
Globe Telecom, Inc. in 1983, when the partnership between Ayala and Singapore Telecom, the
principal shareholders of Globe, was formalised. Since then, Globe has been recognised as the first
company to offer SMS services in the Philippines and as the first Philippine internet service provider in
the Philippines.
Globe is a major provider of telecommunications services in the Philippines, with over 5,900
employees and over 855,000 retailers, distributors, suppliers and business partners nationwide. Globe
operates one of the largest and most technologically advanced mobile, fixed line and broadband
networks in the country, providing reliable, superior communications services to individual customers,
small and medium-sized businesses and corporate and enterprise clients.
As of 31 December 2013, Globe had approximately 38.5 million mobile subscribers, over 2 million
broadband customers, and about 594,000 landline subscribers.
Globe’s principal executive offices are located at the The Globe Tower, 32nd Street corner 7thAvenue,
Bonifacio Global City, Taguig, Metropolitan Manila, Philippines.
Globe is one of the largest and most profitable companies in the country, and has been consistently
recognized both locally and internationally for its corporate governance practices. It is listed on the
Philippine Stock Exchange under the ticker symbol GLO and had a market capitalization of US$4.9
billion as of the end of December 2013.
The Company’s principal shareholders are Ayala Corporation and Singapore Telecom, both industry
leaders in their respective countries. Aside from providing financial support, this partnership has
created various synergies and has enabled the sharing of best practices in the areas of purchasing,
technical operations, and marketing, among others.
Globe is committed to being a responsible corporate citizen. Globe BridgeCom, the company’s
umbrella corporate social responsibility program, leads and supports various initiatives that (1)
promote education and raise the level of computer literacy in the country, (2) support
entrepreneurship and micro-enterprise development particularly in the countryside, and (3) ensure
sustainable development through protection of the environment and excellence in operations. Since
its inception in 2003, Globe BridgeCom has made a positive impact on the lives of thousands of public
elementary and high school students, teachers, community leaders, and micro-entrepreneurs
throughout the country. For its efforts, Globe BridgeCom has been recognized and conferred several
awards and citations by various Philippine and international organizations.
The Globe Group is composed of the following companies:
• Globe Telecom, Inc. (Globe) provides mobile telecommunications services;
• Innove Communications Inc. (Innove), a wholly-owned subsidiary, provides fixed line
telecommunications and broadband services, high-speed internet and private data networks for
enterprise clients, services for internal applications, internet protocol-based solutions and
multimedia content delivery;
• G-Xchange, Inc. (GXI), a wholly-owned subsidiary, provides mobile commerce services under the
GCash brand;
• Entertainment Gateway Group Corp. and EGGstreme (Hong Kong) Limited (EHL) (collectively
referred here as EGG Group), is engaged in the development and creation of wireless products
and services accessible through telephones and other forms of communication devices, it also
provides internet and mobile value added services, information technology and technical services
including software development and related services; and
• GTI Business Holdings, Inc. (GTI) is a wholly-owned subsidiary with authority to provide VOIP
services. Its wholly-owned subsidiaries are: GTI Corporation (GTIC US), a company organized
under the General Corporation Law of the State of Delaware for the purpose of engaging in any
lawful act or activity, and Globe Telecom HK Limited (GTHK), a limited company organized under
the Companies Ordinance of Hong Kong; and
• Kickstart Ventures, Inc. (Kickstart), a wholly-owned subsidiary, is a pioneering business incubator
designed to provide aspiring technopreneurs with funds and facilities, mentorship and market
access needed to build new businesses.
59
The Company is a grantee of various authorizations and licenses from the National
Telecommunications Commission (NTC) as follows: (1) license to offer and operate facsimile, other
traditional voice and data services and domestic line service using Very Small Aperture Terminal
(VSAT) technology; (2) license for inter-exchange services; and (3) Certificate of Public Convenience
and Necessity (CPCN) for: (a) international digital gateway facility (IGF) in Metro Manila, (b)
nationwide digital cellular mobile telephone system under the GSM standard (CMTS-GSM), (c)
nationwide local exchange carrier (LEC) services after being granted a provisional authority in June
2005, and (d) international cable landing stations located in Nasugbu, Batangas and Ballesteros,
Cagayan.
Business Development and Corporate History
In 1928, Congress passed Act No. 3495 granting the Robert Dollar Company, a corporation organized
and existing under the laws of the State of California, a franchise to operate wireless long distance
message services in the Philippines. Subsequently, Congress passed Act No. 4150 in 1934 to
transfer the franchise and privileges of the Robert Dollar Company to Globe Wireless Limited which
was incorporated in the Philippines on 15 January 1935.
Globe Wireless Limited was later renamed as Globe-Mackay Cable and Radio Corporation (“GlobeMackay”). Through Republic Act (“RA”) 4630 enacted in 1965 by Congress, its franchise was further
expanded to allow it to operate international communications systems. Globe-Mackay was granted a
new franchise in 1980 by Batasan Pambansa under Batas Pambansa 95.
In 1974, Globe-Mackay sold 60% of its stock to Ayala Corporation, local investors and its employees.
It offered its shares to the public on 11 August 1975.
In 1992, Globe-Mackay merged with Clavecilla Radio Corporation, a domestic telecommunications
pioneer, to form GMCR, Inc. (“GMCR”). The merger gave GMCR the capability to provide all forms of
telecommunications to address the international and domestic requirements of its customers. GMCR
was subsequently renamed Globe Telecom, Inc. (“Globe”).
In 1993, Globe welcomed a new foreign partner, Singapore Telecom, Inc. (STI), a wholly-owned
subsidiary of Singapore Telecommunications Limited (“SingTel”), after Ayala and STI signed a
Memorandum of Understanding.
In 2001, Globe acquired Isla Communications Company, Inc. (“Islacom”) which became its whollyowned subsidiary effective 27 June 2001. In 2003, the National Telecommunications Commission
(“NTC”) granted Globe’s application to transfer its fixed line business assets and subscribers to
Islacom, pursuant to its strategy to integrate all of its fixed line services under Islacom. Subsequently,
Islacom was renamed as Innove Communications, Inc. (“Innove”).
In 2004, Globe invested in G-Xchange, Inc. (“GXI”), a wholly-owned subsidiary, to handle the mobile
payment and remittance service marketed under the GCash brand using Globe’s network as transport
channel. GXI started commercial operations on 16 October 2004.
In November 2004, Globe and seven other leading Asia Pacific mobile operators (‘JV partners’)signed
an agreement (‘JV agreement’) to form Bridge Alliance. The joint venture company operates through a
Singapore-incorporated company, Bridge Mobile Pte. Limited (BMPL) which serves as a commercial
vehicle for the JV partners to build and establish a regional mobile infrastructure and common service
platform to deliver different regional mobile services to their subscribers. The Bridge Alliance currently
has a combined customer base of over 250 million subscribers among its partners in India, Thailand,
Hong Kong, South Korea, Macau, Philippines, Malaysia, Singapore, Australia, Taiwan and Indonesia.
In 2005, Innove was awarded by the NTC with a nationwide franchise for its fixed line
business,allowing it to operate a Local Exchange Carrier service nationwide and expand its network
coverage. In December 2005, the NTC approved Globe’s application for third generation (3G) radio
frequency spectra to support the upgrade of its cellular mobile telephone system (“CMTS”) network to
be able to provide 3G services. The Company was assigned with 10-Megahertz (MHz) of the 3G radio
frequency spectrum.
On 19 May 2008, following the approval of the NTC, the subscriber contracts of Touch Mobile or TM
prepaid service were transferred from Innove to Globe which now operates all wireless prepaid
services using its integrated cellular networks.
60
In August 2008, and to further grow its mobile data segment, Globe acquired 100% ownership of
Entertainment Gateway Group (“EGG”), a leading mobile content provider in the Philippines. EGG
offers a wide array of value-added services covering music, news and information, games, chat and
web-to-mobile messaging.
On 25 November 2008, Globe formed GTI Business Holdings, Inc. (GTIBH) primarily to act as an
investment company.
On October 30, 2008, Globe, the Bank of the Philippine Islands (BPI) and Ayala Corporation (AC)
signed a memorandum of agreement to form a joint venture that would allow rural and low-income
customers’ access to financial products and services. Last October 2009, the Bangko Sentral ng
Pilipinas (BSP) approved the sale and transfer by BPI of its shares of stock in Pilipinas Savings Bank,
Inc. (PSBI), formalizing the creation of the venture. Globe’s and BPI’s ownership stakes in PSBI is at
40% each, while AC’s shareholding is at 20%. The partners plan to transform PSBI (now called BPI
Globe BanKO, Inc.) into the country’s first mobile microfinance bank. The bank’s initial focus will be
on wholesale lending to other microfinance institutions but will eventually expand to include retail
lending, deposit-taking, and micro-insurance.BPI Globe BanKO opened its first branch in Metro
Manila in the first quarter of 2011 and now has 6 branches nationwide, over 2,000 partner outlets,
261,000 customers and over P2.4 billion in its wholesale loan portfolio.
On March 2012, Globe launched Kickstart Ventures, Inc. (Kickstart) to help, support and develop the
dynamic and growing community of technopreneurs in the Philippines. Kickstart is a business
incubator that is focused on providing aspiring technopreneurs with the efficient environment and the
necessary mechanisms to start their own business. Since its launch, Kickstart has 10 companies it its
portfolio covering the digital media and technology, and web/mobile platform space.
In October 2013, following the court's approval of the Amended Rehabilitation Plan (jointly filed by
Globe and Bayantel in May 2013), Globe acquired a 38% interest in Bayantel by converting
Bayantel's unsustainable debt into common shares. This follows Globe's successful tender offer for
close to 97% of Bayantel's outstanding indebtedness as of December 2012. As part of the amended
rehab plan and pending regulatory approvals, Globe would further convert a portion of its sustainable
debt into common shares of Bayantel, bringing up its stake to around 56%.
There was no bankruptcy, receivership or similar proceedings initiated during the past four years.
Business Segments
1. Mobile Business
Globe provides digital mobile communication services nationwide using a fully digital network based
on the Global System for Mobile Communication (GSM) technology. It provides voice, data and valueadded services to its mobile subscribers through three major brands: Globe Postpaid, Globe Prepaid
and TM.
Globe Postpaid includes all postpaid plans such as regular G-Plans and consumable G-Flex Plans,
Load Allowance Plans, Load Tipid Plans and Platinum Plans (for the high-end market). In 2010, the
Company introduced the MY SUPERPLAN and MY FULLY LOADED PLAN which allow subscribers
to personalize their plans, choose and combine various unlimited call, text and web browsing service
options. In addition, Globe has made available various add-on roaming and mobile browsing plans to
cater to the needs of its subscribers. In 2011, Globe further improved postpaid offerings with the All
New My Super Plan where subscribers are given the flexibility to create their own plans by either
subscribing to an All-Unlimited Plan or an All-Consumable Plan. Subscribers also get to choose their
freebies and add-ons which they can change on a monthly basis. A fully-customizable unlimited data
plan (Unli Surf Combo Plan) was also made available to its subscribers in mid-2011 which provides
uninterrupted unlimited mobile surfing without the need for a WIFI connection. The data plan comes
with consumable amounts which the subscriber may use to either local and international calls and text
messages. Taking the product customization to the next level, the company launched in the second
quarter of 2013 the BEST-EVER MY SUPERPLAN with fully-customizable plan components, bigger
plan value and more contract periods to choose from (6, 12, 18, and 30 months). Each plan has a
corresponding “peso value” that can be converted to avail of a combination of call, text, or surf
services, free or discounted gadgets, and a monthly consumable amount for more calls, texts and
surf.
Globe Prepaid and TM are the prepaid brands of Globe. Globe Prepaid is focused on the mainstream
market while TM caters to the value-conscious segment of the market. Each brand is positioned at
different market segments to address the needs of the subscribers by offering affordable innovative
61
products and services. In February 2012, the Company introduced a self-service menu that provides
Globe prepaid subscribers an easy access to avail of the latest promos and services of Globe by
simply dialing *143#. In early 2013, this menu was further developed with Globe Prepaid’s GO
SAKTO which allows the subscribers to build their own promos (call, text and surf promos) that is best
suited for their needs and lifestyle.
In addition to digital wireless communications, Globe also offers mobile payments and remittance
services under the GCash brand. GCash is an internationally acclaimed micro payment service that
transforms a mobile phone into a virtual wallet, enabling secure, fast, and convenient money transfers
at the speed and cost of a text message. Since the launch of GCash, wholly-owned subsidiary GXI
has established a wide network of local and international partners that includes government agencies,
utility companies, cooperatives, insurance companies, remittance companies, universities, and
commercial establishments which all accept GCash as a means of payment for products and
services.
Globe offers various top-up or reloading options and facilities for prepaid subscribers including
prepaid call and text cards, bank channels such as ATMs, credit cards, and through internet banking.
Subscribers can also top-up at over 856,000 AutoLoad Max retailers nationwide, all at affordable
denominations and increments. A consumer-to-consumer top-up facility, Share-A-Load, is also
available to enable subscribers to share prepaid load credits via SMS. Globe’s AutoLoad Max and
Share-A-Load services are also available in selected OFW hubs all over the world.
Globe has a loyalty and rewards program called My Rewards, My Globe for Globe Prepaid
subscribers, TM Astig Rewards for TM subscribers and Tattoo+ Rewards for Tattoo Broadband
subscribers. Globe Postpaid subscribers can earn points based on their monthly billed amounts in
excess of their Monthly Subscription Fee. Subscribers have the option to redeem rewards instantly,
or accumulate points to avail of higher value rewards.
Redeemed points in the form of telecom services is netted out against revenues whereas points
redeemed in the form of non-telco services such as gift certificates and other products are reflected as
marketing expense. At the end of each period, Globe estimates and records the amount of probable
future liability for unredeemed points.
(a) Mobile Voice
Globe’s voice services include local, national and international long distance call services. It has one
of the most extensive local calling options designed for multiple calling profiles. In addition to its
standard, pay-per-use rates, subscribers can choose from bulk and unlimited voice offerings for allday or off-peak use, and in several denominations to suit different budgets.
Globe keeps Filipinos connected wherever they may be in the world, made possible by its tie-up with
over 600 roaming partners in more than 200 calling destinations worldwide. Globe also offers
roaming coverage on-board selected shipping lines and airlines, via satellite. Through its Globe
Kababayan program, Globe provides an extensive range of international call and text services to allow
OFWs (Overseas Filipino Workers) to stay connected with their friends and families in the Philippines.
This includes prepaid and reloadable call cards and electronic PINs available in popular OFW
destinations worldwide.
(b) Mobile Data and Value-Added Services
Globe’s data services include local and international SMS offerings, mobile browsing and content
downloads. Globe also offers various bucket and unlimited SMS packages to cater to the different
needs and lifestyles of its postpaid and prepaid subscribers. Additionally, Globe subscribers can send
and receive Multimedia Messaging Service (MMS) pictures and video, or do local and international 3G
video calling.
Globe’s mobile browsing services allow subscribers to access the internet using their internet-capable
handsets, devices or laptops with USB modems. Data access can be made using various
technologies including LTE, 4G HSPA+, 3G with HSDPA, EDGE and GPRS. Browsing subscribers
also have multiple charging options available with Globe’s Flexible Mobile Internet Browsing rates
which allow subscribers to choose between time or usage-based rates. They can also choose
between hourly, daily or monthly browsing plans.
The Company offers a full range of downloadable content covering multiple topics including news,
information, and entertainment through its web portal. Subscribers can purchase or download music,
movie pictures and wallpapers, games, mobile advertising, applications or watch clips of popular TV
62
shows and documentaries as well as participate in interactive TV, do mobile chat, and play games,
among others.
Through Globe’s partnership with major banks and remittance companies, and using Globe’s
pioneering GCash platform, subscribers can perform mobile banking and mobile commerce
transactions. Globe subscribers can complete international and domestic remittance transactions, pay
fees, utility bills and income taxes, avail of micro-finance transactions, donate to charitable institutions,
and buy Globe prepaid load credits using its GCash-activated SIM.
2. Fixed Line and Broadband Business
Globe offers a full range of fixed line communications services, wired and wireless broadband access,
and end-to-end connectivity solutions customized for consumers, SMEs (Small & Medium
Enterprises), large corporations and businesses.
(a) Fixed Line Voice
Globe’s fixed line voice services include local, national and international long distance calling services
in postpaid and prepaid packages through its Globelines brand. Subscribers get to enjoy toll-free rates
for national long distance calls with other Globelines subscribers nationwide. Additionally, postpaid
fixed line voice consumers enjoy free unlimited dial-up internet from their Globelines subscriptions.
Low-MSF (monthly service fee) fixed line voice services bundled with internet plans are available
nationwide and can be customized with value-added services including multi-calling, call waiting and
forwarding, special numbers and voice mail. For corporate and enterprise customers, Globe offers
voice solutions that include regular and premium conferencing, enhanced voice mail, IP-PBX
solutions and domestic or international toll free services.
(b) Fixed Line Data
Fixed line data services include end-to-end data solutions customized according to the needs of
businesses. Globe’s product offerings include international and domestic leased line services,
wholesale and corporate internet access, data center services and other connectivity solutions
tailored to the needs of specific industries.
Globe’s international data services provide corporate and enterprise customers with the most diverse
international connectivity solutions. Globe’s extensive data network allow customers to manage their
own virtual private networks, subscribe to wholesale internet access via managed international private
leased lines, run various applications, and access other networks with integrated voice services over
high-speed, redundant and reliable connections. In addition to bandwidth access from multiple
international submarine cable operators, Globe also has international cable landing stations situated
in different locales to ensure redundancy and network resiliency.
The Company’s domestic data services include data center solutions such as business continuity and
data recovery services, 24x7 monitoring and management, dedicated server hosting, maintenance for
application-hosting, managed space and carrier-class facilities for co-location requirements and
dedicated hardware from leading partner vendors for off-site deployment.
Other fixed line data services include premium-grade access solutions combining voice, broadband
and video offerings designed to address specific connectivity requirements. These include Broadband
Internet Zones (BIZ) for broadband-to-room internet access for hotels, and Internet Exchange (GiX)
services for bandwidth-on-demand access packages based on average usage.
(c) Broadband
Globe offers wired, fixed wireless, and fully mobile internet-on-the-go services across various
technologies and connectivity speeds for its residential and business customers. Tattoo@Home
consists of wired or DSL broadband packages bundled with voice, or broadband data-only services
which are available at download speeds ranging from 1 Mbps up to 15 Mbps. In selected areas
where DSL is not yet available, Globe offers Tattoo WiMAX, a fixed wireless broadband service using
its WiMAX network. Meanwhile, for consumers who require a fully mobile, internet-on-the-go
broadband connection, Tattoo On-the-Go allows subscribers to access the internet using LTE, 4G
HSPA+, 3G with HSDPA, EDGE, GPRS or Wi-Fi at various hotspots nationwide using a plug-and-play
USB modem. This service is available in both postpaid and prepaid packages. In addition, consumers
in selected urban areas who require faster connections have the option to subscribe to TattooTorque
broadband plans using leading edge GPON (Gigabit Passive Optical Network) technology with
speeds of up to 100 Mbps.
63
In September 2012, the Company officially launched its Long-Term Evolution (LTE) broadband
service with the Tattoo BlackPostpaid Plans. The nomadic broadband plans are equipped with an
LTE dongle and LTE superstick that deliver browsing speeds of up to 42 Mbps and come with
personalized customer handling services such as a dedicated hotline, a relationship manager, and
many other perks.
In 2013, Tattoo kicked off the year with lower price propositions for its 4G product suite. Tattoo 4G
Flash was made available for only P995 with surfing speeds of up to 7.2 Mbps. Also, Tattoo At-Home
now offers free unlimited calls to Globe/TM in addition to landline and internet service in every
Tattoo@HomeBroadband Bundle. During the second quarter, Tattoo Postpaid strengthens its
lifestyle positioning with the unveiling of Tattoo-Enjoy Card which allows new Tattoo Postpaid
subscribers access to perks and discounts to over 240 brand partners nationwide. Tattoo Prepaid
Lifestyle sticks with surfing speed of up to 12 Mbps on the other hand was made available to
consumers for only P1,295. Meanwhile, in order to address the increasing demand for mobile Wi-Fi
and faster internet connectivity, Tattoo Prepaid re-launched its 4G SuperStick during the third period
with a more affordable price of P1,995 from August 15 to December 31, 2013. Tattoo Postpaid also
launched its new and improved postpaid personalized and consumable plans with increased surfing
speed now up to 42 Mbps. LTE plans which start at P1,299 now comes with a FREE LTE dongle or
pay a one-time fee of P2,000 for an upgrade to a mobile Wi-Fi device. Tattoo consumable plans have
been further improved with more browsing hours for Plan 299 (from 30 hours to 50 hours) and for
Plan 499 (from 50 hours to 85 hours) which can also be upgraded to a mobile Wi-Fi device for only
P150 per month. Also during this period, Tattoo launched another revolutionary offer bannering the
most affordable tablet bundles, wherein its subscribers can get FREE three devices with unlimited
internet browsing and mobile text and call starting at Plan 1,298, consisting of a free Skyworth S73
tablet or a Cloudpad 705W, a Blackberry Curve 9220 and the country’s fastest broadband Wi-Fi stick
which can power up to 10 devices. Other Tattoo tablet bundles are likewise available with varying
numbers of free browsing hours together with unlimited calls and texts on free mobile phone and
connectivity through the free mobile Wi-Fi starting at Plan 598.
Sales and Distribution
Globe has various sales and distribution channels to address the diverse needs of its subscribers.
1. Independent Dealers
Globe utilizes a number of independent dealers throughout the Philippines to sell and distribute its
prepaid wireless services. This includes major distributors of wireless phone handsets who usually
have their own retail networks, direct sales force, and sub-dealers Dealers are compensated based
on the type, volume and value of reload made in a given period. This takes the form of fixed discounts
for prepaid airtime cards and SIM packs, and discounted selling price for phonekits. Additionally,
Globe also relies on its distribution network of over 856,000AutoloadMax retailers nationwide who
offer prepaid reloading services to Globe, TM, and Tattoo subscribers.
2. Globe Stores
As of December 31, 2013, the Company has a total of 183 Globe Stores all over the country where
customers are able to inquire and subscribe to wireless, broadband and fixed line services, reload
prepaid credits, make GCASH transactions, purchase handsets and accessories, request for handset
repairs, try out communications devices, and pay bills. The Globe Stores are also registered with the
Bangko Sentral ng Pilipinas (BSP) as remittance outlets.
In line with the Company’s thrust to become a more customer-focused and service-driven
organization, Globe departed from the traditional store concept which is transactional in nature and
launched the redesigned Globe Store which carries a seamless, semi-circular, two-section design
layout that allows anyone to easily browse around the product display as well as request for after
sales support. It boasts of a wide array of mobile phones that the customers can feel, touch and test.
There are also laptops with high speed internet broadband connections for everyone to try. The Globe
store has an Express Section for fast transactions such as modification of account information and
subscription plans; a Full-Service Section for more complex transactions and opening of new
accounts; and a Cashier Section for bill payments. The store also has a self-help area where
customers can, among others, print a copy of their bill, and use interactive touch screens for easy
access to information about the different mobile phones and Globe products and services. Globe
stores also include NegoStore areas, which serve as additional sales channels for current and
prospective Globe customers. Moreover, select stores also have ‘Tech Coaches’ or device experts
that can help customers with their concerns on their smartphones. The Company opened the first
concept store in Greenbelt 4 in 2010 and accelerated its roll-out throughout 2011, averaging 4-5 new
stores a month.
64
In 2012, Globe introduced other store formats in response to the need for more customer service
channels to accommodate more subscribers availing of Globe postpaid, prepaid and internet services.
The new store formats - the premium dealership store, pop-up store, microstore, kiosk, and store-onthe-go–were carefully designed based on demographics, lifestyle and shopping behaviors of its
customers, each providing a different retail mix and experience to subscribers.
In 2013, Globe opened 50 concept stores and will open more concept stores in the country as part of
its commitment to a wonderful customer service experience.
3. Customer Facing Units
To better serve the various needs of its customers, Globe is organized along three key customer
facing units (CFUs) tasked to focus on the integrated mobile and fixed line needs of specific market
segments. The Company has a Consumer CFU with dedicated marketing and sales groups to
address the needs of individual retail customers, and a Business CFU (Globe Business) focused on
the needs of big and small businesses. Globe Business provides end-to-end mobile and fixed line
solutions and is equipped with its own technical and customer relationship teams to serve the
requirements of its client base. In early 2011, Globe organized an International Business Group to
serve the voice and roaming needs of overseas Filipinos, whether transient or permanent. It is tasked
to grow the Company’s international revenues by leveraging on Globe’s product portfolio and
developing and capitalizing on regional and global opportunities.
4. Others
Globe also distributes its prepaid products SIM packs, prepaid call cards and credits through
consumer distribution channels such as convenience stores, gas stations, drugstores and bookstores.
Lower denomination IDD prepaid loads are also available in public utility vehicles, street vendors, and
selected restaurants and retailers nationwide via the IDD Tingi load, an international voice scratch
card in affordable denominations.
Operating Revenues
Gross Operating Revenues by Business
Segment
(in Php Mn)
Service Revenues*
Mobile…………………………………………….
1
Voice ………………………………………..
2
SMS …………………………………………
3
Mobile Browsing and Other Data …………
Fixed Line and Broadband……………………
Broadband4……………………………………….
Fixed Line Data5………………………………….
6
Fixed Line Voice ………………………...……...
Service Revenues*……..…..………………….
Non Service Revenues………………………...
Operating Revenues*…………………………..
Year Ended 31 December
2013
% of
total
2012
% of
total
2011
% of
total
72,764
32,367
28,794
11,603
17,736
10,440
4,691
2,605
90,500
4,641
95,141
76%
34%
30%
12%
19%
11%
5%
3%
95%
5%
100%
67,189
32,446
26,552
8,191
15,553
8,721
4,167
2,665
82,742
3,704
86,446
78%
38%
31%
9%
18%
10%
5%
3%
96%
4%
100%
63,538
30,909
27,727
4,902
14,227
7,496
3,792
2,939
77,765
3,753
81,518
78%
38%
34%
6%
17%
9%
5%
3%
95%
5%
100%
* 2011 service revenues have been restated to reflect the change in the presentation of outbound revenues to be at gross of
interconnect expenses (from net previously).
1
Mobile voice service revenues include the following:
a) Prorated monthly service fees on consumable minutes of postpaid plans;
b) Subscription fees on unlimited and bucket voice promotions including the expiration of the unused value of denomination
loaded;
c) Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe Postpaid plans,
including currency exchange rate adjustments, or CERA, net of loyalty discounts credited to subscriber billings; and
d) Airtime fees for intra network and outbound calls recognized upon the earlier of actual usage of the airtime value or
expiration of the unused value of the prepaid reload denomination (for Globe Prepaid and TM) which occurs between 3
and 120 days after activation depending on the prepaid value reloaded by the subscriber net of (i) bonus credits and (ii)
prepaid reload discounts; and revenues generated from inbound international and national long distance calls and
international roaming calls; and
e) Mobile service revenues of GTI.
Revenues from (a) to (d) are reduced by any payouts to content providers.
2
Mobile SMS revenues consist of local and international revenues from value-added services such as inbound and outbound
SMS and MMS, infotext, and subscription fees on unlimited and bucket prepaid SMS services, net of any interconnection or
settlement payouts to international and local carriers and content providers.
3
Mobile browsing and other data service revenues consist of local and international revenues from value-added services such
as mobile internet browsing and content downloading, mobile commerce services, other add-on VAS, and service revenues of
65
GXI and EGG, net of any interconnection or settlement payouts to international and local carriers and content providers.
4
Broadband service revenues consist of the following:
a) Monthly service fees of wired, fixed wireless, and fully mobile broadband data only and bundled voice and data
subscriptions;
b) Browsing revenues from all postpaid and prepaid wired, fixed wireless and fully mobile broadband packages in excess of
allocated free browsing minutes and expiration of unused value of prepaid load credits;
c) Value-added services such as games; and
d) Installation charges and other one-time fees associated with the service.
5
Fixed Line data service revenues consist of the following:
a) Monthly service fees from international and domestic leased lines;
b) Other wholesale transport services;
c) Revenues from value-added services; and
d) One-time connection charges associated with the establishment of service.
6
Fixed Line voice service revenues consist of the following:
a) Monthly service fees;
b) Revenues from local, international and national long distance calls made by postpaid, prepaid fixed line voice subscribers
and payphone customers, as well as broadband customers who have subscribed to data packages bundled with a voice
service. Revenues are net of prepaid and payphone call card discounts;
c) Revenues from inbound local, international and national long distance calls from other carriers terminating on Globe’s
network;
d) Revenues from additional landline features such as caller ID, call waiting, call forwarding, multi-calling, voice mail, duplex
and hotline numbers and other value-added features;
e) Installation charges and other one-time fees associated with the establishment of the service; and
f) Revenues from DUO and SUPERDUO (fixed line portion) services consisting of monthly service fees for postpaid and
subscription fees for prepaid subscribers.
g) 2011 service revenues have been restated to reflect the change in the presentation of outbound revenues to be at gross
of interconnect expenses (from net previously).
Globe’s mobile business contributed P72.8 billion in 2013 accounting for 80% of total service
revenues, 8% higher compared to last year’s level of P67.2 billion. Its mobile voice service revenues
amounted to P32.4 billion in 2013, contributing 44% of total mobile service revenues. Mobile SMS
service revenues, up by 8% year-on-year, contributed P28.8 billion in 2013. Mobile browsing and
other services, on the other hand, posted strong revenue growth of 42% compared to last year’s level
and contributed P11.6 billion in 2013.
Accounting for the remaining 20% of total service revenues, Globe’s fixed line and broadband
business experienced robust growth, registering P17.7 billion in 2013, compared to P15.6 billion in
2012. Broadband and Fixed Line Data contributed revenues of P10.4 billion and P4.7 billion in 2013,
respectively.
Competition
1. Industry, Competitors and Methods of Competition
(a) Mobile Market
The Philippine mobile market has expanded to a total industry SIM base of 109 million. But despite an
industry penetration rate of over 100% as of December 31, 2013, the market is continuously
expanding due to the rise in the demand for more non-traditional services especially in the form of
mobile internet browsing. With the growing penchant of Filipinos for smartphones, the mobile
browsing business in the Philippines presents more opportunities for revenue growth. Another
possible area of growth in the industry is through the switch of prepaid subscribers to postpaid. As of
2013, approximately 96% of industry subscribers remain prepaid, albeit significant growth in the
postpaid segment over the last two years.
The Philippine government liberalized the communications industry in 1993, after a framework was
developed to promote competition in the industry and accelerate the development of the
telecommunications market. Ten (10) operators were granted licenses to provide CMTS services –
Globe, Innove (previously Isla Communications, Inc. or “Islacom”), Bayan Telecommunications, Inc.
(“Bayantel”), Connectivity Unlimited Resources Enterprises (“CURE”), Digitel Telecommunications
Philippines, Inc. (“Digitel”), Express Telecom (“Extelcom”), MultiMedia Telephony, Inc., Next Mobile
(“NEXTEL”), Pilipino Telephone Corporation (“Piltel”) and Smart Communications, Inc. (“Smart”). Nine
of the ten operators continued on to operate commercially except for Bayantel, which have yet to roll
out their CMTS services commercially
When Sun Cellular, Digitel’s mobile brand, entered the market in 2003, it introduced to the market
value-based unlimited call and text propositions, allowing it to build subscriber scale over time. With
the market’s preference for these value-based unlimited and bulk call and text services, Globe and
Smart responded by creating a new set of value propositions for their subscribers. Today, with the
66
high level of mobile penetration, driven in part by the prevalence of multi-SIMming (i.e., individuals
having two SIMs), and the continued shift of consumer preferences to unlimited and bulk offers, the
competition in the mobile market remains intense, albeit in a more rational environment.
The mobile market continued to grow as shown in the table below. With an estimated cumulative base
of 108.52 million SIMs, the mobile industry grew by 5% and reached 110% nominal penetration.
Globe ended 2013 with a SIM base of 38.5 million, with an estimated SIM share of approximately
35.5%, up from 32.2% in 2012.
Mobile Subscribers (Mn)
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1.62
2.68
5.26
10.53
15.17
22.31
32.87
34.61
42.04
54.86
68.03
75.43*
86.15*
93.74*
102.99*
108.52*
Penetration Rates (%)
Growth Rate
2.5
3.8
8.6
14.2
19.0
27.3
39.4
40.6
48.3
61.2
74.6
82.3
93.0
98.7
106.4
110.0
43%
65%
96%
100%
44%
47%
47%
5%
21%
30%
24%
11%
14%
9%
10%
5%
* Estimated end of year figures.
Source: National Telecommunications Commission (Statistical Data 2007), publicly available information and
Company estimates
Since 2000, the mobile communications industry experienced a number of consolidations and
ushered in new entrants, namely:
•
In 2000, Philippine Long Distance and Telephone Company (“PLDT”) acquired and consolidated
Smart and Piltel, complementing the former’s fixed line businesses with the latter’s wireless
businesses. Subsequently in 2008, PLDT, through Smart, purchased CURE, one of the four
recipients of 3G licenses awarded by the NTC, and has since launched another wireless brand in
the market in Red Mobile, furthering heightening competition in the market at that time.
In October 2011, PLDT also acquired 99.4% of the outstanding common stock of Digitel, which
owns the Sun Cellular brand, thereby allowing it to control over two-thirds of the industry
subscribers. As a condition of PLDT’s acquisition of Digitel, PLDT returned to the NTC the 3G
license in CURE, which is expected to be re-auctioned in the near-term.
•
In 2008, San Miguel Corporation (“SMC”), partnering with Qatar Telecom, bought interests in
Liberty Telecom Holdings, Inc. (“Liberty”) and announced plans to enter the mobile and
broadband businesses.
In 2010, SMC acquired 100% stake in Bell Telecommunication Philippines, Inc. (“BellTel”), after
acquiring shares in three companies that own the shares of BellTel. Also in 2010, SMC purchased
a 40% stake in Eastern Telecommunications Philippines, Inc. (“ETPI”) to expand its
telecommunications services. SMC subsequently gained a majority stake of ETPI in 2011. It now
owns 77.7% of the telecommunications company.
In 2012, NTC has granted BellTel, San Miguel Corporation’s mobile telephony arm, an extension
to its operating license to provide cellular mobile telephone system (CMTS) service in the country
for another three years.
•
In 2001, Globe acquired Islacom (now Innove). Globe, likewise, acquired approximately 96.5% of
the total debt of Bayantel, in December 2012. In October 2013, Globe converted a portion of the
debt it holds in Bayantel into a 38% interest in the latter, based on the Amended Rehabilitation
Plan approved by the Rehabilitation Court in August of the same year. Upon obtaining relevant
and regulatory approvals, Globe would further convert debt into a total 56.6% share of the
common stock of Bayantel.
67
•
In May 2013, ABS-CBN Convergence, Inc. (“ABS-C”, formerly Multimedia Telephony, Inc.)
announced the launch of its mobile brand, ABS-CBN Mobile. The launch of the new mobile brand
is being supported through a network sharing agreement with Globe, wherein the latter provides
network capacity and coverage to ABS-C on a nationwide basis. ABS-C formally launched the
brand in November 26, 2013.
Today, only the PLDT Group and the Globe Group have built significant bases of mobile subscribers.
(b) Fixed Line Market
The fixed line market expanded by 1% with the number of lines in service estimated at 2.95 million
lines as of December 31, 2013 with PLDT’s subscriber market share at 70%, followed by Globe (18%)
and Bayantel (12%).
Fixed Line Voice
There are at least eight major local exchange carriers (LEC) in the Philippines with licenses to provide
local and domestic long distance services. Each LEC operator (other than PLDT and Globe, both of
whom are authorized to provide nationwide fixed line services) is assigned service areas in which it
must install the required number of fixed lines and provide service. The NTC has created 15 such
service areas in the Philippines. Rates for local exchange and domestic long distance services are
deregulated and operators are allowed to have metered as well as flat monthly fee tariff plans for the
services provided.
Competition in the fixed line voice market intensified over the past years as the major players, Globe,
Bayantel, and PLDT introduced fixed wireless voice services with limited mobile phone capabilities to
take advantage of the increasing preference for mobile services. Fixed wireless services were initially
offered in postpaid versions in selected areas where there were no available fixed line facilities but
prepaid kits were eventually made available as coverage was expanded.
Fixed Line Data
The fixed line data business is a growing segment of the fixed line industry. As the Philippine
economy grows, businesses are increasingly utilizing new networking technologies and the internet
for critical business needs such as sales and marketing, intercompany communications, database
management and data storage. The expansion of the local IT Enabled Service (ITES) industry which
includes call centers and Business Process Outsourcing (BPO) companies has also helped drive the
growth of the corporate data business.
Dedicated business units have been created and organized within the Company to focus on the
mobile and fixed line needs of specific market segments and customers – be they residential
subscribers, wholesalers and other large corporate clients or smaller scale industries. This structure
has also been driven by Globe’s corporate clients’ preferences for integrated mobile and fixed line
communications solutions.
(c) Broadband Market
Broadband continues to be a major growth area for the local telecom industry. Total industry
broadband subscribers grew by 10%, from 5.13 million in 2012 to 5.66 million in 2013. The aggressive
network roll-out of the various operators, the wider availability of affordable prepaid broadband
packages, as well as lower USB internet sticks, PC and tablet prices were the main drivers of
subscriber growth. Operators used both wired and wireless technologies to serve the growing demand
for internet connectivity.
While household penetration rates remains low, competition continues to intensify as telecom
operators aim to capture the market by accelerating the rollout of broadband network to provide
subscribers with faster internet connection and introducing more affordable and bundled offerings.
As of end 2013, Globe had 2.0 million subscribers, up by 22% from the prior year. The Company’s
subscriber share was estimated at 36%, up from 33% in 2012. The combined subscribers of PLDT
and Digitel numbered 3.4 million, holding approximately 60% of the subscribers, down from 63% the
prior year. Globe and the PLDT Group accounted for about 96% of cumulative subscribers. Wireless
broadband subscribers account for around 75% of the combined broadband subscribers of Globe and
the PLDT Group.
In February 2010, Liberty Telecoms Holdings, Inc, a partnership between San Miguel Corporation and
Qtel Group of Qatar Telecom, launched its WiMAX broadband service under the brand name WiTribe. It ended the year with an estimated 70,000 subscribers.
68
(d) International Long Distance Market
Consistent with global trends where international traffic is migrated to alternative means of
communication, particularly over-the-top (OTT) applications like Skype, among others, total inbound
international long distance (ILD) traffic for the year was lower against last year’s levels. International
long distance providers in the Philippines generate revenues from both inbound and outbound
international call traffic whereby the pricing of calls is based on agreed international settlement rates.
Similarly, settlement rates for international long distance traffic are based on bilateral negotiations.
Commercial negotiations for these settlement rates are settled using a termination rate system where
the termination rate is determined by the terminating carrier (e.g. Philippines) in negotiation with the
originating foreign correspondent.
To date, there are eleven licensed international long distance operators, nine of which directly
compete with Globe for customers. Both Globe and Innove offer ILD services which cover
international calls between the Philippines and over 200 calling destinations. To drive growth in this
segment, the Company offers discounted call rates to popular calling destinations, sustains its usage
campaigns and marketing efforts for OFW SIM packs, and ensures the availability of popular prepaid
load denominations.
2. Principal Competitive Strengths of the Company
(a) Market Leadership Position
Globe is a major provider of telecommunications services in the Philippines. It is a strong player in the
market and operates one of the largest and most technologically-advanced mobile, fixed line and
broadband networks in the country, providing reliable, superior communications services to individual
customers, small and medium-sized businesses, and corporate and enterprise clients. Globe’s distinct
competitive strengths include its technologically advanced mobile, fixed line and broadband network,
a substantial subscriber base, high quality customer service, a well-established brand identity and a
solid track record in the industry.
(b) Strong Brand Identity
The Company has some of the best-recognized brands in the Philippines. This strong brand
recognition is a critical advantage in securing and growing market share, and significantly enhances
Globe’s ability to cross-sell and push other product and service offerings in the market.
(c) Financial Strength and Prudent Leverage Policies
Globe’s financial position remains strong with ample liquidity, and gearing comfortably within bank
Globe’s financial position remains strong with ample liquidity, and gearing comfortably within bank
covenants. At the end of 2013, Globe had total interest bearing debt of P69.3 billion representing 62%
of total book capitalization. Consolidated gross debt to equity ratio stood at 1.66:1 and is well within
the 2:1 debt to equity limit prescribed by its debt covenants. Additionally, debt to EBITDA stood at
1.90:1, significantly lower than 3:1 covenant level. Approximately 76% of its debt is in pesos while the
balance of 24% is denominated in US dollars. Expected US dollar inflows from the business offset any
unhedged US dollar liabilities, helping insulate Globe’s balance sheet from any volatilities in the
foreign exchange markets.
Globe intends to maintain its strong financial position through prudent fiscal practices including close
monitoring of its operating expenses and capital expenditures, debt position, investments, and
currency exposures.
(d) Proven Management Team
Globe has a strong management team with the proven ability to execute on its business plan and
achieve positive results. With its continued expansion, it has been able to attract and retain senior
managers from the telecommunications, consumer products and finance industries with experience in
managing large scale and complex operations.
(e) Strong Shareholder Support
The Company’s principal shareholders are Ayala Corporation (AC) and Singapore Telecom (STI),
both industry leaders in the country and in the region. Apart from providing financial support, this
partnership has created various synergies and has enabled the sharing of best practices in the areas
of purchasing, technical operations, and marketing, among others.
Suppliers
Globe works with both local and foreign suppliers and contractors. Equipment and technology
required to render telecommunications services are mainly sourced from foreign countries. Its
principal suppliers, among others, are as follows:
69
The Company’s suppliers of mobile equipment include Nokia Solutions and Networks (Finland);
Ericsson Radio Systems AB (Sweden), Alcatel-Lucent (France), and Huawei Technologies Co., Ltd.
(China). For transmission and IP equipment, Company has partnered with NEC (Japan), AlcatelLucent (France), ECI Telecom, Ltd. (Israel), Aviat Networks (USA), Cisco (USA). For the Company’s
network modernization program, Huawei was the selected as the primary partner given its technical
expertise and strong track record of success in international markets. Huawei has likewise committed
to establish a Joint Innovation Center (JIC) that would bring the latest technological developments and
help further the Company’s service innovation initiatives all focused in providing relevant and
customizable services for our various customer segments.
For fixed line and broadband, Globe’s principal equipment suppliers include Fujitsu Ltd. (Japan),
Alcatel-Lucent Technologies (France), NEC (Japan), AT&T Global (US), British Telecom (UK),
Huawei Technologies Co., Ltd. (China), ZTE Corporation (China). Singapore Telecom (Singapore),
and Tellabs (USA/Singapore).
For the Company’s IT modernization program, Globe has selected Amdocs, the leading provider of
customer experience systems and services, to improve and upgrade Globe’s Business Support
Systems (BSS) and enterprise data warehouse. As part of the transformation program, Amdocs is
tasked to manage and consolidate all of Globe’s legacy systems onto a single Business Support
System (BSS) platform. This will enable the Company to manage its customer relationships better
across all it various product offerings, simplify business processes and shorten the time to deliver
bundled and more innovative products to the market.
Customers
Globe has a large subscriber base across the country. The Company ended 2013with 38.5 million
mobile subscribers/SIMs, comprised of 2.0 million postpaid and 36.5 million prepaid subscribers.
Meanwhile, Globe has around 595,000 fixed line voice subscribers and around 2.0 million broadband
customers.
No single customer and contract accounted for more than 20% of the Company’s total sales in 2013.
Transactions with Related Parties
Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their major
stockholders, AC and STI, venturers and certain related parties. Please refer to the details of Related
Party Transactions disclosure in Note 16 of Globe’s 2013 Consolidated Financial Statements, which is
part of exhibits to this report.
Licenses, Patents, and Trademarks
Globe Telecom currently holds the following major licenses:
Service
Globe
Wireless
Local Exchange Carrier
International Long Distance
Interexchange Carrier
VSAT
International Cable Landing
Station & Submarine Cable
System (Nasugbu, Batangas)
International Cable Landing
Station & Submarine Cable
System (Ballesteros, Cagayan)
Innove
Wireless
Local Fixed line
International Long Distance
Interexchange Carrier
1
Type of
License
Date Issued or Last
Extended
Expiration Date
(1)
July 22, 2002
July 22, 2002
July 22, 2002
February 14, 2003
February 6, 1996
October 19, 2007
December 24, 2030
December 24, 2030
December 24, 2030
December 24, 2030
February 6, 2021
December 24, 2030
(1)
June 29, 2010
December 24, 2030
Date Issued or Last
Extended
July 22, 2002
July 22, 2002
July 22, 2002
April 30, 2004
Expiration Date
CPCN
(1)
CPCN
(1)
CPCN
(1)
CPCN
(1)
CPCN
(1)
CPCN
CPCN
Type of
License
CPCN (1)
CPCN (1)
CPCN (1)
CPCN (1)
April 10, 2017
April 10, 2017
April 10, 2017
April 10, 2017
Certificate of Public Convenience and Necessity. The term of a CPCN is co-terminus with the franchise term.
In July 2002, the NTC issued CPCNs to Globe and Innove which allow the Company to operate
respective services for a term that will be predicated upon and co-terminus with the Company’s
congressional franchise under RA 7229 (Globe) and RA 7372 (Innove). Globe was granted
70
permanent licenses after having demonstrated legal, financial and technical capabilities in operating
and maintaining wireless telecommunications systems, local exchange carrier services and
international gateway facilities. Additionally, Globe and Innove have exceeded the 80% minimum rollout compliance requirement for coverage of all provincial capitals, including all chartered cities within
a period of seven years.
Globe also registered the following brand names with the Intellectual Property Office, the independent
regulatory agency responsible for registration of patents, trademarks and technology transfers in the
Philippines: Globe, Globe Life Device, Globe Load, Globe Commerce, Globe International, Globe
Platinum, Globe Kababayan, Globe Plans, Globe Calls, Globe Labs, Globe GCash, Connected
24ever and Device, Gloo Netwrkz, Globe Landline Postpaid Plus, Globe Share-A-Load, Globe
Kababayan, Globe Broadband, Globe Telecom, Pixlink, Unlichat, Appzone, Tipidd, Wizard, Duo
Mobile Plus Landline in One, Astig Ang Signal ng TM, Globe Tattoo, Globe Duo, Astig Ang Signal,
Republika Ng TM Astig Tayo Dito, Tattoo, Astig, Astig Rewards, Astigunli, Astig Load, Astig Pabonus
Reward, TM Diskarte, Immortalload, AstigTawag, Astigtxt, Todo Bigay Habambuhay, Duoplus,
Load4life, Call4Life, Text4Life, Globe Text, Todo Text, Globe Tattoo Youniverse, Immortaltxt,
Superduo, Tattoo, Globe All you Can, Ka-Globe Retailer Club, and Muzta!, Ang Wordlwidest, Globe
for You, Globe Life, Globe Content, My Rewards.MyGobe, Tattoo Superstick, Super Unli Call and
Text, Tattoo Stick, Tattoo Myfi, Tattoo Torque, Tattoo Live Without Limits, Globe Life, Enjoy Your
Way, I Globe and Heart Device, Tattoo@Home, Enjoy Your Platinum Your Way, Tattoo DSL, Enjoy
Your Globe International Your Way, Enjoy Your Globe Postpaid Your Way, Enjoy Your Prepaid Your
Way, Globe Platinum & Device, Powersurf, M.Globe, Tattoo Wimax, M2M Solutions, SuperallTxt,
Globe Business M2M Solutions, Go Lang Ng Go, Globe Mobile Internet and Globe Life Device, Globe
Load and Globe Life Device, Globe My Super Surf Plan and Device, Tattoo Stylista, Tattoo Explorer,
Globe Gcash and Globe Life Device, Globe Mobile Internet, Tattoo Player, Guaranteed Globe,
Guaranteed Happy, Talk2Globe Your Way, My Rewards, My Globe Logo, Globe Business
Infrastructure-as-a-Service, Tattoo Flash, Globe Business Cloud Solutions, Globe Business Storageas-a-Service, Guaranteed Globe. Guaranteed Happy Logo, Tattoo 3G Sonic, Tattoo Sonic, You're On
Logo, Globe Plans.
Further, Globe also applied and registered the following brand names: Globe Telecom (Australia,
Taiwan, Japan, Singapore, Macau, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden,
Korea, Canada, China, Saudi Arabia), Globe and Globe Life Device (Hong Kong, Taiwan, Singapore,
Japan, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Great Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands,
Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Macau, Qatar, UAE, USA, Saudi
Arabia), Globe GCash (Singapore, Hong Kong, United Kingdom, Taiwan, Japan, Macau, Austria,
Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain,
Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal,
Slovak Republic, Slovenia, Spain, Sweden, Qatar, Korea, UAE, Saudi Arabia, New Zealand, Ireland,
Lebanon, Denmark, Sweden, Switzerland, Israel), Globe Kababayan (Singapore, Hong Kong, Taiwan,
United Kingdom, Australia, Japan, Macau, USA, Saudi Arabia, Austria, Belgium, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece, Hungary, Ireland,
Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia,
Spain, Sweden, Malaysia, UAE, Italy, Korea, Taiwan), Globe Autoload Max (Norway, Singapore,
Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great
Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland,
Portugal, Slovak Republic, Slovenia, Spain, Sweden, Japan, Hong Kong), Globe M-Commerce Hub
(Taiwan, Singapore, Korea, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland,
France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg,
Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Australia, Macau,
Qatar, Malaysia), Muzta, and Smiley With Salakot Device (Japan, UK, Australia, Kuwait, USA, Saudi
Arabia, Bahrain, UAE), Smiley with Salakot (Japan, United Kingdom, Australia, USA, Saudi Arabia,
Bahrain, UAE), and Muzta (Bahrain, UAE, Canada, Qatar, Saudi Arabia, UAE), GCash Remit and
Logo (Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great
Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland,
Portugal, Slovak Republic, Slovenia, Spain, Sweden. Lebanon, Japan, Switzerland, Macau, Hong
Kong, Taiwan, New Zealand, China, Japan, Israel), GCash Express and Logo (Hong Kong,
Singapore, Taiwan, Malaysia), Globe Load (Austria, Belgium, Cyprus, Czech Republic, Denmark,
Estonia, Finland, France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden,
Switzerland, Macau).
71
Innove registered "Innove Communications" and Gxchange registered "GXchange," with the
Intellectual Property Office.
Gxchange, Inc. and UTI Pty Ltd. have registered in the Philippines the following:
1. Person-to-Person Virtual Cash Transfer Transaction Using Mobile Phones;
2. A Method of Converting Cash into Virtual Cash and Loading it to Mobile Phone Cash Account;
3. A Method of Cashless, Cardless Purchase Transaction Using Mobile Phones; and
4. A Method of Converting Virtual Cash into Cash and Deducting it to Mobile Phone Cash Account.
Gxchange, Inc. and UTI Pty Ltd. have likewise registered the following patents in the United States:
1. Person-to-Person Virtual Cash Transfer Transaction Using Mobile Phones; and
2. A Method of Converting Virtual Cash into Cash and Deducting it to Mobile Phone Cash Account
Gxchange, Inc. and UTI Pty Ltd. have likewise filed the following patent applications in Indonesia,
Singapore and Europe.
1. Person-to-Person Virtual Cash Transfer Transaction Using Mobile Phones;
2. A Method of Converting Cash into Virtual Cash and Loading it to Mobile Phone Cash Account;
3. A Method of Cashless, Cardless Purchase Transaction Using Mobile Phones; and
4. A Method of Converting Virtual Cash into Cash and Deducting it to Mobile Phone Cash Account.
Government approvals/regulations
The Globe Group is regulated by the NTC under the provisions of the Public Service Act (CA 146),
Executive Order (EO) 59, EO 109, and RA 7925. Under these laws, Globe is required to do the
following:
a) To secure a CPCN/PA from the NTC for those services it offers which are deemed regulated
services, as well as for those rates which are still deemed regulated, under RA 7925.
b) To observe the regulations of the NTC on interconnection of public telecommunications networks.
c) To observe (and has complied with) the provisions of EO 109 and RA 7925 which impose an
obligation to rollout 700,000 fixed lines as a condition to the grant of its provisional authorities for
the cellular and international gateway services.
d) Globe remains under the supervision of the NTC for other matters stated in CA 146 and RA 7925
and pays annual supervision fees and permit fees to the NTC.
On October 19, 2007, the NTC granted Globe a CPCN to operate and maintain an International Cable
Landing Station and submarine cable system in Nasugbu, Batangas.
On May 19, 2008, Globe Telecom, Inc. announced that the National Telecommunications
Commission (NTC) has approved the assignment by its wholly-owned subsidiary Innove
Communications (Innove) of its Touch Mobile (TM) consumer prepaid subscriber contracts in favor of
Globe. Globe would be managing all migrated consumer mobile subscribers of TM, in addition to
existing Globe subscribers in its integrated cellular network.
On September 11, 2008, the NTC granted Globe a CPCN to operate and maintain an International
Cable Landing Station in Ballesteros, Cagayan Province.
Research and Development
Globe did not incur any research and development costs from 2010 to 2013.
Compliance with Environmental Laws
The Globe Group complies with the Environmental Impact Statement (‘EIS’) system of the
Department of Environment and Natural Resources (‘DENR’) and pays nominal filing fees required for
the submission of applications for Environmental Clearance Certificates (‘ECC’) or Certificates of NonCoverage (‘CNC’) for its cell sites and certain other facilities, as well as miscellaneous expenses
incurred in the preparation of applications and the related environmental impact studies. The Globe
Group does not consider these amounts material.
Globe has not been subject to any significant legal or regulatory action regarding non-compliance to
relevant environmental regulations.
72
Employees
The Globe Group has 5,987active regular employees as of December 31, 2013, of which about 6.98%
or 418 are covered by a Collective Bargaining Agreement (CBA) through the Globe Telecom
Employee’s Union (GTEU).
Breakdown of employees by main category of activity from 2011 to 2013 are as follows:
Employee Type
Rank & File, CBU
Supervisory
Managerial
Executives
Total *
2013
2012
2,365
2,074
1,131
417
5,987
2011
2,596
1,877
1,034
365
5,872
2,812
1,714
920
311
5,757
*Includes Globe, Innove, & GXI (excluding Secondees)
In conformance with the Department of Labor and Employment’s (DOLE) Collective Bargaining
Agreement (CBA), the Globe Telecom Employees Union-Federation of Free Workers (GTEU-FFW)
remains active to pledge the right of every Ka-Globe to form a collective bargaining unit. All
employees are allowed to participate in CBA and through GTEU-FFW, everyone is informed and
made aware of the mandate during employee orientations.
The Company has a long-standing, healthy, and constructive relationship with the GTEU
characterized by industrial peace. It is a partnership that mutually agrees to focus on shared goals –
one that has in fact allowed the attainment of higher levels of productivity and consistent quality of
service to customers across different segments.
Strong partnership and mutual understanding between the company and the union has been
continuously demonstrated throughout the years. In fact, throughout the many changes and
transformations initiated by the Company to achieve its goals, the union has been there, working hand
in hand with the Company in support of its business goals.
GTEU and Globe have a 5-year collective bargaining agreement for year 2011-2015, a testament to
the strong and peaceful relationship between the two.
Globe Telecom complies with RA 7160 – Special Protection of Children Against Child Abuse,
Exploitation and Discrimination Act and observance of the principles of the Human Rights Act and
Child Labor Law. Benchmarking such regulations generate a happy workplace without presenting any
fear of discrimination or violation towards any employee. The company does not condone the violation
of the rights of indigenous people, nor does the company promote any operational activities that
would pose hazardous risks or damages to children or young employees.
The wonderful world of Globe provides a happy and safe workplace and alongside, implements
certain rules and policies to promote good conduct and behavior. Hence, employees who fail to follow
the Globe Code of Conduct (COC) are given corresponding sanctions. This is to protect the
company’s interests to be able to consistently create a wonderful world for everyone. The sanctions
especially apply to major offenses related to corruption, extortion, bribery or any form that disrespects
the corporate values of the company. From the beginning, employees will be obliged to declare in
writing any involvement or endeavors that may potentially raise conflict with the company. Failure to
do so will subject the employee for a possible outright dismissal.
Globe continues to explore new ways to enhance employee productivity and realize operating
efficiencies. The Company believes that these initiatives will improve corporate agility, enhance
Globe’s overall competitiveness and strengthen its position as a service leader in the telecom
industry, thereby enhancing shareholder value.
Risk Factors
Foreign Exchange Risk
Globe’s foreign exchange risk results primarily from movements of the Philippine peso (PHP) against
the US dollar (USD) with respect to its USD-denominated financial assets, liabilities, revenues and
expenditures. Approximately 17% of its total service revenues are in USD while substantially all of its
capital expenditures are in USD. In addition, 24%, 13% and 11% of debt as of December 31, 2013,
2012 and 2011, respectively, are denominated in USD before taking into account any swap and
hedges.
73
Globe’s foreign exchange risk management policy is to maintain a hedged financial position after
taking into account expected USD flows from operations and financing transactions. It enters into
short-term foreign currency forwards and long-term foreign currency swap contracts in order to
achieve this target.
The Company mitigates its foreign exchange risk through the following:
First, the Company has foreign currency-linked revenues which include those (a) billed in foreign
currency and settled in foreign currency; (b) billed in pesos at rates linked to a foreign currency tariff
and settled in pesos, or (c) fixed line monthly service fees and the corresponding application of the
Currency Exchange Rate Adjustment (CERA) mechanism under which Globe has the ability to pass
the effects of local currency depreciation to its subscribers.
Second, Globe enters into short-term currency forwards to manage foreign exchange exposure
related to foreign currency denominated monetary assets and liabilities while it enters into long term
foreign currency and interest rate swap contracts to manage foreign exchange and interest rate
exposures of certain long term foreign currency denominated loans.
There are no assurances that declines in the value of the Peso will not occur in the future or that the
availability of foreign exchange will not be limited. Recurrence of these conditions may adversely
affect Globe’s financial condition and results of operations.
Industry and Operational Risks
(a) Competitive Industry
Competition remains intense in the Philippine telecommunications industry as current operators seek
to increase market share with aggressive offerings while new entrants serve to further heighten the
competitive dynamics amidst a maturing mobile market. Today, Globe’s principal competitor is the
PLDT Group (composed of PLDT, Smart and Digitel), becoming a two-player market following PLDT’s
acquisition of Digitel in October 2011.
The Philippine telecommunications industry continues to be dominated by the mobile segment which
contributed an estimated 66% of the total industry revenues in 2013, higher than the 63% contribution
it registered in 2012. Mobile subscriber growth has slowed down with the nominal penetration rate
now estimated at 110.0%. Industry revenue growth has likewise slowed in recent years, growing only
by 5% in 2013.
The continued growth and development of the mobile industry will depend on many factors. Any
significant economic, technological or regulatory development could result in either a slowdown or
growth in demand for mobile services and may impact Globe’s business, revenues and net income.
Globe’s mobile revenues in 2013 and 2012 accounted for 80% and 81%, respectively of its total
service revenues.
(b) Highly Regulated Environment
The Globe Group is regulated by the NTC for its telecommunications business, and by the SEC and
the BSP for other aspects of its business. The introduction of, changes in, or the inconsistent or
unpredictable application of laws or regulations from time to time, may materially affect the operations
of Globe, and ultimately the earnings of the Company which could impair its ability to service debt.
There is no assurance that the regulatory environment will support any increase in business and
financial activity for Globe.
The government’s communications policies have been evolving since 1993 when former President
Fidel V. Ramos initiated a more liberalized Philippine communications industry. Changes in
regulations or government policies or differing interpretations of such regulations or policies have
affected, and will continue to affect Globe’s business, financial condition and results of operation. The
NTC was established in 1979 to act as an independent regulatory body to oversee, administer and
implement the policies and procedures governing the communications industry. The NTC grants
licenses for varied terms. It may grant a long-term license, called a certificate of public convenience
and necessity (“CPCN”). Globe has obtained CPCNs for its international gateway facility (“IGF”), local
exchange carrier (“LEC”), cellular mobile telephony service (“CMTS”), and interexchange carrier
(“IXC”) services. Though valid for 25 years, the NTC may amend certain terms of a CPCN, or revoke
it for cause, subject to due process procedures. Additionally, the exercise of regulatory power by
regulators, including monetary regulators, may be subject to review by the courts on the complaint of
affected parties.
74
No assurance can be given that the regulatory environment in the Philippines will remain consistent or
open. Current or future policies may affect the business and operations of Globe.
(c) Philippine Political and Economic Factors
The growth and profitability of Globe may be influenced by the overall political and economic situation
of the Philippines.
(i) Economic Considerations
For the year ended December 31, 2013, Philippine full-year GDP growth was at 7.2%, driven
largely by the Services sector, Trade and Real Estate, Renting & Business Activities, and
Manufacturing. Despite the occurrence of several natural disasters throughout the year, GDP
growth exceeded the 6-7% growth projection of the government. In the fourth quarter of 2013, the
Philippines was marked as one of the best performing economies in the Asian region, with GDP
growth for the quarter at 6.5%.
Despite a decrease in GDP growth from 7.6% in 2012 to 7.1% in 2013,the Service Sector remains
to be the greatest contributor to the country’s GDP. All subsectors under this sector contributed
positive percentage points to GDP growth, with Trade being the top contributor. In terms of
growth, the Financial Intermediation subsector had the highest growth, at 12.4% compared to
8.2% in 2012. This was followed by Real Estate, Renting and Business Activities which grew from
7.5% to 8.4%.
Next to the Service Sector, the Industry Sector contributes the most to the country’s GDP, led by
the Manufacturing subsector, which is the top contributor of the sector’s growth in 2013.
Manufacturing posted a significant growth of 10.5%, compared to 5.4% in 2012 and is the only
subsector that posted a higher growth from the previous year, compensating for the decline in
public and private construction, mining and quarrying, and electricity, gas and water supply
subsectors. The Industry Sector, as a whole, reported a 9.5% growth from 6.8% in the previous
year.
For the Agricultural Sector, growth was at 1.1%, a decline from the 2.8% growth of the previous
year. This decline was largely due to Typhoon Yolanda which severely affected crops in the
Visayas region. The leading contributor to growth for the Agricultural Sector was Palay, followed
by Poultry and Livestock.
On the demand side, there is a decline in government spending from 12.2% in 2012 to 8.6% in
2013, due mainly to decline in expenditures for Personnel services and Maintenance and other
operating expenses for the government. Despite this, high consumer spending, investments in
fixed capital formation, and growth in international trade were able to mitigate the decline in
government expenditures and contribute to a healthy GDP growth for the year.
In March 2013, Fitch Ratings upgraded the Philippines’ credit rating to investment grade, raising
the country’s credit rating on its long-term foreign currency issuer default rating (IDR) to BBBfrom BB+, citing the resilience of the country’s economy and the fiscal discipline of the
government. In May 2013, Standard & Poor’s also raised the Philippines’ credit rating on its longterm foreign currency-denominated debt from BB+ to BBB-, brought about by the country’s
strengthening external position, moderating inflation, and the declining reliance on foreign
currency debt. Likewise, in October 2013, Moody’s has raised the Philippines to an investment
grade rating, upgrading the country’s government rating to Baa3 from Ba1, with a positive outlook,
noting the country’s healthy economic performance, low inflation, and improved fiscal
management.
Economic experts remain positive on the country’s solid economic growth and are optimistic that
this economic success will continue in 2014. The government projects a growth of 6.5% to 7.5%
for the year 2014, expecting a surge in foreign investments following the country’s achievement of
an investment grade rating in 2013. The year 2014 also sees a growth in investments and
government spending following the recovery efforts from Typhoon Yolanda. External risks,
however, will likely remain amid the uncertainties in the global scene, particularly the debt and
fiscal problem in the US and the continued debt crisis in the Euro zone which could then again
stall regional trade and capital flows. These events could negatively impact the country’s growth
prospects and as such, could materially and adversely affect Globe’s business, financial condition
and results of operations, including Globe’s ability to enhance the growth of its subscriber base,
improve its revenue base and implement its business strategies.
75
(ii) Political Considerations
The Philippines has from time to time experienced political, social and military instability. In
February 1986, a peaceful civilian and military uprising ended the 21-year rule of President
Ferdinand Marcos and installed Corazon Aquino as President of the Philippines. Between 1986
and 1989, there were a number of attempted coups d’état against the Aquino administration, none
of which was successful.
Political conditions in the Philippines were generally stable during the mid to late 1990s following
the election of Fidel Ramos as President in 1992. His successor, Joseph Estrada was the subject
of various allegations of corruption. He was eventually ousted from office following impeachment
proceedings, mass public protests and the withdrawal of support by the military on corruption
charges. Following President Estrada’s resignation, then Vice President Gloria Macapagal Arroyo
was sworn in as President on January 20, 2001. President Arroyo was subjected to various
impeachment complaints during her term. These impeachment complaints involved various
allegations including the manipulation of the results of the presidential election in 2004, corruption
and bribery. These complaints have fueled mass protests led by various cause-oriented groups
calling for the President to resign.
The Philippines held its most recent elections in May 2010, which marked the first attempt of the
Commission on Elections to implement a computerization of the national elections that includes
presidential, legislative and local positions. The elections have been deemed a success, with the
automation of the process and the relative decrease in election-related violence adding credibility
to the results. In June 2010, Benigno “Noynoy” Aquino III was inaugurated as the 15th President of
the Philippines. The son of the late former President Corazon Aquino garnered over 40% of the
vote and has injected the country with renewed optimism.
The next presidential elections will be held in 2016. In May 2013, the Philippines held its midterm
elections where 12 of the 24 seats of the Senate and all of the seats of the House of
Representatives were elected. The officials elected were sworn in on June 30, 2013, midway
through President Benigno Aquino III’s term of office.
On the judiciary, the Chief Justice of the Philippine Supreme Court, Renato Corona, was
impeached, when a total of 188 congressmen signed an impeachment complaint against the
Chief Justice for graft and corruption, betrayal of the public trust and culpable violation of the
Philippine Constitution. The impeachment trial, which has been estimated to last anywhere
between 3 to 12 months, began in January 16, 2012 and ended on May 29, 2012 when Chief
Justice Corona was found guilty of Article II of the Articles of Impeachment, pertaining to his
failure to disclose to the public his statement of assets, liabilities, and net worth. Chief Justice
Corona was appointed by Former President Gloria Macapagal-Arroyo, and is the first Philippine
Chief Justice to be impeached and placed on trial.
Despite the recent successful national elections, there can be no assurance that the future
political environment in the Philippines will be stable or future governments will adopt economic
policies conducive to sustaining economic growth. The growth and profitability of Globe may be
influenced by the overall political and economic situation of the Philippines. Any political instability
in the Philippines could negatively affect the country’s general economic conditions which in
turn could adversely affect Globe’s business, financial condition or results of operations.
Management of Risks
Cognizant of the dynamism of the business and the industry and in line with its goal to continuously
enhance value for its stakeholders, Globe Telecom has put in place a robust risk management
process.
As part of its annual planning cycles, senior management and key leaders regularly conduct an
enterprise–wide assessment of risks focused on identifying the key risks that could threaten the
achievement of Globe’s business objectives, both at the corporate and business unit level, as well as
specific plans to mitigate or manage such risks.
Risks are prioritized, depending on their impact to the overall business and the effectiveness by which
these are managed. Risk mitigation strategies are developed, updated and continuously reviewed for
effectiveness, and are also monitored through various control mechanisms.
Globe employs a two-dimensional view of risk monitoring. Business unit or functional group level
leaders regularly monitor the status of operational, legal, financial, project risks that may threaten the
76
achievement of defined business outcomes and are accountable for the completion of the approved
mitigation plans meant to address the risks to the business. Senior management’s oversight of
enterprise level risks includes strategic risks, major programme risks, regulatory risks and the status
of risk mitigation plans as they relate to the attainment of key business objectives.
Item 2. Properties
Ayala Corporation
Ayala Corporation owns 4 floors of the Tower One Building located in Ayala Triangle, Ayala Avenue,
Makati. These units were purchased in 1995 and are used as corporate headquarters of the
Company. Other properties of the Company include various provincial lots relating to its business
operations totaling about 860 hectares and Metro Manila lots totaling 2.6 hectares. The Honda Cars
Makati, Honda Cars Pasig, Honda Cars Alabang, Isuzu Alabang and Honda Cars Global City
dealership buildings are located on its Metro Manila lots which are leased to these dealerships. These
properties do not have any mortgage, lien or encumbrance.
ALI
The following table provides summary information on ALI’s landbank as of December 31, 2013.
Properties are wholly-owned and free of lien unless noted.
Location
Hectares
1
Makati
Taguig2
Makati (outside CBD)3
Alabang4
Las Piñas/Paranaque
Manila / Pasay5
Quezon City6
Others in Metro Manila
50
101
22
18
131
4
137
86
Metro Manila
549
Primary land use
Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential
NUVALI7
Laguna (ex-Canlubang)8
Cavite9
Batangas/Rizal/Quezon10
2,098
469
1,807
131
Calabarzon
4,505
Bulacan/Pampanga11
1,198
Commercial/Residential
Others in Luzon12
1,360
Commercial/Residential
Bacolod/Negros Occidental
Cebu13
Davao14
Cagayan De Oro15
Iloilo16
281
215
83
181
81
Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential
Visayas/Mindanao
841
TOTAL
Commercial/Residential/Industrial
Commercial/Residential/Industrial
Commercial/Residential
Commercial/Residential
8,453
1
Makati includes sites of Mandarin Hotel (1.6 has.) and Peninsula Hotel (2.0 has.) which are 50% owned through Ayala Hotels,
Inc., and remaining area at Roxas Triangle (0.3 ha.) which is 50% owned. 1.37 ha. is mortgaged with BPI in compliance with
BSP ruling on directors, officers, stockholders and related interests.
77
2
Taguig includes the recently acquired FTI property in Taguig with a total of 73.7 has and the 9.8-ha. site of Market! Market!
under lease arrangement with BCDA; 11.3 has. in Taguig is owned through Fort Bonifacio Development Corporation.
For Market! Market!, the lease agreement with the BCDA covers a period of 25 years (renewable for another 25 years) and
involves an upfront cash payment of P688 million and annual lease payments with fixed and variable components.
3
Includes a 21-ha. property which is under a joint development agreement with Philippine Racing Club, Inc.
Alabang pertains to the 17.6-ha. Alabang Town Center which is 50% owned through Alabang Commercial Corp. (ACC), 3.7
ha. of which is subject of a Mortgage Trust Indenture as security for ACC’s short-term loans with Bank of the Philippine Islands.
4
5
Manila/Pasay includes 1.3 has. which are under joint venture with Manila Jockey Club, Inc. and 0.3-ha. site of Metro Point
which is 50% owned through ALI-CII Development Corp.
6
Includes 46.6 has. under lease arrangement with University of the Philippines; the 13-ha. site of TriNoma which is under lease
arrangement with the Department of Transportation and Communication; a 2.0-has. property which is being leased from Ellimac
Prime Holdings, Inc. and a 29.2-has. property on a joint development agreement with the National Housing Authority and a 2.0has. property under lease agreement with MBS Development Corp.
TriNoma is 49% owned by ALI through North Triangle Depot Commercial Corp.
7
NUVALI includes 853 has. through Aurora Properties Incorporated, Vesta Holdings, Inc. which are owned 78% and 70%
owned by Ayala Land, respectively; also includes 178 has. which are 60% owned through Ceci Realty, Inc. and 480 has of
Buntog parcel which is 100% owned by Ayala Land.
8
Laguna (excluding Canlubang) includes 92.5 has. which are under a 50-50% joint venture with Greenfield Development Corp.;
4.5 has. in Laguna Technopark, Inc. which is 75% owned by Ayala Land; and 3.3-ha. site of Pavilion Mall which is under 25year lease arrangement with Extra Ordinary Group, with an option to renew every 5 years thereafter.
9
Cavite includes 5 has. in Riego de Dios Village which is under joint venture with the Armed Forces of the Philippines and a 5has. property being developed under a land lease agreement. It also includes total of 440 has parcel located in Kawit.
10
Batangas includes 7 has. in Sto. Tomas project which is under an override arrangement.
11
Pampanga includes 1,033 has. in Porac is 100% owned under Nuevo Centro.
12
Includes 300 has in Bataan pertaining to the Anvaya Cove property which is under joint development agreement with
SUDECO, a 6.5-has. property in Subic on lease agreement with Subic Bay Management Authority and a 19-has. Land lease
with the government in Palawan.
13
Cebu includes the 8.6 has. lot pad of Ayala Center Cebu which is 49% owned through Cebu Holdings, Inc. (CHI); 0.62-ha.
Cebu Insular Hotel site owned by AyalaLand Hotels and Resorts Corporation and Cebu Holdings, Inc.; 8 has. in Asiatown IT
Park which is owned by Cebu Property Ventures and Development Corporation which in turn is 76% owned by CHI.
14
Davao includes a 8.5-ha. Property which is 70% owned through Accendo Commercial Corp.
15
Cagayan de Oro includes 3.3 has. which are 70% owned through Cagayan de Oro Gateway Corp. and 177 has. which is
under a JDA agreement with Promenade Land Holdings, Inc.
16
Includes a 2.0 has. land lease with Riverside Holdings, Inc for the Iloilo Technohub site and 12.8-ha. property secured
through a JDA agreement with the Pison Group
Leased Properties
The Company has an existing contract with BCDA to develop, under a lease agreement a mall with an
estimated gross leasable area of 152,000 square meters on a 9.8-hectare lot inside Fort Bonifacio.
The lease agreement covers 25 years, renewable for another 25 years subject to reappraisal of the lot
at market value. The annual fixed lease rental amounts to P106.5 million while the variable rent
ranges from 5% to 20% of gross revenues. Subsequently, the Company transferred its rights and
obligations granted to or imposed under the lease agreement to SSECC, a subsidiary, in exchange for
equity.
On January 28, 2011, a notice was given to the Company for the P4.0 billion development of a 7.4hectare lot at the University of the Philippines’ Diliman East Campus, also known as the UP Integrated
School, along Katipunan Avenue, Quezon City. The Company signed a 25-year lease contract for the
property last June 22, 2011, with an option to renew for a 58,000 square meters another 25 years by
mutual agreement. The project involves the construction of a retail establishment with 63,000 square
meters of available gross leasable area and a combination of Headquarter-and-BPO- type buildings
with an estimated 8,000 square meters of office space.
IMI
IMI has production facilities in the Philippines (Laguna, Cavite and Taguig), China (Shenzhen, Jiaxing,
and Chengdu), Singapore, Bulgaria, Czech Republic, and Mexico. It also has a prototyping and NPI
facility located in Tustin, California. Engineering and design centers, on the other hand, are located in
78
the Philippines, Singapore, China, United States, Bulgaria and Czech Republic. IMI also has a global
network of sales and logistics offices in Asia, North America and Europe.
The Parent Company does not own land, thus, it entered into a lease contract with Technopark Land,
Inc. (TLI), an affiliate, for the lease of parcels of land situated at the Special Export Processing Zone,
Laguna Technopark, Biñan, Laguna.
IMI’s subsidiaries, except for IMI-USA, IMI-Japan and Speedy-Tech Electronics (HK) Limited in Hong
Kong, lease the land on which their respective manufacturing and office buildings are located. While
the newly-acquired subsidiaries in Bulgaria, Czech Republic and Mexico own the land wherein their
respective manufacturing and office premises are located.
The Company’s global facilities and capabilities of each location as of December 31, 2013 are shown
below:
Location
Philippines-Laguna
Floor Area (in
square meters)
96,182
Philippines-Cavite
2,350
Singapore
4,000
China-Liantang
18,600
China-Kiuchong
18,000
China-Jiaxing
13,000
China-Chengdu
7,500
Hong Kong*
Philippines-PSi Taguig
300
2,799
Capabilities
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
•
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
•
ƒ
ƒ
37 SMT lines, 2 FC lines
5 COB/COF lines
Box build
Solder Wave, Potting, Al & AG W/B
Protective Coating
ICT, FCT, AOI, RF Testing
Design & Development
Test & System Development
Complex Equipment manufacturing
Cleanroom to class 100
LVHM, HVLM
3 SMT lines
Box Build
PTH, Solder Wave
ICT, FCT, AOI
LVHM
Central Warehouse, Logistics Services,
HMLV
22 SMT lines, 2 COB lines
Box Build
PTH, Auto Pin Insertion, Solder Wave
ICT, FCT, AOI, RF Testing
Test & System Development
Design & Development
LVHM, HVLM
25 SMT lines
Box Build
PTH, Auto Pin Insertion, Solder Wave
ICT, FCT, AOI, RF Testing
Test & System Development
LVHM, HVLM
13 SMT lines
Box Build
PTH, Auto Pin Insertion, Solder Wave
ICT, FCT, AOI, RF Testing
Test & System Development
LVHM, HVLM
9 SMT lines
Box Build
PTH, Auto Pin Insertion
Solder Wave
ICT, FCT, AOI
HVLM / LVHM
Procurement, marketing and supply
chai support
Customer Specific Quality Requirements
Low/ Med Power Discrete Packaging
79
ƒ
ƒ
Philippines-PSi Laguna
9,209
ƒ
ƒ
Japan*
USA-Tustin, CA*
110
1,184
USA-Fremont, CA*
1,143
ƒ
•
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
Botevgrad, Bulgaria
25,878
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
El Salto, Guadalajara,
Mexico
75,000
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
Třemošná,
Plzeňská,
Czech Republic
Total
7,740
and Processes including
Au Wire
Bonding
Al Ribbon ,Cu Clip interconnect
3D Packaging, MCM ,High Reliability
Hermetic Packages - Metal Cans and
Ceramic Packages, Low-Medium Power
OFN Packages: 3 x 3 mm to 12x12 mm.,
Medium-High
Power
Hermetics
Packages: TO 257, TO258
Power Management (IC) Discrete
Packaging, e.g., 5 - 7L TO-220
Diversified Packaging - from Low to High
Power and Small to Large Outline
Module R&D line
Sales Support
1 SMT prototyping line
Engineering Development
Prototype Manufacturing Center
Precision Assembly
SMT, COB FCOF
Process Development
PV Module or Panel Design / CoDevelopment
Solar Panel Prototyping Development
LVHM
Solar Panel Testing and Certification
Test Services for Control Electronics of
Solar Systems
11 SMT lines
Box build
PTH, Auto Pin Insertion, Solder Wave
Protective Coating
ICT, FCT, AOI
Test & System Development
Design & Development
Plastic Injection, Embedded Toolshop,
Overmolding
5 SMT lines
Box build
PTH, Auto Pin Insertion, Solder Wave,
Protective Coating, Potting
ICT, FCT, AOI, SPI
Plastic Injection (50-1,000T)
Overmolding
Embedded Toolshop
Mechanical Assembly
ƒ 4 SMT lines
ƒ PTH, Auto Pin Insertion, Solder Wave,
Ultrasonic Welding
ƒ Protective Coating
ƒ ICT, FCT, AOI
ƒ Mechanical Assembly
282,995
For 2014, the Company expects to spend $27M for capital expenditures. These capital expenditures
are to be partially funded by proceeds of the Company’s cash from operations and debt. The main
components of these expenditures are building extensions and improvements, purchase of equipment
for new projects, various machineries restorations and innovation and strategic investments. These
will ensure uninterrupted services and meeting demands of the Company’s customers.
80
MWCI
The CA grants the Company the right to manage, operate, repair, decommission, and refurbish the
MWSS facilities in the East Zone, which include treatment plants, pumping stations, aqueducts and
the business area office. However, legal title to these facilities remains with MWSS. The net book
value of these facilities on Commencement Date based on MWSS’ closing audit report amounted to
P4.6 billion, with a sound value, or the appraised value less observed depreciation, of P10.40 billion.
These assets are not reflected in the financial statements of the Company.
Pursuant to the terms of the CA, new assets contributed to the MWSS system by the Company during
the term of the CA are reflected in the Company’s financial statements and remain with the Company
until the Expiration Date (as defined in the CA), at which time all right, title and interest in such assets
automatically vest to MWSS. The CA allows the Company to mortgage or create security interests
over its assets solely for the purpose of financing, or refinancing, the acquisition or construction of the
said assets, provided that no such mortgage or security interest shall (i) extend beyond the Expiration
Date of the CA, and (ii) be subject to foreclosure except following an event of termination as defined
under the CA.
On July 17, 2008, the Parent Company, together with all of its Lenders signed an Omnibus
Amendment Agreement and Intercreditor Agreement and these agreements became effective on
September 30, 2008.
Prior to the execution of the Omnibus Amendment Agreement, the obligations of the Company to pay
amounts due and owing or committed to be repaid to the lenders under the existing facility
agreements were secured by Assignments of Interests by Way of Security executed by the Parent
Company in favor of a trustee acting on behalf of the lenders. The Assignments were also subject to
the provisions of the Amended and Restated Intercreditor Agreement dated March 1, 2004 and its
Amendatory Agreement dated December 15, 2005 executed by the Company, the lenders and their
appointed trustee.
Under the Omnibus Amendment Agreement, the lenders effectively released the Company from the
assignment of its present and future fixed assets, receivables and present and future bank accounts,
all the Project Documents (except for the Agreement, Technical Corrections Agreement and the
Department of Finance Undertaking Letter), all insurance policies where the Company is the
beneficiary and performance bonds posted in its favor by contractors or suppliers.
In consideration for the release of the assignment of the above-mentioned assets, the Company
agreed not to create, assume, incur, permit or suffer to exist, any mortgage, lien, pledge, security
interest, charge, encumbrance or other preferential arrangement of any kind, upon or with respect to
any of its properties or assets, whether now owned or hereafter acquired, or upon or with respect to
any right to receive income, subject only to some legal exceptions. The lenders shall continue to enjoy
their rights and privileges as Concessionaire Lenders (as defined under the Agreement), which
include the right to appoint a qualified replacement operator and the right to receive payments and/or
other consideration pursuant to the Agreement in case of a default of either the Company or MWSS.
Currently, all lenders of the Company are considered Concessionaire Lenders and are on pari passu
status with one another.
The Company’s corporate head office located in Balara, Quezon City is leased from MWSS and is
subject to yearly renewal. In 2013, rent expense of the Company to MWSS amounted to P16.99
million.
For 2014, the Company expects to spend capital expenditures amounting to at least P5 billion. These
capital expenditures are to be partially funded by proceeds of the Company’s cash from operations
and debt. The two (2) main components of these expenditures are reliability and expansion. These
will ensure uninterrupted services to customers even in the event of disasters such as typhoons and
earthquakes and deliver water and wastewater services to the farthest areas in the East Zone which
are currently unserved, and to ensure sufficient water supply in response to the increased demand
due to population growth.
BPI
BPI’s Head Office is located at the BPI Building, Ayala Avenue corner Paseo de Roxas, Makati City.
Of the 814 local branches, 671 operate as BPI branches: 353 in Metro Manila/Greater Metro Manila
Area and 318 in the provincial area. The parent bank owns 33% of these branches and leases the
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remaining 67%. Total annual lease amounted to Php 632 million. Expiration dates of the lease
contracts vary from branch to branch.
BPI Family Savings Bank (BFSB) operates 143 branches of which 22% are bank owned while 78%
are leased. Total annual lease amounted to Php 125 million.
The head offices of BPI and BPI Family Savings Bank as well as the 814 branches are maintained in
good condition for the benefit of both the employees and the transacting public. The Bank enforces
standards for branch facade, layout, number and types of equipment and upkeep of the premises.
All of the bank-owned properties are free from any lien.
The Bank will continue to reconfigure the mix of its traditional branches, and kiosk branches as it
adjusts to the needs of its customers. To date, the Bank had not identified any property to acquire.
Total lease expense for 2013 for BPI and its subsidiaries amounted to P1,071 million as per Note 25
of Consolidated Financial Statement. In 2013, monthly lease payments vary from one property to
another, ranging from a low P6 thousand to P1.1 Million, the average of which was P113 thousand.
Globe
Buildings and Leasehold Improvements
Effective 27 August 2013, Globe transferred its Head Officeto The Globe Tower, 32ndStreet corner 7th
Avenue, Bonifacio Global City, Taguig from Globe Telecom Plaza, Mandaluyong City.
Globe also owns several floors of Pioneer Highlands Towers 1 and 2, located at Pioneer Street in
Mandaluyong City. In addition, the Company also owns host exchanges in the following areas:
Bacoor, Batangas, Ermita, Iligan, Makati, Mandaluyong, Marikina, Cubao-Aurora, among others.
The Company leases office spaces along Sen. Gil Puyat Avenue, EDSA and Ermita for its technical,
administrative and logistics offices and host exchange, respectively. It also leases the space for most
of its Globe Stores, as well as the Company’s base stations and cell sites scattered throughout the
Philippines.
Globe’s existing business centers and cell sites located in strategic locations all over the country are
generally in good condition and are covered by specific lease agreements with various lease
payments, expiration periods and renewal options. As the Company continues to expand its network,
Globe intends to lease more spaces for additional cell sites, stores, and support facilities with
lease agreements, payments, expiration periods and renewal options that are undeterminable at this
time.
Rental Properties
ALI’s properties for lease are largely shopping centers and office buildings. It also leases land,
carparks and some residential units. In the year 2013, rental revenues from these properties
accounted for P13.99 billion or 17% of Ayala Land’s consolidated revenues. Lease terms vary
depending on the type of property and tenant.
Property Acquisitions
With 8,453 hectares in its landbank as of December 31, 2013, Ayala Land believes that it has
sufficient properties for development in next 25 years.
Nevertheless, ALI continues to seek new opportunities for additional, large-scale, master-planned
developments in order to replenish its inventory and provide investors with an entry point into
attractive long-term value propositions. The focus is on acquiring key sites in the Mega Manila area
and other geographies with progressive economies that offer attractive potential and where projected
value appreciation will be fastest.
In a disclosure to the SEC dated February 10, 2011, ALI was awarded by the Board of Regents of the
University of the Philippines (U.P.) the lease contract for the development of a 7.4-hectare property at
the U.P. Diliman East Campus, also known as U.P. Integrated School (UP-IS) property along
Katipunan Avenue in Quezon City. The lease contract is for a period of 25 years, with an option to
renew said lease for another 25 years by mutual agreement. The development of the site involves the
construction of a retail establishment with 63,000 square meters of available GLA and a combination
of headquarter-and-BPO office type building with an estimated 8,000 square meters of GLA.
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In February 2011, ALI through wholly-owned subsidiary Alveo Land entered into an agreement with
Philippine Racing Club, Inc. to jointly pursue the development of the 21-hectare property located in
Barangay Carmona, Makati City, more commonly known as “Sta. Ana Racetrack.” The project is
intended as a mixed-use development and will form part of the ALI’s ongoing developments in the City
of Makati.
In a disclosure to the SEC, PSE and PDEx dated June 29, 2012, the Executive Committee of Ayala
Land authorized the negotiation and entry into a strategic alliance with the Group led by Mr. Ignacio R.
Ortigas for the purpose of allowing Ayala Land to participate in OCLP Holdings, Inc., the parent
company of Ortigas & Company Limited Partnership, and in the development of its various properties
and businesses.
In August 2012, the ALI Group won the public bidding for the purchase of the 74-hectare Food
Terminal, Inc. (FTI) property in Taguig. The bid was conducted in accordance with the Asset Specific
Bidding Rules dated July 4, 2012 and in accordance with the provisions of Executive Order No. 323.
The Group’s bid was P24.3 billion.
In October 2012, ALI entered into a Purchase Agreement wherein the Seller (FTI) agrees to sell,
convey, assign and transfer and deliver to the buyer, and the buyer agrees to purchase and acquire
from the seller, all of the seller’s rights and interests in the property. The property is designed to be a
mixed-use development and will be transformed into a new business district that will serve as Metro
Manila’s gateway to the South.
On October 2, 2012, AHRC, a wholly-owned subsidiary of ALI, entered into an agreement to acquire
the interests of Kingdom Manila B.V., an affiliate of Kingdom Hotel Investments (KHI), and its
nominees in KHI-ALI Manila Inc. (now renamed AMHRI) and 72,124 common shares in KHI Manila
Property Inc. (now renamed AMHPI).
AMHRI and AMHPI are the project companies for the Fairmont Hotel and Raffles Suites and
Residences project in Makati which opened last December 2012. A total of P2,430.4 million was paid
to acquire the interests of KHI in AMHRI and AMHPI.
Item 3. Legal Proceedings
Except as disclosed herein or in the Information Statements of the Company’s subsidiaries or
associates and joint ventures which are themselves public companies or as has been otherwise
publicly disclosed, there are no material pending legal proceedings, bankruptcy petition, conviction by
final judgment, order, judgment or decree or any violation of a securities or commodities law for the
past five years and the preceding years until March 10, 2014 to which Ayala or any of its subsidiaries
or associates and joint ventures or its directors or executive officers is a party or of which any of its
material properties are subject in any court or administrative government agency.
In any event, below are the legal proceedings involving the Company and its subsidiaries, associates
and joint ventures that may be significant:
ALI
None of the directors or executive officers is involved in any material pending legal proceedings in any
court or administrative agency. As of December 31, 2013, the Company is not involved in any
litigation it considers material. In any event, below are the legal proceedings involving the Company
that maybe significant.
Las Piñas Property
Certain individuals and entities have claimed an interest in ALI’s properties located in Las Piñas,
Metro Manila, which are adjacent to its development in Ayala Southvale.
Prior to purchasing the aforesaid properties, ALI conducted an investigation of titles to the properties
and had no notice of any title or claim that was superior to the titles purchased by ALI. ALI traced its
titles to their original certificates of title and ALI believes that it has established its superior ownership
position over said parcels of land. ALI has assessed these adverse claims and believes that its titles
are in general superior to the purported titles or other evidence of alleged ownership of these
claimants. On this basis, beginning in October 1993, ALI filed petitions in the Regional Trial Courts
(RTC) in Makati and Las Piñas for quieting of title to nullify the purported titles or claims of these
83
claimants. These cases are at various stages of trial and appeal. Some of these cases have been
finally decided by the Supreme Court (“SC”) in ALI’s favor. These include decisions affirming the title
of ALI to some of these properties, which have been developed and offered for sale to the public as
Sonera, Ayala Southvale. The controversy involves the remaining area of approximately 126
hectares.
ALI has made no provision in respect of such actual or threatened litigations.
IMI
There are no material pending legal proceedings, bankruptcy petition, conviction by final judgment,
order, judgment or decree or any violation of a securities or commodities law for the past five years to
which the Company or any of its subsidiaries or its directors or executive officers is a party or of which
any of its material properties are subject in any court or administrative government agency.
The Company filed a civil case on April 11, 2011 against Standard Insurance (“Standard”) seeking to
collect Standard’s share in the loss incurred by the Company consisting in damage to production
equipment and machineries as a result of the May 24, 2009 fire at the Company’s Cebu facility which
the Company claims to be covered by Standard’s “Industrial All Risks Material Damage with
Machinery Breakdown and Business Interruption” policy. The share of Standard in the loss is 22% or
US $1,117,056.84 after its co-insurers all paid the amount of loss respectively claimed from them.
The Company had to resort to court action after Standard denied its claim on the ground that the
claim is an excepted peril. Standard filed a motion to dismiss on various grounds, such as lack of
cause of action and of prescription. The Regional Trial Court denied the motion to dismiss but
Standard filed a Motion for Reconsideration with the Court of Appeals (CA). On April 26, 2013, the CA
dismissed the case on the ground that the claim has prescribed. On April 19, 2013, the Company filed
a Motion for Reconsideration. On December 10, 2013, the Company received a decision promulgated
on December 2, 2013 denying the said Motion for Reconsideration.
The Company filed a Petition for Review on Certiorari dated January 23, 2014 which is pending with
the Supreme Court.
MWCI
There are no material legal proceedings in the past five years to which the Company is a party or of
which any of its material properties are subject in any court or administrative agency of the
Government. However, the Company would like to mention the following cases:
Manila Water Company, Inc. and Maynilad Water Services, Inc. vs. Hon. Borbe, et al. CBAA Case No.
L-69, Central Board of Assessment Appeals
This case is an appeal to the Central Board of Assessment Appeals (CBAA) from the denial by the
Local Board of Assessment Appeals of Bulacan Province (LBAA) of the appeal by Manila Water and
Maynilad Water Services, Inc. (“Maynilad”) from the Notice of Assessment and Notice of Demand for
Payment of Real Property Tax in the amount of P357,110,945 made by the Municipal Assessor of
Norzagaray, Bulacan. Manila Water was assessed for half of the amount. The concessionaires and
the Metropolitan Waterworks and Sewerage System (MWSS), which intervened as a party in the
case) are contesting the legality of the tax on a number of grounds, including the fact that the
properties subject of the assessment are owned by the MWSS, both a government-owned and
controlled corporation and an instrumentality of the National Government that is exempt from taxation
under the Local Government Code.
The case is still pending with the CBAA. Maynilad and Manila Water have already completed
presentation of their respective evidence, while MWSS waived presentation of its own evidence. The
Province of Bulacan has yet to complete presentation of its evidence.
Manila Water Company, Inc. vs The Secretary of the Department of Environment and Natural
Resources, Regional Director, Environmental Management Bureau-National Capital Region, et
al.,G.R. No. 206823 Supreme Court
The case arose from a complaint filed by OIC Regional Director Roberto D. Sheen of the
Environmental Management Bureau-National Capital Region (EMB-NCR) on April 8, 2009 before the
Pollution Adjudication Board (PAB) against Manila Water, Maynilad and the MWSS for alleged
violation of R.A. No. 9275, particularly the five-year deadline imposed in Section 8 thereof for
84
connecting the existing sewage line found in all subdivisions, condominiums, commercial centers,
hotels, sports and recreational facilities, hospitals, market places, public buildings, industrial complex
and other similar establishments including households, to an available sewerage system. Two (2)
similar complaints against Maynilad and MWSS were consolidated with this case.
On April 22, 2009, the PAB through DENR Secretary and Chair Jose L. Atienza, Jr., issued a Notice
of Violation finding Manila Water, Maynilad and MWSS liable. Manila Water, Maynilad and MWSS
filed a Motion for Reconsideration on the PAB decision which was denied. Manila Water filed its
Petition for Review dated December 21, 2009 with the Court of Appeals and an Amended Petition for
Review dated January 25, 2010.
In a Decision dated August 14, 2012, the Court of Appeals dismissed Manila Water’s Petition for
Review and on September 26, 2012, Manila Water filed a Motion for Reconsideration of the Court of
Appeals’ Decision.
On April 29, 2013, Manila Water received the Resolution dated April 11, 2013 of the Court of Appeals,
denying Manila Water’s Motion for Reconsideration.
On May 29, 2013, Manila Water filed its Petition for Review on Certiorari with the Supreme Court. In
this Petition, Manila Water reinforced its argument that it did not violate Section 8 of R.A. 9275 as it
was able to connect existing sewage lines to available sewage facilities contrary to the findings of the
Court of Appeals.
The case remains pending with the Supreme Court.
Consolidated cases: Waterwatch Coalition, Inc. et al. vs. Ramon Alikpala, MWSS, et al., Supreme
Court, G.R. No. 207444
Water for All Refund Movement vs. MWSS, et.al, Supreme Court, G.R. No. 208207
Virginia S. Javier, et al. v. The Metropolitan Waterworks and Sewerage Systems, et.al, Supreme
Court, G. R. No. 210147
G.R. No. 207444, entitled “Waterwatch Coalition, Inc., et al. vs. Ramon Alikpala, et al.” is a “Petition
for Certiorari and Mandamus with Prayer for the Issuance of a Temporary Restraining Order” (the
“Petition”) dated 20 June 2013 which Manila Water received on June 25, 2013. The Petition seeks
the following reliefs:
a. To prevent the adjustment to the tariffs through the issuance of a Status Quo Ante Order, which
shall compel the parties to “maintain and observe the status quo prevailing before the
commencement of the 2013 Rate Rebasing Exercises;”
b. To have the Concession Agreement between the MWSS, Manila Water and Maynilad declared
void for being “constitutionally infirm” or for being ultra vires;
c. To have the 2013 tariff schedule for Maynilad and Manila Water be declared void, and to have
any order/resolution of the MWSS to the contrary be set aside;
d. To have Manila Water and Maynilad declared as public utilities subject to the rules and
regulations of public service laws and audit powers of the Commission on Audit.
The Petition was filed against Manila Water, Maynilad, the MWSS and the following individuals as
respondents:
a. Ramon B. Alikpala, Jr., Chairman of the MWSS Board of Trustees
b. Gerardo A.I. Esquivel, Administrator of the MWSS/Vice Chairman of the MWSS BOT
c. Atty. Raoul C. Creencia, Ma. Cecilia G. Soriano, Jose Ramon T. Villarin and Benjamin J.
Yambao, Members of the MWSS BOT
d. Atty. Emmanuel L. Caparas, Chief Regulator of the MWSS Regulatory Office
On July 9, 2013, Manila Water received a copy of a Notice issued by the Supreme Court, requiring the
respondents to file their respective comments to the Petition within a non-extendible period of ten (10)
days from receipt of the Notice. No action was taken upon the application for the issuance of a
Temporary Restraining Order or Status Quo Ante Order.
Manila Water filed its Comment to the Petition on July 19, 2013. In its Comment, Manila Water prayed
for the dismissal of the Petition and argued, among others that, the Concession Agreement and the
rate rebasing mechanism therein are valid, legal and constitutional and protected by the nonimpairment clause under the Constitution.
85
The second case, G.R. No. 208207, entitled “Water for All Refund Movement v. MWSS, et al.” is a
“Petition for Certiorari, Prohibition and Mandamus” dated August 5, 2013, was received by Manila
Water on August 14, 2013. The Petition seeks the following reliefs, among others:
a. Issuance of a Temporary Restraining Order, Status Quo Ante and/or Writ of Preliminary Injunction
requiring the respondents to maintain and observe the status quo prevailing before the
commencement of the Rate Rebasing Exercises;
b. Declaring the Concession Agreements dated February 21, 1997 between the MWSS and Manila
Water and Mayniled to be void for being constitutionally infirm and/or ultra vires; and
c. In the alternative, declaring the 2013 Tariff Schedule for Manila Water and Maynilad void for being
in violation of law;
d. Declaring Manila Water and Maynilad to be public utilities subject to the rules and regulations of
the Commission on Audit;
e. Ordering Manila Water and Maynilad, whether by themselves or through MWSS, to refund to the
water consumers within their respective Service Areas the amounts billed, charged, and/or
collected from them:
• All amounts in excess of the 12% cap provided in Republic Act No. 6234;
• All amounts representing income taxes of MWSS and/or the concessionaires; and
• All amounts for future and/or abandoned projects.
Finally, G.R. NO. 210147, entitled “Virginia S. Javier, et al. v. The Metropolitan Waterworks and
Sewerage Systems, et al.” is a “Petition for Certiorari, Prohibition, and Mandamus, pursuant to Rule
65 of the 1997 Revised Rules of Court, questioning the validity of the Concession Agreements
entered into by and between Respondents. As alleged by the Petitioners, their petition is in the nature
of a class action brought in behalf of themselves and all other customers of Maynilad and Manila
Water who are allegedly similarly situated in having been “subject to the Concessionaires’ continuing
policies and practices of water rate overpricing, advanced collections for uncompleted projects,
including ghost water infrastructures, monopolistic abuse… regulatory capture over the entire MWSS
concession area.”
The three cases were consolidated in a Notice dated January 14, 2014 issued by the Supreme Court in
G.R. No. 210147 (Virginia S. Javier, et al. v. The Metropolitan Waterworks and Sewerage Systems, et
Al.) The cases, as consolidated, remain pending with the Supreme Court.
BPI
BPI does not have any material pending legal proceedings to which the registrant or any of its
subsidiaries or affiliates is a party or of which any of their property is the subject.
Globe
On 23 July 2009, the NTC issued NTC Memorandum Circular (MC) No. 05-07-2009 (Guidelines on
Unit of Billing of Mobile Voice Service). The MC provides that the maximum unit of billing for the
cellular mobile telephone service (CMTS) whether postpaid or prepaid shall be six (6) seconds per
pulse. The rate for the first two (2) pulses, or equivalent if lower period per pulse is used, may be
higher than the succeeding pulses to recover the cost of the call set-up. Subscribers may still opt to
be billed on a one (1) minute per pulse basis or to subscribe to unlimited service offerings or any
service offerings if they actively and knowingly enroll in the scheme. In compliance with NTC MC 0507-2009, Globe refreshed and offered to the general public its existing per-second rates that, it bears
emphasizing, comply with the NTC Memorandum Circular. Globe made per second charging for
Globe-Globe/TM-TM/Globe available for Globe Subscribers dialing prefix 232 (GLOBE) OR 803 plus
10-digit TM or Globe number for TM subscribers. The NTC, however, contends that Globe’s offering
does not comply with the circular and with the NTC’s Order of 7 December 2009 which imposed a
three-tiered rate structure with a mandated flag-down of P3.00, a rate of P0.4375 for the 13th to the
160th second of the first minute and P0.65 for every 6-second pulse thereafter. On 9 December
2009, the NTC issued a Cease and Desist Order requiring the carriers to refrain from charging under
the previous billing system or regime and refund consumers.
Globe maintains that the Order of the NTC of 7 December 2009 and the Cease and Desist Order are
void as being without basis in fact and law and in violation of Globe’s rights to due process. Globe,
Smart, Sun and CURE all filed petitions before the Court of Appeals seeking the nullification of the
questioned orders of the NTC. On 18 February 2010, the Court of Appeals issued a Temporary
Restraining Order preventing the NTC from enforcing the disputed Order.
86
On 25 May 2010, the CA issued a writ of preliminary injunction directing the NTC to cease and desist
from enforcing their assailed Order/s. On 28 December 2010, the CA rendered a Decision declaring
the questioned decisions invalid for being violative of the Petitioners’ right to due process, among
others. The Petitioners and the NTC filed their respective Motions for Partial Reconsideration. The
motions were DENIED by the CA in an Order dated 19 January 2012. Due to lack of material time, the
NTC and the Petitioners seasonably filed their respective Motions for Extension of Time to File
Petition for Review with the Supreme Court. Globe filed its Petition on 12 March 2012. The other
Movants are expected to file their respective petitions within the month of March 2012.
Globe believes that its legal position is strong and that its offering is compliant with the NTC’s
Memorandum Circular 05-07-2009, and therefore believes that it would not be obligated to make a
refund to its subscribers. If, however, Globe would be held as not being in compliance with the
circular, Globe may be contingently liable to refund to any complaining subscribers any charges it may
have collected in excess of what it could have charged under the NTC’s disputed Order of 7
December 2009, if indeed it is proven by any complaining party that Globe charged more with its per
second scheme than it could have under the NTC’s 6-second pulse billing scheme stated in the
disputed Order. Management has no estimate of what amount this could be at this time.
On 22 May 2006, Innove received a copy of the Complaint of Subic Telecom Company (“Subictel”),
Inc., a subsidiary of PLDT, seeking an injunction to stop the Subic Bay Metropolitan Authority and
Innove from taking any actions to implement the Certificate of Public Convenience and Necessity
granted by SBMA to Innove. Subictel claimed that the grant of a CPCN allowing Innove to offer certain
telecommunications services within the Subic Bay Freeport Zone would violate the Joint Venture
Agreement (“JVA”) between PLDT and SBMA. The Supreme Court ordered the reinstatement of the
case and has forwarded it to the NTC-Olongapo for trial.
PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove are in litigation over
the right of Innove to render services and build telecommunications infrastructure in the Bonifacio
Global City. In the case filed by Innove before the NTC against BCC, PLDT and the Fort Bonifacio
Development Corporation (FBDC), the NTC has issued a Cease and Desist Order preventing BCC
from performing further acts to interfere with Innove’s installations in the Bonifacio Global City.
In the case filed by PLDT against the NTC in Branch 96 of the Regional Trial Court (RTC) of Quezon
City, where PLDT sought to obtain an injunction to prevent the NTC from hearing the case filed by
Innove, the RTC denied the prayer for a preliminary injunction and the case has been set for further
hearings. PLDT has filed a Motion for Reconsideration and Globe has intervened in this case. In a
resolution dated 28 October 2008, the RTC QC denied BCC’s motion for the issuance of a temporary
restraining order (TRO). On 14 October 2013, the RTC issued an order dismissing the complaint. On
21 October 2013, PLDT elevated the case to the Court of Appeals where the same is still pending
resolution.
In the case filed by BCC against FBDC, Globe Telecom and Innove, Bonifacio Communications Corp.
before the Regional Trial Court of Pasig, which case sought to enjoin Innove from making any further
installations in the BGC and claimed damages from all the parties for the breach of the exclusivity of
BCC in the area, the court did not issue a Temporary Restraining Order and has instead scheduled
several hearings on the case. The case was dismissed by the RTC Pasig. Dissatisfied with the
decision of the RTC, BCC and PLDT elevated the case to the Court of Appeals. On May 18, 2012,
The Court of Appeals dismissed the case. On July 6, 2012, BCC and PLDT filed a petition for review
on certiorari with the Supreme Court on July 6, 2012. Innove filed its Comment thereon on December
6, 2012. The case is still pending resolution with the Supreme Court.
On 11 November 2008, Bonifacio Communications Corp. (BCC) filed a criminal complaint against the
officers of Innove Communications Inc., the Fort Bonifacio Development Corporation (FBDC) and
Innove contractor Avecs Corporation for malicious mischief and theft arising out of Innove’s
disconnection of BCC’s duct at the Net Square buildings. The accused officers filed their counteraffidavits and are currently pending before the Prosecutor’s Office of Pasig. The case is still pending
resolution with the Office of the City Prosecutor.
On 21 January 2011, BCC and PLDT filed with the Court of Appeals a Petition for Certiorari and
Prohibition against NTC, et al. seeking to annul the Orders of the NTC dated 28 October 2008
directing BCC, PLDT and FBDC to comply with the provisions of NTC MC 05-05-02 and the CEASE
AND DESIST from performing further acts that will prevent Innove from implementing and providing
telecommunications services in the Fort Bonifacio Global City pursuant to the authorization granted by
the NTC. BCC and PLDT anchor their petition on the grounds that: 1) the NTC has no jurisdiction over
87
BCC it being a non telecommunications entity; 2) the NTC violated BCC and PLDT’s right to due
process; and 3) there was no urgency or emergency for the issuance of the cease and desist order.
On April 25, 2011, Innove Communications, filed its comment on the case filed by PLDT that seeks to
ban all Globe services from the Bonifacio Global City before the CA’s Tenth Division. In its comment,
Globe argued that it is in the public’s best interest that open access and free competition among
telecom operators be allowed at the Bonifacio Global City.The case is still pending with the Court of
Appeals.
On August 16, 2011, the Ninth Division of the CA ruled that PLDT’s case against Innove and the
National Telecommunications Commission (NTC) lacked merit, and thus denied the petition and
dismissed the case. PLDT and its co-petitioner, BCC file their motion for reconsideration. Innove
seasonably filed its Opposition thereto. The case is pending with the Court of Appeals.
Certain Relationships and Related Transactions
The Company, in the regular conduct of business, has entered into transactions with associates, joint
ventures and other related parties principally consisting of advances, loans and reimbursement of
expenses, purchase and sale of real estate properties, various guarantees, construction contracts,
and development, management, underwriting, marketing and administrative service agreements.
Sales and purchases of goods and services to and from related parties are made at normal market
prices.
No other transaction was undertaken by the Company in which any director or executive officer was
involved or had a direct or indirect material interest.
To date, there are no complaints received by the Company regarding related-party transactions.
For detailed discussion on related party transactions, please refer to Note 31 of the Consolidated
Financial Statements for December 31, 2013 which forms part of the Annex of this SEC17A report.
Item 4. Submission of Matters to a Vote of Security Holders
Except for matters taken up during the annual meeting of stockholders, there was no other matter
submitted to a vote of security holders during the period covered by this report.
88
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Market Information
Principal market where the registrant’s common equity is traded.
The following table shows the high and low prices (in PHP) of Ayala Corporation’s shares in the
Philippine Stock Exchange for the year 2012 and 2013:
2013
1st qtr
2nd qtr
3rd qtr
4th qtr
High
590.00
688.00
640.00
627.00
Low
520.50
519.00
500.00
516.50
2012
High
431.00
475.60
481.00
530.00
Low
311.40
405.60
410.20
417.20
Source: Bloomberg
The market capitalization of the Company’s common shares as of end-2013, based on the closing
price of P518.00/share, was approximately P310billion.
The price information of Ayala common and preferred “B” shares as of the close of the latest
practicable trading date, March 4, 2014, is P562.00 and P527.00, respectively.
Holders
There are approximately 7,033, 6 and 994 registered holders of common shares, preferred “B”, and
voting preferred shares, respectively, as of January 31, 2014 (based on number of accounts
registered with the Stock Transfer Agents).
The following are the top 20 registered holders of the Company’s securities:
Common Shares
Stockholder name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Mermac, Inc.
PCD Nominee Corporation (Non-Filipino)
Mitsubishi Corporation
PCD Nominee Corporation (Filipino)
Shoemart, Inc.
Sysmart Corporation
SM Investment Corporation
Philippine Remnants Co., Inc.
ESOWN Administrator 2012
ESOWN Administrator 2009
ESOWN Administrator 2008
ESOWN Administrator 2006
ESOWN Administrator 2007
Mitsubishi Logistics Corporation
ESOWN Administrator 2005
Antonino T. Aquino
Telengtan Brothers & Sons, Inc.
Lucio Yan
Xavier Loinaz
Era Management & Development Corp.
No. of common
shares
303,689,196
142,867,006
63,077,540
53,913,040
19,539,049
1,500,912
1,418,610
823,046
737,593
630,639
480,299
444,730
383,444
360,512
289,509
172,153
136,857
127,996
125,265
106,118
Percentage of
common shares
50.6547%
23.8299%
10.5212%
8.9926%
3.2591%
0.2503%
0.2366%
0.1373%
0.1230%
0.1052%
0.0801%
0.0742%
0.0640%
0.0601%
0.0483%
0.0287%
0.0228%
0.0213%
0.0210%
0.0177%
89
Preferred “B” Shares
No. of preferred
“B” shares
Stockholder name
1.
2.
3.
3.
4.
5.
PCD Nominee Corp – Filipino
PCD Nominee Corp – Non Filipino
Sytin, Dominic, L. &/or Sytin, Ann Marietta L.
Santos, Leonel A. and/or Santos, Alicia
Chavez, Felix B. or Aida T. Chavez or Irene T.
Chavez
Melchor T. Macabuhay
19,938,950
30,330
19,320
7,000
4,000
400
Percentage of
preferred “B”
shares
99.6948%
0.1516%
0.0966%
0.0350%
0.0200%
0.0020%
Voting Preferred Shares
No. of voting
preferred shares
Stockholder name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Mermac, Inc.
Mitsubishi Corporation
Deutsche Bank AG Manila OBO UBS HK
Fernando Zobel de Ayala
Jaime Augusto Zobel de Ayala
HSBC Manila OBO A/C 000-171579-574
Delfin L. Lazaro
HSBC Manila OBO A/C 000-595686-550
HSBC Manila OBO A/C 000-808154-573
Deutsche Regis Partners, Inc. A/C Clients
AB Capital Securities Inc.
BDO Securities Corporation
Deutsche Bank AG, Manila Branch
HSBC Manila OBO A/C 000-595686-574
Mercedita S. Nolledo
Ariston Dela Rosa Estrada, Jr.
Asiasec Equities Inc.
HSBC Manila OBO A/C 000-083766-550
HSBC Manila OBO A/C 000-171579-567
Papa Securities Corporation
159,577,460
32,640,492
1,561,478
554,983
543,802
364,810
258,297
170,064
169,803
137,372
115,873
115,794
111,385
106,486
84,996
84,396
78,234
73,272
72,884
69,646
Percentage of
voting preferred
shares
79.7887%
16.3203%
0.7807%
0.2775%
0.2719%
0.1824%
0.1291%
0.0850%
0.0849%
0.0687%
0.0579%
0.0579%
0.0557%
0.0532%
0.0425%
0.0422%
0.0391%
0.0366%
0.0364%
0.0348%
C) Dividends
Stock Dividends
Percent
20%
20%
20%
Record Date
Payment Date
May 22, 2007
April 24, 2008
July 5, 2011
June 18, 2007
May 21, 2008
July 29, 2011
Cash Dividends On Common Shares
Year
Payment Date
2011
July 26, 2011
January 24, 2012
2012
July 12, 2012
February 1, 2013
2013
August 12, 2013
January 3, 2014
Rate
2.00/share
2.00/share
2.00/share
2.00/share
2.40/share
2.40/share
Record Date
June 30, 2011
December 28, 2011
June 18, 2012
January 8, 2013
July 17, 2013
December 19, 2013
Dividend policy
Dividends declared by the Company on its shares of stocks are payable in cash or in additional shares
of stock. The payment of dividends in the future will depend upon the earnings, cash flow and financial
condition of the Company and other factors.
90
Recent Sales of Unregistered Securities or Exempt Securities
The following shares were issued to/subscribed by the Company’s executives as a result of the
exercise of stock options (ESOP) and the subscription to the stock ownership (ESOWN) plans:
No. of shares
Year
ESOP
ESOWN*
2012
1,019,194
863,963
2013
766,993
14,474
*Net of cancelled subscriptions.
The above shares formed part of the 8,864,000 ESOP and ESOWN shares subject of the
Commission’s resolution dated January 12, 2006 confirming the issuance of such shares as exempt
transactions pursuant to Section 10.2 of the Securities Regulation Code.
On July 23, 2012, the Company sold 15,000,000 common shares held in treasury at P430 per share,
a 6% discount to the Company’s closing market price of P458 per common share.
On May 30, 2013, the Company sold its remaining 5,183,740 common shares held in treasury at
P647 per share, a 3% discount to the Company’s closing market price of P667 per common share.
For the above sale of treasury shares, the Company filed a Notice of Exemption with the SEC on the
re-issuance of the said treasury shares under SRC Sections 10.1 (h) and (l) as follows:
•
•
SRC Section 10.1 (h), “Broker’s transaction, executed upon customer’s orders, on any
registered Exchange or other trading market.”
SRC Section 10.1 (l), “The sale of securities to a bank.”
Item 6. Management’s Discussion and Analysis of Operations
2013
Ayala Corporation’s consolidated net income attributable to equity holders for the year ended
December 31, 2013 amounted to P12.8 billion, 22% higher than 2012. Core net income reached
P14.8 billion, 28% higher than prior year. This excludes the impact of the accelerated depreciation of
Globe Telecom as a result of its network modernization program.
Consolidated Sales of Goods and Services
Ayala’s consolidated sale of goods and services for the year reached P136.9 billion, a 24% increase
from 2012 primarily driven by new projects and improved sales performance of real estate,
electronics, automotive, water distribution and wastewater services and international operations
groups. This accounts for 86% of total income in 2013.
Real Estate
Ayala Land, Inc.’s (ALI) net income attributable to equity holders of ALI rose by 30% to a record P11.7
billion on the back of double-digit revenue growth and stable margins across its business segments.
ALI recorded P81.5 billion in total revenues, a 36% jump from its year-ago level as its property
development, commercial leasing and construction businesses continued to post gains.
Revenues from property development expanded by 51% to P51.9 billion driven by strong gains from
its residential segment as well as the sale of commercial lots in NUVALI development, the large-scale
master planned development and Arca South, the Food Terminal Inc. property ALI acquired in 2012.
Revenues from commercial leasing grew 21% to P18.0 billion on a combination of higher average
lease rates and higher occupancy of gross leasable area in shopping centers and offices coupled with
the opening of new malls. Higher revenues from hotels and resorts (which is a component of
revenues from commercial leasing) also rose by 64% to P4 billion, as new hotels and resorts began to
contribute. Construction and property management generated combined revenues of P26.3 billion,
29% higher than the previous year.
ALI spent a total of P66.3 billion in capital expenditures in 2013, 7% lower than the P71.3 billion spent
the previous year. The bulk of capital expenditures in 2013 were utilized for residential development
(32% of total) and land acquisition (41%), offices (8%), shopping centers (12%), hotels and resorts
91
(2%), with the balance spent on support business and land development activities in the company’s
strategic landbank areas. For 2014, ALI has allotted another P70.0 billion for capital expenditures
primarily earmarked for the completion of ongoing developments and launches of new residential and
leasing projects. Targeted launches in 2014 include 78 projects, including 55 residential / office for
sale, 8 office buildings, 6 shopping centers, 5 hotels and resorts, 2 commercial estates and 2
hospitals.
Water Distribution and Wastewater Services
Manila Water Company’s (MWC) net income attributable to equity holders of MWC expanded by 5%
in 2013 to P5.8 billion, driven by higher billed volume in the East Zone and increased contribution
from new businesses. New businesses, which include operations in Laguna, Boracay, Clark and
Vietnam, accounted for 12% of MWC’s earnings in 2013. Additional income from the liquidation of
connection fees in the East Zone was also recognized, boosting net income.
Total revenues grew by 9% to P15.9 billion with total billed volume up 10% versus prior year.
Revenues from its Vietnam operations, which consist of a leakage reduction project and two bulk
water companies, Thu Duc Water B.O.O. Corporation and Kenh Dong Water Supply Joint Stock
Company, grew by 42% in 2013 to P294 million.
MWC recently took over as exclusive water provider within the Laguna Technopark through its
subsidiary, Laguna Water Company. It is also constructing a bulk water project in Cebu, which is
expected to start operations in June.
Electronics
Ayala’s electronics business, Integrated Microelectronics, Inc. (IMI), nearly doubled its net income
attributable to eguity holders of IMI in 2013 to US$10.5 million due mainly to business expansion in
Europe and the Philippines. Despite a contraction in the electronics sector, IMI continued to register
higher revenues in 2013, reaching US$745 million, a 13% growth from the previous year. This
resilient performance was primarily driven by IMI’s diversification strategy. This includes the
company’s move to higher-growth, higher margin niche markets in automotive, industrial, medical,
and telecommunications segments.
Automotive
Consolidated sales of Ayala Automotive Holdings Corporation grew by 6% to P10.8 billion. Vehicle
unit sales grew by 9% from 9,259 to 10,111. Consolidated net income, which includes its equity share
and dividend income from Honda Cars Philippines, Inc. and Isuzu Philippines Corporation, was 81%
lower than the previous year mainly on start-up costs of Volkswagen operations.
In 2012, Volkswagen AG appointed Ayala Automotive as the Philippine importer for Volkswagen
passenger vehicles. This partnership will enhance Ayala Automotive’s existing portfolio of product
offerings along with the Honda and Isuzu brands.
Share of profit of Associates and Joint Ventures
The Company’s share of profit of associates and joint ventures increased by 31% from P7.7 billion in
2012 to P10.1 billion in 2013 mainly due to equity earnings from the Bank of the Philippine Islands
partly offset by lower net income registered by Globe Telecom. As a percentage to total income, this
account is at 6% in 2013 and 2012.
Financial Services
BPI registered a 15% year-on-year growth in net income attributable to equity holders of BPI to P18.8
billion, primarily driven by higher interest income on the back of a 21% growth in the bank’s loan
portfolio. Higher fee-based income and foreign exchange trading also contributed to the bank’s
earnings in 2013, which translated to a return on equity of 18%.
The double-digit loan growth was driven by higher corporate and consumer loans, which grew by 23%
and 13%, respectively. While the net interest income expanded as a result of an 18% growth in the
bank’s average asset base, net interest margin slightly contracted by 26 basis points to 3.3% owing to
the competitive lending environment. BPI’s asset quality further improved with 90-day gross nonperforming loan ratio closing at 1.8% from the 2.1% registered a year ago.
BPI’s total assets at the end of 2013 expanded 21% to P1.2 trillion. Deposits jumped 23% to P989
billion as a result of higher savings and demand deposits. The bank’s operating expenses rose 8%,
with increases largely attributed to regulatory, technology and occupancy-related costs. Despite this,
BPI managed to post modest gains in its cost-to-income ratio to 51% from 52% the previous year.
92
Telecommunications
Globe Telecom sustained its growth momentum with core net income of P11.6 billion, a 13% increase
year-on-year. Service revenues reached P90.5 billion, a 9% increase from the previous year, led by
the continued growth in mobile telephony and the demand for data connectivity across its mobile,
broadband and fixed line businesses.
Mobile revenues, which account for 80% of total revenues, rose 8% to P72.8 billion on the back of
sustained growth in postpaid revenues, which expanded by 18% to P27.1 billion. Prepaid revenues
inched up 3% to P45.7 billion despite yield pressures from the shift to value-based from pay-per-use
bucket. Globe's mobile subscribers climbed 16% in 2013 to 38.5 million from 33.1 million the previous
year. Its broadband business registered a sharp gain in both revenues and customer base, climbing
20% and 22%, respectively year-on-year. Fixed line data expanded by 13% in 2013 to P4.7 billion,
mitigating the decline in traditional fixed line voice services.
Globe's operating expenses rose 13% to P54.08 billion, largely due to subsidy and recontracting
costs. Globe's reported net income after tax declined 28% in 2013 owing to accelerated depreciation
charges arising from its network transformation initiative.
Interest Income
The Company’s interest income decreased 26% from P4,6 billion in 2012 to P3,4 billion in 2013
mainly due to lower placements and interest rates of Ayala Land and the Company in 2013. As a
percentage to total income, this account s at 2% and 4% in 2013 and 2012, respectively.
Other income
The Company’s other income increased 7% from P8,367 million in 2012 to P8,943 million in 2013
mainly due to forex gain and derivative asset gain of the electronics, BPO and international operations
groups. As a percentage to total income, this account is at 6% in 2013 and 2012.
Costs and Expenses
Consolidated cost of goods increased 20% from P55,3 billion in 2012 to P66.5 billion in 2013 while
cost of rendering services increased 37% from P23.0 billion in 2012 to P31.5 billion in 2013. The
increase was driven by higher sales of the real estate, electronics, automotive, water distribution and
wastewater services and business process outsourcing (BPO) groups. The cost of goods accounts for
52%, while the cost of rendering services accounts for 24% of total costs and expenses in 2013.
Consolidated general and administrative expenses increased 14% from P12.8 billion in 2012 to P14.6
billion in 2013 mainly due to higher expenses of the real estate group resulting from a line by line
consolidation of AMHRI/AMHPI (Kingdom Investments: Fairmont and Raffles) after the step-up
acquisition in Q4 2012. General and administrative expenses accounts for 11% of total costs and
expenses in 2013.
Interest Expense and Other Financing Charges
Consolidated interest expenses and other financing charges increased 29% from P8.2 billion in 2012
to P10.5 billion in 2013 mainly due to higher loan balance as a result of fundraising activities in late
2012 and new borrowings in 2013 of the Company (for initiatives for new growth areas like the energy
and transport infrastructure sectors) and the real estate group (for landbanking and expansion of
various mixed use projects). As a percentage to total costs and expenses, this account is at 8% in
2013 and 2012.
Other charges
The Company’s other charges decreased 20% from P6,9 billion in 2012 to P5.5 billion in 2013 mainly
due to lower rehabilitation costs of the water distribution and wastewater services group. As a
percentage to total costs and expenses, this account is at 4% and 6% in 2013 and 2012, respectively.
Provision for income tax
The Company’s provision for income tax increased 34% from P5.0 billion in 2012 to P6,7 billion in
2013 mainly due to the higher taxable income of several Subsidiaries in the real estate and water
distribution and wastewater services groups on account of better sales and other operating results.
Balance Sheet Highlights
Consolidated cash and short term investments declined by 18% to P65.7 billion as of the end of 2013
compared to P80.3 billion in 2012. Decline was due mainly to placements of funds from short term
93
cash equivalents to other form of financial instruments, and use of funds for operations and loan
payments.
Accounts receivable rose by 32% to P56.3 billion on the back of higher sales from residential brands,
new project launches and existing project sales of the real estate group. The significant growth in
revenues of the electronics group particularly in Europe and the Philippines coupled with higher
receivables of the BPO group also contributed to the increase. This account makes up for 9% of total
assets in 2013.
Noncurrent asset held for sale represents the carrying value of our investment that will be disposed
within Y2014.
Overall, total current assets increased by 18% to P211.5 billion.
Total noncurrent assets rose to P384.8 billion from P331.9 billion in 2012. This was primarily due to
an increase in investments in our banking sector coupled with higher earnings from investee
companies, additional investments in real properties, land and improvements and higher receivables
by ALI arising from ramp up on revenues.
On the liabilities side, total current and noncurrent liabilities reached P364.2 billion, 20% higher than
its level in 2012.
Total consolidated stockholders’ equity reached P235.5 billion, 14% higher than in 2012 mainly as a
result of additional paid up capital from re-issuance of treasury shares and higher earnings during the
period, net of dividends.
On a consolidated basis, gearing remained comfortable with consolidated debt to equity ratio at 1.43
to 1 and consolidated net debt to equity ratio at 0.98 to 1. Gearing at the parent company level also
remained comfortable with debt to equity ratio at 0.49 to 1 and net debt to equity ratio at 0.32 to 1.
In 2014, the Ayala Group earmarked nearly P190 billion in capital expenditures to continue its
investment programs in its real estate, banking, telecommunications, and water businesses as well as
to ramp up its new businesses.
Key performance indicators of the Company and its significant subsidiaries
The table sets forth the comparative key performance indicators of the Company and its significant
subsidiaries.
Ayala Corporation (Consolidated)
(In million pesos, except ratios)
Income
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
3
Debt to Equity Ratio
2013
159,412
12,778
599,664
205,681
143,476
1.46
1.43
2012
(As restated4)
130,571
10,504
510,904
175,085
124,098
1.46
1.41
2011
(As restated4)
110,828
9,183
369,039
111,268
106,353
1.76
1.05
2013
81,523
11,742
325,474
101,902
98,470
1.45
1.03
2012
(As restated4)
59,932
9,038
254,550
74,778
81,993
1.41
0.91
2011
(As restated4)
47,668
7,140
166,399
39,041
62,184
1.64
0.63
Ayala Land, Inc.
(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
94
Integrated Micro-Electronics, Inc.
(In thousand US dollars, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
2013
745,032
10,473
488,229
110,257
192,650
1.53
0.57
2012
(As restated4)
661,850
5,585
453,353
109,707
193,817
1.56
0.57
2011
(As restated4)
575,454
3,255
441,885
99,407
185,421
1.51
0.54
2013
15,926
5,752
72,858
26,252
30,477
1.12
0.86
2012
(As restated4)
14,553
5,490
67,127
24,071
26,488
0.83
0.91
2011
(As restated4)
12,004
4,270
60,897
23,268
22,538
1.24
1.03
Manila Water Company, Inc.
(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
1
Stockholders’ Equity attributable to owners of the Parent
Current Asset/Current Liabilities
1
Total Debt/ Stockholders’ Equity (Total Debt includes short-term debt, long-term debt and current portion of long-term debt).
4
Restatement in Y2012 and Y2011 pertains to impact of the adoption of new accounting standards on employee benefits (PAS
19) and consolidation (PFRS 10).
2
3
As previously discussed, in general, the Company posted strong results with marked improvements in
most of the performance indicators. Brought by growing overall economic activities, significant output
from the Company’s key business segments and growth initiatives in certain identified industries like
power and infrastructure, the above key indicators surpassed targeted levels.
Net income to equity holders showed double-digit growth on strong revenues across all business
segments and steady earnings from associates.
The improvements in balance sheet items (total assets and debt) were results of focused and
responsive financial management. The Company will continue to adopt the following benchmarks: a)
current ratio of not lower than 0.5:1.0; and b) debt to equity ratio not to exceed 3.0:1.0.
There are no known trends, events or uncertainties that will result in the Company’s liquidity
increasing or decreasing in a material way.
There were no events that will trigger direct or contingent financial obligation that is material to the
Company, including any default or acceleration of an obligation.
Likewise, there were no material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Company with unconsolidated entities or other
persons created during the reporting period.
There are no seasonal aspects that may have a material effect on the financial condition of the
Company.
Causes for any material changes
(Increase or decrease of 5% or more in the financial statements)
A. The accounting policies adopted in the preparation of the consolidated financial statements are
consistent with those of the previous financial years except for the new PFRS, amended PFRS
and improvements to PFRS which were adopted beginning January 1, 2013. The Group applied,
for the first time, certain standards and amendments that require restatement of previous financial
statements. These include:
a. PFRS 10 Consolidated Financial Statements*
b. PAS 19 Employee Benefits (Revised 2011)
95
*Accounting for ALI group’s interests in North Triangle Depot Commercial Corporation
(NTDCC), Cebu Holdings, Inc. (CHI), Alabang Commercial Corporation (ACC), BG West
Properties, Inc. (BGW), BG South Properties, Inc. (BGS), BG North Properties, Inc. (BGN).
For all financial years up to December 31, 2012, NTDCC, CHI and ACC were considered to
be associates under the previously existing PAS 28, Investments in Associates while BGW,
BGS and BGN were considered to be joint ventures under the previously existing PAS 31,
Interests in Joint Ventures. These entities were accounted for using the equity method. At the
date of initial application of PFRS 10, the ALI group assessed that it controls these companies
based on the factors explained in Note 4 of the Group’s Consolidated Financial Statements,
Judgments and Estimates and consolidated the financial statements of NTDCC, CHI, ACC,
BGW, BGS and BGN.
B. The consolidated financial statements show several significant increases in Balance Sheet
accounts (vs. December 31, 2012 balances) and Income Statement accounts (vs. December
2012 levels) relating to the ALI group’s acquisitions.
On October 2, 2012, AyalaLand Hotels and Resorts Corp. (AHRC), a wholly owned subsidiary of
ALI, entered into an agreement to acquire the interests of Kingdom Manila B.V., an affiliate of
Kingdom Hotel Investments (KHI), and its nominees in KHI-ALI Manila Inc. (now renamed
AMHRI) and 72,124 common shares in KHI Manila Property Inc. (now renamed AMHPI). AMHRI
and AMHPI are the project companies for the Fairmont Hotel and Raffles Suites and Residences
project in Makati which opened last December 2012.
Balance Sheet Items
(As of December 31, 2013 vs. Restated December 31, 2012)
Cash and cash equivalents – 18% decrease from P
= 80,286 million to P
= 65,655 million
Decrease significantly attributable to: real estate group’s placements of funds from short term cash
equivalents to other form of financial instruments as well as their major landbanking, property
acquisitions and new project launches partially offset by the fundraising activities through reissuance
of shares, bonds offering and net new loans; payment of 2012/ new investments and loan payments
partially offset by AC parent’s issuance of treasury shares, bonds offering and new borrowing, plus
net new borrowings of the water distribution and wastewater services group. This account is at 11%
and 16% of the total assets as of December 31, 2013 and 2012, respectively.
Short-term investments – 60% decrease from P
= 297 million to P
= 119 million
Decrease due to maturities of short-term investments by AC parent and the real estate group. This
account is at less than 1% of the total assets as of December 31, 2013 and 2012.
Accounts and notes receivable (current) – 32% increase from P
= 42,550 million to P
= 56,341 million
Mainly due to higher sales from across residential brands, new project launches and existing project
sales of real estate group, significant growth of revenues from Philippines and Europe operations of
the electronics group and higher receivables of BPO and international and others groups. This
account is at 9% and 8% of the total assets as of December 31, 2013 and 2012, respectively.
Inventories – 51% increase from P
= 33,269 million to P
= 50,178 million
Increase primarily due to launching of new and completed projects of the real estate group (mostly on
residential projects including those from VizMin areas) and increase in inventories of the electronics
group (from Europe and China operations) and automotive group (stable supply of vehicles and
introduction of a new automotive brand Volkwagen). This account is at 8% and 7% of the total assets
as of December 31, 2013 and 2012, respectively.
Other current assets – 73% increase from P
= 22,652 million to P
= 39,194 million
Increase mainly due to additional real estate deposits and prepaid expenses for projects plus
investment in short term fund/ UITF of the real estate group, increase in other current assets of the
automotive and electronics groups (input tax and creditable withholding tax) and international
operations group (higher valuation of investments). This account is at 7% and 4% of the total assets
as of December 31, 2013 and 2012, respectively.
Noncurrent asset held for sale – 100% increase from zero to P
= 3,329 million
Noncurrent asset held for sale represents the carrying value of our investment that will be disposed
within Y2014.
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Investments in bonds and other securities – 14% decrease from P
= 3,244 million to P
= 2,785 million
Mainly attributable to lower investments by AC parent, water and real estate groups. This account is
at less than 1% of the total assets as of December 31, 2013 and 2012.
Land and improvements – 27% increase from P
= 49,218 million to P
= 62,475 million
Increase due to new landbanking projects and additional costs recognized for certain land acquisition
of the real estate group. This account is at 10% of the total assets as of December 31, 2013 and
2012.
Investments in associates and joint ventures – 16% increase from P
= 102,939 million to P
= 119,804
million
Mainly attributable to additional investments made by AC parent to financial services and insurance
group and to the additional investments made the Group’s energy sector. Also attributed to the
increase was the higher share of profit of associates and joint ventures by the real estate and water
distribution and wastewater services groups partially offset by the reclassification of investment in
Stream to Noncurrent asset held for sale. This account is at 20% of the total assets as of December
31, 2013 and 2012.
Investment properties – 20% increase from P
= 52,449 million to P
= 63,157 million
Increase due to the new acquisitions and developments of the real estate group major of which are
those in Metro Manila, Cebu and Cavite. This account is at 10% of the total assets as of December
31, 2013 and 2012.
Property, plant and equipment – 13% increase from P
= 23,002 million to P
= 25,883 million
Increase mainly due to additions in PPE of the real estate group’s hotels and resorts operations. This
account is at 4% of the total assets as of December 31, 2013 and 2012.
Intangible assets – 4% decrease from P
= 4,021 million to P
= 4,176 million
Decrease mainly due to the consolidation of associates and joint ventures (effect of PFRS 10) by the
real estate groups. This account is at less than 1% of the total assets as of December 31, 2013 and
2012.
Deferred tax asset - 43% increase from P
= 4,547 million to P
= 6,514 million
Increase mainly attributable to real estate group’s increase in realized gross profit on installment sales
brought by collections from previous years and PAS 19 adjustment on retirement benefit. This
account is at 1% of the total assets as of December 31, 2013 and 2012.
Pension and other noncurrent assets - 146% increase from P
= 3,254 million to P
= 8,016 million
Increase mainly attributable to the pre-development expenses for projects in the pipeline and still to
be launched by the real estate group. The account also includes the Group’s pension asset.1 This
account is at 1% of the total assets as of December 31, 2013 and 2012.
Accounts payable and accrued expenses - 26% increase from P
= 81,901 million to P
= 103,604 million
Increase mainly caused by higher trade payables and accruals of the real estate group for its
expansion in its operations and AC parent’s incremental payable related to its additional investment in
BPI, purchased from DBS Bank, Ltd.. This account is at 28% and 27% of the total liabilities as of
December 31, 2013 and 2012, respectively.
Short-term debt – 28% increase from P
= 12,343 million to P
= 15,811 million
Mainly due to the additional loans made by the real estate group. This account is at 4% of the total
liabilities as of December 31, 2013 and 2012.
Income tax payable – 13% increase from P
= 1,481 million to P
= 1,668 million
Due to higher tax payable by the real estate and water distribution and wastewater services groups.
As a percentage to total liabilities, this account is at less than 1% as of December 31, 2013 and 2012.
1
The Company's pension fund is known as the AC Employees Welfare and Retirement Fund (ACEWRF). ACEWRF is a legal
entity separate and distinct from the Company, governed by a board of trustees appointed under a Trust Agreement between
the Company and the initial trustees. It holds common and preferred shares of the Company in its portfolio. All such shares
have voting rights under certain conditions, pursuant to law. ACEWRF's portfolio is managed by certain persons that are
beneficiaries of the fund, appointed by the fund's trustees for that purpose. These persons have the ability to exercise voting
rights over the shares in its holdings. These persons are Delfin C. Gonzalez, Jr. (who is the Company's Managing Director &
Chief Finance Officer) and Solomon M. Hermosura (who is the Company's Managing Director, Group Head of Corporate
Governance, General Counsel, Corporate Secretary & Compliance Officer). ACEWRF has not exercised voting rights over any
shares of the Company that it owns.
97
Long-term debt (current) – 38% decrease from P
= 19,021 million to P
= 11,842 million
Mainly due to the settlement of loans by AC parent, the real estate, and water distribution and
wastewater services groups. This account is at 3% and 6% of the total liabilities as of December 31,
2013 and 2012, respectively.
Service concession obligation (current) – 54% increase from P
= 841 million to P
= 1,290 million
Increase was mainly due to the water distribution and wastewater services group’s higher service
concession obligation due within one year. This account is at less than 1% of the total liabilities as of
December 31, 2013 and 2012.
Other current liabilities – 58% increase from P
= 6,970 million to P
= 10,992 million
Increase pertains mainly to the real estate group’s payable to various contractors, deposits from
residential assets and higher retention payable from projects. This account is at 3% and 2% of the
total liabilities as of December 31, 2013 and 2012, respectively.
Long-term debt (noncurrent) – 24% increase from P
= 143,720 million to P
= 178,027 million
Mainly due to net increase in loan amount of AC parent and the real estate (bond offerings and new
loans), water distribution and wastewater services, and international business groups. This account is
at 49% and 47% of the total liabilities as of December 31, 2013 and 2012, respectively.
Service concession obligation (noncurrent) – 7% increase from P
= 7,372 million to P
= 7,868 million
Increase was mainly due to the water distribution and wastewater services group’s higher service
concession obligation. This account is at 2% of the total liabilities as of December 31, 2013 and 2012.
Pension liabilities – 21% increase from P
= 1,583 million to P
= 1,915 million
Increase attributable to the effect of PAS 19- immediate recognition of past service cost and remeasurement of unrealized actuarial gains or losses. This account stood at less than 1% of the total
liabilities as of December 31, 2013 and 2012.
Other noncurrent liabilities – 8% increase from P
= 22,975 million to P
= 24,828 million
Increase mainly attributable to higher deposit from residential customers and increase in retention
payable of the real estate group. This account is at 7% and 8% of the total liabilities as of December
31, 2013 and 2012, respectively.
Paid-in capital - 11% increase from P
= 45,120 million to P
= 50,166 million
Mainly due to reissuances of treasury shares Preferred B and common shares by AC parent during
the year.
Cumulative translation adjustments - 61% increase (improved) from negative P
= 3,238 million to
negative P
= 1,257 million
Mainly due to higher foreign exchange translation of foreign denominated net assets held by the
international operations group (due to depreciation of Peso from P
= 41.05 in December 31, 2012 to P
=
44.395 in December 31, 2013).
Net unrealized gain on available-for-sale financial assets (including remeasurement gains/losses on
defined benefit plans) – 222% decrease from P
= 856 million to negative P
= 1,040 million
Mainly due to movement in the market value of securities held by the financial services and insurance
group and impact of PAS 19 on other comprehensive income component of retirement funds’
investments.
Equity reserve – 39% increase from P
= 5,379 million to P
= 7,482 million
In March 2013 and July 2012, the Company participated in the placement and subscription of 399.5
million and 680.0 million common shares of stock in ALI, respectively, whereby the Company sold its
listed ALI common shares through a private placement and infused the proceeds into ALI as
subscription for the same number of new ALI shares at the same price. Following these transactions,
the Company’s ownership interest in ALI’s common stock was reduced from 53.2% to 50.4% as of
July 2012 and further reduced to 48.9% as of March 2013. The Company will maintain the same
number of common shares it held in ALI prior to the transaction. The transaction increased the equity
reserve account by P
= 2.7 billion and P
= 5.3 billion in 2013 and 2012, respectively. The balance was
partially offset by the equity reserve on the acquisition of additional shares of the water distribution
and wastewater services group by AC parent.
Retained earnings – 11% increase from P
= 83,268 million to P
= 92,640 million
Mainly due to share in group net income offset by dividends paid during the year.
98
Treasury stock – 33% decrease from P
= 7,497 million to P
= 5,000 million
Mainly due to AC parent’s sale/reissuance of common and Preferred B treasury shares
Non-controlling interest (NCI) – 12% increase from P
= 82,343 million to P
= 91,994 million
Mainly due to AC parent’s top-up placement and subsequent sale of ALI shares which increased NCI
plus increments due to share in year-to-date net income.
Income Statement items
(For the Year Ended December 31, 2013 vs. Restated December 31, 2012)
Sale of goods – 34% increase from P
= 69,335 million to P
= 92,725 million
Mainly on account of new projects and improved sales performance of real estate, electronics (mainly
from Europe operations and new projects in the Philippines) and automotive group (improved and
stable supply of vehicles). As a percentage to total income, this account is at 58% and 53% in
December 31, 2013 and 2012, respectively.
Rendering of services – 9% increase from P
= 40,554 million to P
= 44,216 million
Improved sales performance of real estate (malls, office leasing & hotel operations specifically sales
generated by its newly acquired subsidiary), water distribution and wastewater services (increase in
volume) and international operations (new interactive clients) groups. As a percentage to total
income, this account is at 28% and 31% in December 31, 2013 and 2012, respectively.
Share of profit of associates and joint ventures – 31% increase from P
= 7,682 million to P
= 10,091 million
Increase mainly due to earnings of financial services and insurance partly offset by lower income
registered by investees in telecommunications group. As a percentage to total income, this account is
at 6% in December 31, 2013 and 2012.
Interest income – 26% decrease from P
= 4,632 million to P
= 3,436 million
Mainly due to lower placements and interest rates of real estate group and AC parent in 2013. This
account is at 2% and 4% of the total income in December 31, 2013 and 2012, respectively.
Other income – 7% increase from P
= 8,367 million to P
= 8,943 million
Mainly due to forex gain and derivative asset gain of electronics, BPO and international operations
groups. This account is at 6% of the total income in December 31, 2013 and 2012.
Cost of sales – 20% increase from P
= 55,285 million to P
= 66,540million
Increase attributable to higher sales of the real estate, electronics, automotive and international
operations groups. As a percentage to total costs and expenses, this account is at 52% in December
31, 2013 and 2012.
Cost of rendering services – 37% increase from P
= 22,990 million to P
= 31,487 million
Increase mainly due to higher sales of rendering services and consolidation of new hotels by the real
estate, electronics, water distribution and wastewater services and BPO groups. As a percentage to
total costs and expenses, this account is at 24% and 22% in December 31, 2013 and 2012,
respectively.
General and administrative expenses – 14% increase from P
= 12,772 million to P
= 14,563 million
Increase mainly on account of higher expenses of real estate group [line by line consolidation of
AMHRI/AMHPI (Kingdom Investments: Fairmont and Raffles) after step-up acquisition in Q4 2012].
This expense classification accounts for 11% and 12% of the total costs and expenses in December
31, 2013 and 2012, respectively.
Interest and other financing charges – 29% increase from P
= 8,155 million to P
= 10,511 million
Increase mainly due to higher loan balance as a result of fundraising activities in late 2012 and new
borrowings in 2013 of AC parent (for initiatives for new growth areas like Energy and Transport
Infrastructure sectors) and real estate group (for landbanking and expansion of various mixed use
projects). This expense classification accounts for 8% of the total costs and expenses in December
31, 2013 and 2012.
Other charges – 20% decrease from P
= 6,893 million to P
= 5,532 million
Decrease mainly due lower rehabilitation costs of the water distribution and wastewater services
group. This expense classification accounts for 4% and 6% of the total costs and expenses in
December 31, 2013 and 2012, respectively.
99
Provision for income tax – 34% increase from P
= 4,976 million to P
= 6,654 million
Primarily due to higher taxable income of the several subsidiaries significant part of which comes from
real estate and water distribution and wastewater services groups on account of better sales and
other operating results.
Non-controlling interests – 26% increase from P
= 8,995 million to P
= 11,347 million
Attributable to the favorable performance of the real estate, water distribution and wastewater
services, electronics and international operations groups in 2013.
2012
Ayala Corporation’s consolidated net income attributable to equity holders ending December 31, 2012
amounted to P10.5 billion, 14% higher than net income in 2011. Core net income reached P11.6
billion, 32% higher than prior year. This excludes the impact of the accelerated depreciation of Globe
Telecom as a result of its network modernization program and the revaluation gains realized at AG
Holdings and IMI last year.
Ayala’s Consolidated Sales of Goods and Services for the year reached P109.9 billion, 21% higher
than previous year. This was mainly driven by the strong revenue performance of its real estate, water
and electronics businesses.
Real Estate
Ayala Land’s total revenues grew by 26% to P59.9 billion with its property development business up
by 31% versus last year on strong bookings of its residential products, continued completion of
projects, and higher commercial lot sales particularly from its NUVALI development. Its commercial
leasing business grew by 18% to P8.8 billion with contribution from new malls, higher occupied mall
and office gross leasable areas, and higher lease rates. Revenues from its construction and property
management business surged by 38% to P20.5 billion on the back of increasing order book from
Ayala Land and new management contracts. In the meantime, its hotels and resorts business also
rose by 9% to P2.4 billion. Ayala Land’s consolidated net income attributable to equity holders in 2012
reached P9.0 billion, 27% higher compared to prior year driven by the strong revenue growth across
all business lines and further improvement in margins.
Ayala Land spent P71 billion in capital expenditures for its pipeline of projects and land acquisitions in
2012 which included the 74-hectare FTI property in Taguig. This coming year, Ayala Land has
earmarked P66 billion in capital expenditures to fund its land acquisition and project completions.
Water Distribution and Wastewater Services
Manila Water Company Inc. posted a net income attributable to equity holders of P5.5 billion, 28.6%
higher than the previous year. Revenues increased by 21% on a combination of growth in billed
volume from the East Zone and new expansion areas outside of the East Zone as well as tariff
increase.
Manila Water’s growth during the year was partly driven by the contribution of new businesses, which
accounted for 5% of revenues and nearly 7% of net income. The company expects to see continued
growth in billed volume within the East Zone, coupled with higher contributions from its new
businesses in the coming year. Manila Water has been building its pipeline of new businesses outside
the East Zone with the acquisition of a 49% stake in Vietnam’s Thu Duc Water BOO Corporation in
2011 and a 47.45% stake in Kenh Dong Water Supply Joint Stock Company in 2012. The company is
looking to finalize its acquisition from Suez Environment of a 51% equity stake in Indonesia’s PT PAM
Lyonnaise Jaya, which operates the water supply concession contract in West Jakarta.
Electronics
Integrated Microelectronics, Inc. (IMI) posted consolidated sales revenues of US$661.9 million in
2012, 15% higher than 2011 levels as a result of the full-year consolidation of its European business
coupled with order expansion of key customers. IMI recorded a substantial improvement in net
income to US$5.6 million from US$3.3 million in 2011.
Banking
Bank of the Philippine Islands (BPI) registered a net income of P16.3 billion in 2012, 26.8% higher
than prior year. The improvement was a result of a 13% rise in revenues owing to higher net interest
income and a 25% surge in non-interest income as a result of securities trading gains. The bank’s
strong loan growth was sustained at nearly 16%. While net interest income expanded as a result of a
100
higher average asset base, net interest margin contracted slightly by 10 basis points following the
BSP’s cut in policy rates last year coupled with competitive lending across banks. Despite this, BPI’s
asset quality continued to improve with its net 30-day NPL ratio down to 1.46% from the 1.87%
recorded in 2011. BPI’s operating expenses grew by 6% with cost-to-income ratio improving
significantly to 52.48% from 56.19% the previous year. These strong financial results translated to a
return on equity of 17.8% in 2012.
Telecom
Globe Telecom’s core net income rose by 2% in 2012 to P10.3 billion. Its service revenues stood at a
record high of P82.7 billion, a 6% hike from last year. This improvement was a result of an overall
increase in subscriber base and improvements across key product segments. Mobile revenues
expanded 6% to P67.4 billion, also a new record high, primarily driven by the postpaid business,
which grew by 23% to P23.1 billion. Prepaid revenues, on the other hand, dipped marginally by 2% to
P44.3 billion.
Broadband revenues likewise posted a new record high of P8.7 billion, a 16% jump from last year as
subscriber base expanded by 18%. The strong performance of both Tattoo On-the-Go and Tattoo
@Home broadband segments cushioned the decline in fixed line voice revenues.
Operating expenses and subsidy increased by 19% to P38.9 billion, keeping earnings before interest
taxes depreciation and amortization (EBITDA) flat at P35 billion. The impact of the accelerated
depreciation from its ongoing network modernization resulted in a 30% decline in Globe’s reported net
earnings to P6.8 billion.
Share of Profit of Associates and Joint Ventures
Equity in net earnings reached P7.7 billion in 2012, 9% higher than last year. The rise was mainly due
to higher equity income from its financial services and insurance group as parent company Ayala
Corp. increased its ownership stake by 10% in the bank from 33% to 44%. This was partly offset by
the lower equity earnings from its telecom unit, Globe Telecom (Globe). Equity earnings from Globe
registered a 29% decline versus last year due to the impact of the accelerated depreciation arising
from its network modernization program.
Interest and Other Income
Consolidated interest income increased by 40% to P4.6 billion million mainly due to higher interest
income from cash and cash equivalents of Ayala Land and international businesses. This was partly
offset by the decline in interest income arising from lower investible funds at the parent company as
well as at Manila Water.
Other Income declined by 16% to P8.4 billion as the company recognized a gain realized from Ayala’s
exchange of ownership in Arch Capital Management with the Rohatyn Group as well as the bargain
purchase gain realized from IMI’s acquisition of the EPIQ group in 2011.
Costs and Expenses
Consolidated cost of sale of goods and services increased by 20% to nearly P78.3 billion with growth
largely in line with the increase in sales of the real estate, electronics, and automotive businesses. In
the meantime, consolidated General and Administrative Expenses (GAE) rose by 15% to P12.8 billion
mainly from higher manpower costs across the group. The increase in GAE was also due to higher
maintenance and power costs relating to the expansion of facilities, particularly of Manila Water.
Interest and Other Financing Charges
Consolidated interest and other financing charges increased by 25% to P8.2 billion mainly due to
higher short-term and long-term debt of Ayala Land for its land banking initiatives and other projects.
Other charges, however declined by 13% to P6.9 billion as the prior year reflected impairment and
other losses recognized by IMI and Manila Water.
Balance Sheet Highlights
Consolidated cash and cash equivalents grew by 43% to P80.3 billion as of the end of 2012 from
P56.3 billion at the beginning of the year. The increase was due to proceeds from new loans and the
bond offerings by the parent company and Ayala Land. The placement of AC parent company’s and
Ayala Land’s treasury shares likewise contributed to the higher consolidated cash balance.
Short-term investments declined by 82% to P297 million following the maturities of investments that
were in turn used to retire loans at the parent company or were deployed for the operations of the
water business and for property acquisitions at Ayala Land.
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Accounts receivable expanded by 29% to P42.5 billion mainly as a result of higher real estate sales
and improved sales of the water as well as the automotive groups. Overall, total current assets
increased by 39% to P179.0 billion.
Total non-current assets rose by 38% to P331.9 billion from P240.1 billion the prior year. This was
mainly accounted for by the significant increases in Land and Improvements, long-term Investments,
and Property, Plant and Equipment. Land and Improvements more than doubled to P49.2 billion as a
result of the increased land banking activities and increased number of new projects of Ayala Land.
Similarly, Investments Properties also grew by 20% to P52.5 billion mainly from new acquisitions and
developments of the real estate group.
Investments in associates, joint ventures and others also rose by 35% to P106.2 billion as the parent
company made additional investments in line with its initiatives in the power sector and as it increased
its stake in BPI from 33% to 44%. Higher equity earnings from associates also contributed to the
increase.
Finally, Property and Equipment increased by 64% to P23.0 billion as a result of the higher capital
expenditures of the real estate group particularly for improvements in its facilities and hotel
operations.
On the liabilities side, total current liabilities expanded by 68% to P122.6 billion. This was due largely
to the increase in Ayala Land’s customer deposits, project cost accruals, and payables from its
various real estate projects. The increase also included the P12.8 billion balance payable for the 10%
stake in BPI which Ayala Corporation acquired from the Development Bank of Singapore last October
2012.
Consolidated debt grew by 57% to P175.1 billion as of the end of the year from P111.3 billion at the
start of the year due to the increase in loans at the parent level and at Ayala Land. Ayala parent
company issued last May 2012 a 10-billion peso 15-year corporate bond. Subsequently, it issued a
10-billion peso 7-year corporate bond in November of 2012 to fund new investments mainly in the
power and transport infrastructure sectors. Ayala Land likewise issued a P15 billion peso 10-year
corporate bond last April 2012 as well as in October 2012 as it continued to gear-up for its land
acquisition and development plans.
Total stockholders’ equity reached P206.4 billion. Consolidated current ratio and debt to equity ratio
remained healthy at 1.46x and 1.41x, respectively as of the end of 2012. Consolidated net debt to
equity ratio was at 0.76 to 1 while net debt to equity at the parent level was at 0.21 to 1.
Key performance indicators of the Company and its significant subsidiaries
The table sets forth the comparative key performance indicators of the Company and its significant
subsidiaries.
Ayala Corporation (Consolidated)
(In million pesos, except ratios)
Income
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
2012
(As restated4)
130,571
10,504
510,904
175,085
124,098
1.46
1.41
2011
(As restated4)
110,828
9,183
369,039
111,268
106,353
1.76
1.05
2010
98,071
11,161
315,370
82,836
107,541
1.89
0.77
102
Ayala Land, Inc.
(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
2012
(As restated4)
59,932
9,038
254,550
74,778
81,993
1.41
0.91
2011
(As restated4)
47,668
7,140
166,399
39,041
62,184
1.64
0.63
2012
(As restated4)
661,850
5,585
453,353
109,707
193,817
1.56
0.57
2011
(As restated4)
575,454
3,255
441,885
99,407
185,421
1.51
0.54
2010
37,813
5,458
121,675
20,971
56,857
1.67
0.37
Integrated Micro-Electronics, Inc.
(In thousand US dollars, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
2010
412,327
4,739
339,083
55,922
169,291
1.23
0.33
Manila Water Company, Inc.
(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
2012
(As restated4)
14,553
5,490
67,127
24,071
26,488
0.83
0.91
2011
(As restated4)
12,004
4,270
60,897
23,268
22,538
1.24
1.03
2010
11,013
3,979
48,621
14,133
19,815
0.98
0.71
1
Stockholders’ Equity attributable to owners of the Parent
Current Asset/Current Liabilities
1
Total Debt/ Stockholders’ Equity (Total Debt includes short-term debt, long-term debt and current portion of long-term debt).
4
Restatement in Y2012 and Y2011 pertains to impact of the adoption of new accounting standards on employee benefits (PAS
19) and consolidation (PFRS 10).
2
3
In general, the Company posted strong results with marked improvements in most of the performance
indicators. Brought by growing overall economic activities, significant output from the Company’s key
business segments and growth initiatives in certain identified industries like power and infrastructure,
the above key indicators were within targeted levels.
Net income to equity holders showed double-digit growth on strong revenues across all business
segments and steady earnings from associates.
The marked improvements in balance sheet items (total assets and debt) were results of focused and
relevant financial management. The Company will continue to adopt the following benchmarks: a)
current ratio of not lower than 0.5:1.0; and b) debt to equity ratio not to exceed 3.0:1.0, both supported
by well-defined and responsive debt management policies.
There are no known trends, events or uncertainties that will result in the Company’s liquidity
increasing or decreasing in a material way.
There were no events that will trigger direct or contingent financial obligation that is material to the
Company, including any default or acceleration of an obligation.
Likewise, there were no material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Company with unconsolidated entities or other
persons created during the reporting period.
103
At the holding company level, Ayala Corporation has allocated P22.8 billion for identified capital
expenditure projects in 2013. The Company is prepared to increase this should there be strategic
opportunities to expand. The Company has sufficient internal cash, which amounted to P37.2 billion
as of year-end 2012.
There are no seasonal aspects that may have a material effect on the financial condition of the
Company.
Causes for Any Material Changes
(Increase or decrease of 5% or more in the financial statements)
Balance Sheet Items
As of December 31, 2012 (As restated) Vs. December 31, 2011 (As restated)
Cash and cash equivalents – 43% increase from P56,297 million to P80,286 million
Increase due to new loans, bond offering and issuance of new shares of AC parent and the real
estate group; partly offset mainly by hike in investments in financial services and insurance, energy
and infrastructure sectors by AC parent and launching of new projects by the real estate group. This
account is at 16% and 15% of the total assets as of December 31, 2012 and 2011, respectively.
Short-term investments – 82% decrease from P1,613 million to P297 million
Decrease due to maturities of short-term investments, hence, used to pay off loans of AC parent,
operations of water distribution and wastewater services and fund property acquisition and launching
of new projects by the real estate. This account is less than 1% of the total assets as of December
31, 2012 and 2011.
Accounts and notes receivable (current) – 29% increase from P32,885 million to P42,550 million
Increase due to the higher sales of the real estate, automotive and water services groups. This
account is at 8% and 9% of the total assets as of December 31, 2012 and 2011, respectively.
Inventories – 16% increase from P28,797 million to P33,269 million
Increase primarily due to launching of new projects of the real estate group. This account is at 7%
and 8% of the total assets as of December 31, 2012 and 2011, respectively.
Other current assets – 141% increase from P9,385 million to P22,652 million
Increase due to the higher prepayments for property acquisition and increase in materials of the real
estate group as well as increase in investments of the international group. This account is at 4% and
2% of the total assets as of December 31, 2012 and 2011, respectively.
Accounts and notes receivable (noncurrent) – 109% increase from P8,551 million to P17,881 million
Increase due to the higher sales of the real estate group. This account is at 3% and 2% of the total
assets as of December 31, 2012 and 2011, respectively.
Investments in bonds and other securities – 13% decrease from P3,745 million to P3,244 million
Decrease due to maturities and also redemption of investments by the real estate and water
distribution and wastewater services groups partially offset by certain new investments of the
international operations group. This account is at 1% of the total assets as of December 31, 2012 and
2011.
Land and improvements – 166% increase from P18,531 million to P49,218 million
Increase due primarily to the higher land banking and new projects of real estate group. This account
is at 10% and 5% of the total assets as of December 31, 2012 and 2011, respectively.
Investments in associates and joint ventures – 38% increase from P74,785 million to P102,939 million
Mainly due to additional investments made by AC parent plus equity in earnings from associates
during the year. This account is at 20% of the total assets as of December 31, 2012 and 2011.
Investment properties – 20% increase from P43,545 million to P52,449 million
Increase due to the new acquisitions and developments of the real estate group. This account is at
10% and 12% of the total assets as of December 31, 2012 and 2011, respectively.
104
Property, plant and equipment – 64% increase from P14,052 million to P23,002 million
Increase is traceable to capital expenditures of the real estate group, mainly on improvements in
facilities of hotel operations. This account is at 4% of the total assets as of December 31, 2012 and
2011.
Service concession assets – 8% increase from P66,247 million to P71,295 million
Increase due to additional rehabilitation works during the year of the water distribution and wastewater
services group and AC parent. This account is at 14% and 18% of the total assets as of December
31, 2012 and 2011, respectively.
Deferred tax asset - 35% increase from P3,365 million to P4,547 million
Increase mainly attributable to better operations of the real estate and water distribution and
wastewater services groups. This account is at less than 1% of the total assets as of December 31,
2012 and 2011.
Accounts payable and accrued expenses - 60% increase from P51,060 million to P81,901 million
Increase mainly caused by higher trade payables of the real estate group for its better operations and
payable balance for an investment by AC parent. This account is at 27% and 26% of the total
liabilities as of December 31, 2012 and 2011, respectively.
Short-term debt – 68% increase from P7,334 million to P12,343 million
Mainly due to new loan availments of the real estate group to support property acquisitions and
automotive group for higher vehicle inventory. This account is at 4% of the total liabilities as of
December 31, 2012 and 2011.
Income tax payable – 206% increase from P483 million to P1,481 million
Higher taxable income of the real estate and water distribution and wastewater services groups. As a
percentage to total liabilities, this account is less than 1% as of December 31, 2012 and 2011.
Long-term debt (current) – 144% increase from P7,805 million to P19,021 million
Mainly due to new loans of the AC parent, water distribution and wastewater services, international
groups and the real estate group to fund property acquisitions and investment initiatives in energy and
infrastructure. As of December 31, 2012 and 2011, current portion of long-term debt is at 6% and 4%
of the total liabilities, respectively.
Service concession obligation (current) – 14% decrease from P981 million to P841 million
Decrease was mainly due to lower computed and actual obligation due within one year. This account
is at less than 1% of the total liabilities as of December 31, 2012 and 2011.
Other current liabilities – 28% increase from P5,432 million to P6,970 million
Largely on account of increase in customer’s and tenant’s deposit of the real estate group. This
account stood at 2% and 3% of the total liabilities as of December 31, 2012 and 2011, respectively.
Long-term debt (noncurrent) - 50% increase from P96,130 million to P143,720 million
Increase mainly on account of new loans of the real estate group and AC parent to fund property
acquisition and new investment trusts. This account is at 47% and 49% of the total liabilities as of
December 31, 2012 and 2011, respectively.
Service concession obligation (noncurrent) – 7% increase from P6,917 million to P7,372 million
Increase was mainly due to higher computed and actual obligation due after one year. This account
is at 2% and 4% of the total liabilities as of December 31, 2012 and 2011, respectively.
Pension liabilities – 57% increase from P1,010 million to P1,583 million
Increase attributable to the effect of PAS 19- immediate recognition of past service cost and remeasurement of unrealized actuarial gains or losses. This account is at less than 1% of the total
liabilities as of December 31, 2012 and 2011.
Other noncurrent liabilities – 104% increase from P11,282 million to P22,975 million
Largely on account of increase in customer’s and tenant’s deposit of the real estate and water
distribution and wastewater services group. This account is at 8% and 6% of the total liabilities as of
December 31, 2012 and 2011, respectively.
Share-based payments - 10% decrease from P554 million to P498 million
Mainly due to movements in or conversion of the share-based payments of AC parent.
105
Retained earnings – 10% increase from P75,651 million to P83,268 million
Mainly due to higher net earnings of most of the subsidiaries and associates of AC parent.
Cumulative translation adjustments - 40% decrease from negative P2,311 million to negative P3,238
million
Mainly due to decrease in the foreign exchange translation (due to appreciation of Peso from 43.84 in
2011 to 41.05 in 2012) of foreign denominated securities held by the financial services and insurance
group.
Net unrealized gain on available-for-sale financial assets (including remeasurement gains/losses on
defined benefit plans) – 33% decrease from P1,269 million to P856 million
Mainly due to decrease in the market value of securities held by the financial services and insurance
group.
Income Statement items
For the Year Ended December 31, 2012 (As restated) Vs. December 31, 2011 (As restated)
Sale of goods – 24% increase from P55,955 million to P69,335 million
Mainly on account of improved sales performance of real estate (across all segments), electronics
groups (inclusion of Europe & Mexico subsidiaries’ operations) and automotive group (availability of
stocks vs. low units due to disasters in Thailand and Japan). As a percentage to total income, this
account is at 53% and 50% in 2012 and 2011, respectively.
Rendering of services – 18% increase from P34,491 million to P40,554 million
Improved sales performance of real estate (leasing segment) and water distribution and wastewater
services (increase in volume and tariff rate) groups. As a percentage to total income, this account is
at 31% in 2012 and 2011.
Share of profit of associates and joint ventures – 9% increase from P7,046 million to P7,682 million
Increase mainly due to earnings of financial services and insurance partly offset by lower income
registered by investees in telecommunications and international operations groups. As a percentage
to total income, this account is at 6% in 2012 and 2011.
Interest income – 40% increase from P3,317 million to P4,632 million
Mainly due to higher interest income from cash and cash equivalents of the real estate and
international operations groups partially offset by the decline arising from lower investible funds by AC
parent and the water distribution and wastewater services group. This account is at 4% and 3% of the
total income in 2012 and 2011, respectively.
Other income – 16% decrease from P10,018 million to P8,367 million
Decline mainly due to absence in 2012 of the 2011 gains resulting from investment transactions of the
international group and lower rehabilitation works of the water distribution and wastewater services
group. This account is at 6% and 9% of the total income in 2012 and 2011, respectively.
Cost of sales – 25% increase from P44,145 million to P55,285 million
Increase attributable to higher sales of the real estate, electronics and automotive groups. As a
percentage to total costs and expenses, this account is at 52% to 49% in 2012 and 2011,
respectively.
Cost of rendering services – 11% increase from P20,791 million to P22,990 million
Increase mainly due to higher sales of rendering services by the real estate and electronics groups.
As a percentage to total costs and expenses, this account is at 22% to 23% in 2012 and 2011,
respectively.
General and administrative expenses – 15% increase from P11,090 million to P12,772 million
Increase mainly on account of higher manpower costs across the groups. This expense classification
accounts for 12% of the total costs and expenses in 2012 and 2011.
Interest and other financing charges – 25% increase from P6,535 million to P8,155 million
Increase mainly due to higher short-term and long-term debt of the real estate group. This expense
classification accounts for 8% and 7% of the total costs and expenses in 2012 and 2011, respectively.
106
Other charges – 13% decrease from P7,933 million to P6,893 million
Decrease mainly due to absence in 2012 of the 2011 impairment and other losses of the water
distribution and wastewater services and electronics groups and lower rehabilitation costs of the water
distribution and wastewater services group. This expense classification accounts for 7% and 9% of
the total costs and expenses in 2012 and 2011, respectively.
Provision for income tax – 18% increase from P4,227 million to P4,976 million
Primarily due to higher taxable income of the several subsidiaries significant part of which comes from
real estate and water distribution and wastewater services groups on account of better sales and
other operating results.
Noncontrolling interests – 30% increase from P6,923 million to P8,995 million
Attributable to the favorable performance of the real estate and water distribution and wastewater
services groups in 2012.
2011
Ayala Corporation’s consolidated revenues reached P110.8 billion in 2011, 13% higher than full year
consolidated revenues in 2010 of P98.1 billion. The bulk of this was accounted for by Sales of Goods
and Services which made up 81.6% of total revenues.
Sale of Goods and Services grew by 10.2% to P90.4 billion mainly due to higher sales of Ayala Land,
Inc. (ALI) and Integrated Microelectronics, Inc. (IMI) as well as the full year impact of the consolidation
of Manila Water Co., Inc. (MWC) versus only ten months in 2010. This was partly offset, however, by
lower sales of the automotive unit as a result of supply constraints following the impact of the natural
calamities that struck Japan and Thailand in 2011.
ALI registered a 26.1% increase in its consolidated revenues to P47.7 billion, driven by the sustained
growth across all its business segments. Its residential development revenues grew by 29% to P24.0
billion as sales take-up and bookings increased across all its residential brands. Revenues from its
commercial leasing portfolio also grew by 16% to P7.4 billion driven by the increase in occupied gross
leasable area (GLA) of its malls and business process outsourcing (BPO) offices. Occupied retail GLA
expanded to over 1 million square meters by year-end, while occupied BPO GLA expanded by 23% to
over 230,000 square meters. Revenues from Hotels and Resorts likewise increased by 18% with the
full consolidation of the acquisition of El Nido resorts.
Electronics unit IMI saw its consolidated sales revenues improve by 39.6% to US$575.5 million in
2011 from US$412.3 million in 2010. The above-industry average revenue growth was due to
increased turnkey businesses in China, strong growth in the automotive and industrial segments for
the Philippine operations, and additional revenues from PSi Technologies Inc and IMI’s new entities in
Europe and Mexico. The company continued to be affected, however, by the difficult global economic
environment, as well as rising costs of direct labor and materials which continued to put pressure on
operating margins.
MWC also registered a 9% growth in consolidated revenues to P12 billion as a result of higher
average tariff rates and a slight increase in billed volume. MWC’s operating subsidiaries, Laguna AAA
Water Corporation, Boracay Island Water Company and Clark Water Corporation, contributed total
revenues of P307 million, while the project in Vietnam added P169 million to MWC’s consolidated
revenues.
Its auto unit, Ayala Automotive, however recorded lower revenues in 2011 as sales were impacted by
supply disruptions following the natural disasters that hit Japan and Thailand. Revenues declined by
23% to P8.8 billion in 2011.
Ayala’s share in the net earnings of associates and joint ventures grew by 15% to P7 billion. The
increase was mainly due to higher equity share in the net earnings of its banking unit, Bank of the
Philippines Islands (BPI), as well as lower equity losses from LiveIt Investments, its holding company
for its BPO investments.
BPI posted a net income attributable to equity holders of BPI of P12.9 billion for full year 2011, a 14%
increase over the P11.3 billion earnings it reported in 2010. This was mainly on the back of a 9%
growth in revenues as net interest income improved by 9% due to a healthy growth in average asset
107
base and a slight expansion in net interest margin. Non-interest income also increased by 8%. The
bank’s loan growth was strong as it grew by 20% during the year driven by all market segments.
Telecom unit, Globe Telecom, reported stable net income of P9.8 billion in 2011, 1% higher than last
year’s P9.7 billion. The latter included a one-time upward adjustment of P526 million from prepaid
load credits that have either expired or have been used up. Core net income, however, which
excludes foreign exchange and mark-to-market gains and losses, as well as non-recurring items, was
up by 11% to P10.0 billion from P9.1 billion the prior year. Globe continued its upward momentum as
it hit record consolidated service revenues of P67.8 billion, up 8% against prior year and significantly
outperforming the industry’s modest 1% growth during the period.
LiveIt Investments, which has investments in four BPO companies, saw significant improvement in
2011. The company achieved significant growth in its share of revenues and EBITDA. Full year share
of revenues were US$318 million, up 16% year-on-year due to growth across all the 4 investee
companies. Full year share of EBITDA was US$25 million, up 63% as a result of greater scale and
operational efficiencies. LiveIt recorded a full year net loss of US$18 million, which represents an
improvement of US$14 million over 2010’s net loss, after excluding the 2010 non-cash net revaluation
gain of $37 Million due largely to the investment of Actis in Integreon. The net loss in 2011 included
US$22 million in non-operating items such as non-cash amortization of intangibles related to
acquisitions and interest expense for the leveraged buyout of Stream.
Ayala’s consolidated interest income increased by 31.6% to P3.3 billion mainly due to higher funds
invested by ALI and MWC. Other income also increased by 36% to P3.3 billion in 2011 versus as
2010 which included an extraordinary gain of P6.4 billion. This was from the revaluation gain on
Ayala’s investment in Manila Water after it increased its stake in the company. In addition, LiveIt also
recognized a revaluation gain after the buy-in of a private entity into Integreon.
Consolidated costs and expenses reached P90.5 billion, 14% higher versus 2010. Cost of sales and
services increased by 5.8% to nearly P64.9 billion in line with the growth in consolidated sales and
services. Consolidated general and administrative expenses declined slightly to P11.1 billion from
P11.0 billion the prior year. Interest and other financing charges grew by 37.4% to P6.5 billion mainly
due to higher interest expense as a result of higher loan balances at the parent company as well as
subsidiaries ALI and MWC.
These resulted in a consolidated net income of P16.1 billion. Excluding minority interest, net income
attributable to the parent company was at P9.2 billion, 17.7% lower than reported net income in 2010
of P11.2 billion. Excluding extraordinary net gains in 2010 of P3.6 billion and in 2011 of around P600
million which arose from the gains realized from the exchange in ownership in Arch Capital and Arch
Capital Asian Partners with The Rohatyn Group as well as the non-cash revaluation gain realized
from IMI’s acquisition of the EPIQ group, core net income was at P8.8 billion, 16% higher than 2010’s
core net income of P7.6 billion.
Ayala’s balance sheet remains very strong. Current assets rose by 19% on a consolidated basis to
P129.0 billion largely due to higher inventory of new projects of ALI and IMI’s acquisition of EPIQ.
Accounts receivables likewise increased in these two subsidiaries. Cash and short term investments
combined was at P57.9 billion by year-end 2011, slightly lower than the P57.1 billion at the start of the
year. Consolidated current ratio at year-end stood at 1.76 times versus 1.89 the prior year.
Consolidated non-current assets grew by 16.0% to P240.1 billion as a result of higher equity share in
the net income of associates and joint ventures as well as new investments made in the power sector.
Higher property, plant, and equipment also partly contributed to the increase in non-current assets.
Total consolidated liabilities increased by 30.9% to P194.6 billion mainly due to higher loans of ALI,
MWC, IMI and the parent company as they pursue their expansion plans. Notwithstanding this,
consolidated net debt to equity ratio stood at 0.50 to 1. Return on equity at year-end was at 8.6%.
Capital expenditure reached P65 billion in 2011 across the group. This is expected to increase by
38% in 2012 with group capex estimated at P91 billion. The bulk of this is for real estate development,
network improvement in its telecom unit, acquisitions as well as investments in its water business, and
new investments in the power and transport infrastructure sectors.
108
Key performance indicators of the Company and its significant subsidiaries
The table sets forth the comparative key performance indicators of the Company and its significant
subsidiaries.
Ayala Corporation (Consolidated)
(In million pesos, except ratios)
Income
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
2011
(As restated4)
110,828
9,183
369,039
111,268
106,353
1.76
1.05
2010
98,071
11,161
315,370
82,836
107,541
1.89
0.77
2009
76,293
8,154
232,149
56,523
102,260
2.57
0.55
2011
(As restated4)
47,668
7,140
166,399
39,041
62,184
1.64
0.63
2010
37,813
5,458
121,675
20,971
56,857
1.67
0.37
2009
30,455
4,039
107,741
18,812
52,392
1.95
0.36
2011
(As restated4)
575,454
3,255
441,885
99,407
185,421
1.51
0.54
2010
412,327
4,739
339,083
55,922
169,291
1.23
0.33
2009
395,502
10,066
302,082
48,302
166,690
1.89
0.29
2011
(As restated4)
12,004
4,270
60,897
23,268
22,538
1.24
1.03
2010
11,013
3,979
48,621
14,133
19,815
0.98
0.71
Ayala Land, Inc.
(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
Integrated Micro-Electronics, Inc.
(In thousand US dollars, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
Manila Water Company, Inc.
(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
1
Stockholders' Equity attributable to owners of the Parent.
2
Current Assets/ Current Liabilities.
3
Total Debt/ Stockholders' Equity (Total Debt includes short-term debt, long-term debt and current portion of long-term debt).
4
Restatement in Y2012 and Y2011 pertains to impact of the adoption of new accounting standards on employee benefits (PAS 19)
1
and consolidation (PFRS 10).
In general, the Company posted stable results with the improvements in most of the performance
indicators. Buoyed by growing overall economic activities and the Company’s growth initiatives in
certain identified industries, the above key indicators were within targeted levels.
109
Net income to equity holders, after factoring out the extraordinary gains in 2010, showed significant
growth on strong revenues.
The marked improvements in balance sheet items (total assets and debt) were results of focused
financial management. The Company will continue to adopt the following benchmarks: a) current ratio
of not lower than 0.5:1.0; and b) debt to equity ratio not to exceed 3.0:1.0, both supported by prudent
debt management policies.
There are no known trends, events or uncertainties that will result in the Company’s liquidity
increasing or decreasing in a material way.
There were no events that will trigger direct or contingent financial obligation that is material to the
Company, including any default or acceleration of an obligation.
Likewise, there were no material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Company with unconsolidated entities or other
persons created during the reporting period.
At the holding company level, Ayala Corp. has allocated P7.0billion for identified capital expenditure
projects in 2012. The Company is prepared to increase this should there be strategic opportunities to
expand. The Company has sufficient internal cash, which amounted to P17.2 billion as of year-end
2011.
There are no seasonal aspects that may have a material effect on the financial condition of the
Company.
Balance Sheet Items
As of December 31, 2011 (As restated) Vs. December 31, 2010
Short-term investments – 60% decrease from P3,994mln to P1,613mln
Decrease due to liquidation of short-term investments to fund property acquisition and launching of
new projects by the real estate and water distribution and wastewater services groups. This account is
at 1% of the total assets as of December 31, 2011 and 2010, respectively.
Accounts receivable (current) – 27% increase from P25,935mln to P32,885mln
Increase due to the higher sales of the real estate, electronics and water distribution and wastewater
services groups; combined with acquisition of new subsidiaries of the electronics group. This account
is at 9% and 8% of the total assets as of December 31, 2011 and 2010, respectively.
Inventories – 57% increase from P18,375mln to P28,797mln
Increase due to the reclassification from land and improvements to saleable inventories and
developments in new and existing projects of the real estate group. Also contributing is the higher
inventory of the electronics manufacturing group as it acquired new operating subsidiaries. This
account is at 8% and 6% of the total assets as of December 31, 2011 and 2010, respectively.
Other current assets – 36% increase from P6,912mln to P9,385mln
Increase due to the higher prepaid expenses arising from new projects offset by matured fixed income
securities of the real estate group; acquisition of certain investments of the international group. This
account is at 2% of the total assets as of December 31, 2011 and 2010.
Accounts receivable (non-current) – 78% increase from P4,793mln to P8,551mln
Increase due primarily to the higher sales of the real estate group; and water distribution and
wastewater services group’s acquisition of a subsidiary. This account is at 2% of the total assets as of
December 31, 2011 and 2010.
Land and improvements – 13% increase from P16,434mln to P18,531mln
Increase due primarily to the higher land banking and new projects of real estate group. This account
is at 5% of the total assets as of December 31, 2011 and 2010.
Investment in associates and joint ventures– 4% increase from P72,005mln to P74,785mln
Increase is attributable to the 2011 equity earnings from telecommunications and financial services
group, coupled with new investments of the real estate, water distribution and wastewater services
and energy power groups; partly offset by dividends received from these companies. This account is
at 20% and 23% of the total assets as of December 31, 2011 and 2010
110
Investment in bonds and other securities – 23% decrease from P4,854mln to P3,745mln
Decrease due primarily to redemption of certain investment shares of the water distribution and
wastewater services group and return of investment made by the international group. This account is
at 1% and 2% of the total assets as of December 31, 2011 and 2010.
Investment in real properties – 48% increase from P29,488mln to P43.545mln
Increase due primarily to expansion and new projects of real estate group. This account is at 12% and
9% of the total assets as of December 31, 2011 and 2010.
Property and equipment – 20% increase from P11,699mln to P14.052mln
Increase is traceable to capital expenditures of the real estate group; and expansion projects and
acquisition of a new subsidiary of the electronics group. This account is at less than 4% of the total
assets as of December 31, 2011 and 2010.
Service concession asset – 12% increase from P59,098mln to P66,247mln
Increase due primarily to expansion of service areas and launching of related projects of water
distribution and wastewater services group. This account is at 18% and 19% of the total assets as of
December 31, 2011 and 2010, respectively.
Intangible assets – 39% increase from P3,114mln to P4,312mln
Mainly due to recording of preliminary goodwill arising from acquisition of subsidiaries under
information technology & business process, electronics and others (energy/power) groups. As of
December 31, 2011 and 2010, this account is at less than 1% of the total assets.
Deferred tax assets – 22% increase from P2,749mln to P3,365mln
Mainly due to higher service works and projects of the water distribution and wastewater services
group. As of December 31, 2011 and 2010, this account is at less than 1% of the total assets.
Other non-current assets – 13% increase from P2,587mln to P2,928mln
Mainly caused by higher deposits of the real estate group. As of December 31, 2011 and 2010, this
account is at less than 1% of the total assets.
Accounts payable and accrued expenses – 35% increase from P37,713mln to P51,060ml
Primarily due to increase in payables of the real estate group arising from new projects and
expansion; and higher payables due to better operations of water distribution and wastewater services
group and inclusion of accounts of a newly acquired subsidiary of the electronics manufacturing
group. This account is at 26% and 25%of the total liabilities as of December 31, 2011 and 2010,
respectively.
Short-term debt – 62% increase from P4,519mln to P7,334mln
Mainly due to by new loan availments of the real estate and electronics manufacturing groups to
support higher inventory purchases; plus inclusion of accounts of the newly acquired subsidiary of
the electronics group; partially offset by lower loan balance of international operations group. Shortterm debt remained at 4% and 3% of the total assets as of December 31, 2011 and 2010,
respectively.
Income tax payable – 10% increase from P441mln to P483mln
Higher taxable income of most of the real estate group. As a percentage to total liabilities, this
account is at 0.3% as of December 31, 2011 and 2010.
Current portion of long-term debt – 31% decrease from P11,237mln to P7,805mln
Largely due to payment of matured loans of real estate, electronics manufacturing, water distribution
and wastewater services and other groups; offset partially by reclassification of the parent company’s
debt into current portion. As of December 31, 2011 and 2010, current portion of long-term debt is at
4% and 8% of the total liabilities, respectively.
Service concession obligation – current portion – 23% increase from P794mln to P981mln
Increase was mainly due to higher computed and actual obligation due within one year. This account
is at less than 1% of the total liabilities as of December 31, 2011 and 2010.
Non-current portion of long-term debt – 43% increase from P67,080mln to P96,130mln
Mainly due to new loans availed/issuance of bonds by the parent company, real estate, electronics
and water distribution and wastewater services groups offset by lower debt level of the international
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operations group due to intercompany elimination . As of December 31, 2011 and 2010, non-current
portion of long-term debt is at 49% and 45% of the total liabilities, respectively.
Pension liabilities – 196% increase from P341mln to P1,010mln
Largely on account of increase in water distribution and wastewater services group. This account
stood at less than 1% of the total liabilities as of December 30, 2011 and 2010.
Paid-up capital – 13% increase from P37,855mln to P42,833mln
Mainly due to this year’s 20% stock dividends declared and exercise of ESOP/ESOWN. This account
stood at 25% of total equity.
Share-based payments – 55% decrease from P1,243mln to P554mln
Mainly due to reclassification of share in the share-based payments of the subsidiaries into non
controlling interest account.
Cumulative translation adjustment – 31% decrease from negative P1,763mln to negative P2,311mln
Mainly due to higher balances of the information technology and BPO services and electronics
groups.
Equity Reserve – 585% increase from P148mln to P1,016mln
Increase due to movements in ownership in the companies under the real estate, electronics and
water distribution and wastewater services groups.
Net unrealized gain on available-for-sale financial assets – 53% increase from P1,129mln to
P1,725mln
Mainly due to increase in the market value of securities held by the financial services group.
Treasury stock – 157% increase from P4,832mln to P12,409mln
Mainly due to share buy-back program and the redemption of Preferred shares of the company.
Noncontrolling interest – 15% increase from P59,210mln to P68,116mln
Share in 2011 operational results of the real estate and water distribution and wastewater services
group. This account stood at 39% of total equity.
Income Statement items
For the Year Ended December 31, 2011 (As restated) Vs. December 31, 2010
Sale of goods – 20% increase from P46,531mln to P55,955mln
Improved sales performance of real estate and electronics groups; offset by lower sales performance
of the automotive and others group mainly due to shortage of vehicle supply. As a percentage to total
income, sale of goods is at 50% to 47% in 2010 and 2011, respectively.
Equity in net earnings of associates and jointly ventures – 15% increase from P6,124mln to
P7,046mln
Increase mainly due to earnings of financial services and telecommunications groups; coupled with
lower net loss registered by investees of international and information technology and BPO Services
groups. As a percentage to total income, this account is 6% in 2010 and 2011.
Interest income – 32% increase from P2,521mln to P3,317mln
Improved income arising from higher investible funds by real estate and water distribution and
wastewater services groups. This account is 3% of the total income in 2011 and 2010.
Other income – 36% increase from P7,347mln to P9,689mln
Increase was due to full year impact of rehabilitation works income by the water distribution and
wastewater services group; offset partially by gains resulting from change in accounting for
investments in the water distribution and wastewater services companies owned by the Parent
Company and a former subsidiary in IT and BPO services group booked in 2010. This account is at
9% and 7% of the total income in 2011 and in 2010, respectively.
Cost of sales – 19% increase from P36,957mln to P44,145mln
Increase attributable to higher sales of the real estate and electronics; offset partially by lower costs of
automotive and others group. As a percentage to total costs and expenses, sale of goods is at 49%
and 47% in 2010 and 2011, respectively.
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Cost of rendering of services – 15% decrease from P24,395mln to P20,791mln
Mainly due to reclassification made between cost of sales and services. As a percentage to total
costs and expenses, rendering of services is 23% and 31% in 2010 and 2011, respectively.
Interest expense and other financing charges – 37% increase from P4,756mln to P6,535mln
Increase mainly due to higher borrowings of the parent company, real estate and water distribution
and wastewater services groups. This expense classification accounts for 7% and 6% of costs and
expenses in 2011 and 2010.
Other charges – 283% increase from P2,072mln to P7,933mln
Increase mainly on account of full year impact of rehabilitation works costs of the water distribution
and wastewater services group; offset partially by provisions by the international group in 2010. This
expense classification accounts for 9% and 3% of costs and expenses for 2011 and 2010,
respectively.
Provision for income tax – 46% increase from P2,900mln to P4,227mln
Primarily due to higher taxable income of the several subsidiaries significant part of which comes from
real estate, electronics and water distribution and wastewater services groups on account of better
sales and other operating results.
Noncontrolling interests – 43% increase from P4,825mln to P6,923mln
Attributable to the favorable performance of the real estate and water distribution and wastewater
services groups in 2011.
Item 7. Financial Statements and Supplementary Schedules
The consolidated financial statements and schedules as listed in the accompanying Index to Financial
Statements and Supplementary Schedules are filed as part of this Form 17 A.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
The accounting policies and methods of computations adopted in the preparation of the consolidated
financial statements are consistent with those of the previous financial years, except for the adoption of
the new and amended standards as of January 1, 2013. Please refer to Note 3 of the Company’s
Consolidated Financial Statements as well as Annex K of this SEC17A report regarding summary of
significant accounting policies as of December 31, 2013.
The Company has engaged the services of SGV & Co. during the two most recent fiscal years. There
are no disagreements with SGV & Co. on accounting and financial disclosure.
Information on Independent Public Accountant
a. The external auditor of the Company is the accounting firm of SyCip, Gorres, Velayo & Company
(SGV & Co.). The same accounting firm is being recommended for appointment as external
auditor at the annual meeting.
b.
Representatives of SGV & Co. for the current year and for the most recently completed fiscal year
are expected to be present at the annual stockholders’ meeting. They will have the opportunity to
make a statement if they desire to do so and are expected to be available to respond to
appropriate questions.
Pursuant to the General Requirements of SRC Rule 68 (2011 Amended), Par. 3 (Qualifications
and Reports of Independent Auditors), the Company has engaged SGV & Co. as external auditor,
and Ms. Jessie D. Cabaluna has been the Partner In-Charge effective audit year 2012.
External Audit Fees and Services
The Company paid or accrued the following fees, including VAT, to its external auditors in the past two
years:
Audit & Audit-related Fees
Tax Fees
Other Fees
2013
P9.74 M
P0.60 M
2012
P11.09 M
P2.21 M
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SGV & Co. was engaged by the Company to audit its annual financial statements. SGV & Co. was
also engaged to conduct post reviews and other procedures to issue comfort letters for the Company
and the Underwriters for the issuance of the P10 Billion 6.875% Bonds due 2027 and P10 Billion
5.450% Bonds due 2019 in 2012 and for the offering of the Company’s preferred “B” Shares in 2013.
No tax consultancy services were secured from SGV & Co. for the past two years.
In 2013, SGV & Co. billed the Company for an aggregate fee of P0.60M for the following services:
i. Updates on Philippine Accounting and Reporting Standards for the entire group of companies and
IFRIC 12 (Service Concession) for select entities in the group.
ii. Review of Ayala Rewards Circle (ARC) operational processes
iii. Validation of votes during the 2013 annual stockholders’ meeting
In 2012, SGV & Co. billed the Company for an aggregate fee of P2.21M for the following services:
i. Updates on Philippine Reporting Standards for the entire group of companies
ii. Review of the Hyperion or the Financial Management Automated Consolidation System
The Company’s Audit and Risk Committee (composed of Mr. Loinaz, an independent director, as
Chairman, Mr. del Rosario, Jr., an independent director, as member, and Yoshio Amano, a nonexecutive director as member) recommended to the Board the appointment of SGV & Co. as its
external auditor and the fixing of the audit fees. Likewise, the Audit Committee has reviewed the
nature of all other services rendered by SGV & Co. and the corresponding fees, and concluded that
these do not impair their independence. The stockholders further ratified the resolution of the Board.
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PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Registrant
The following persons have been nominated to the Board for election at the annual stockholders’
meeting and have accepted their nomination:
JAIME AUGUSTO ZOBEL DE AYALA
YOSHIO AMANO
RAMON R. DEL ROSARIO, JR.
DELFIN L. LAZARO
FERNANDO ZOBEL DE AYALA
XAVIER P. LOINAZ
ANTONIO JOSE U. PERIQUET
The nominees were formally nominated to the Nomination Committee of the Board (composed of
Ramon R. Del Rosario, Jr., an independent director, as Chairman, and Jaime Augusto Zobel de
Ayala, Fernando Zobel de Ayala and Antonio Jose U. Periquet as members) by a shareholder of the
Company, Ms. Herminia F. Lopez. Messrs. Ramon R. del Rosario, Jr., Xavier P. Loinaz and Antonio
Jose U. Periquet, all incumbent directors, are being nominated as independent directors. Ms. Lopez
is not related to any of the nominees including Messrs. Loinaz, Del Rosario, and Periquet. The
Nomination Committee evaluated the qualifications of the nominees and prepared the final list of
nominees in accordance with SRC Rule 38 (Requirements on Nomination and Election of
Independent Directors) and the By-laws of the Company.
Only nominees whose names appear on the final list of candidates are eligible for election as
directors. No nominations will be entertained or allowed on the floor during the annual stockholders’
meeting.
Messrs. Jaime Augusto Zobel de Ayala, Fernando Zobel de Ayala, Lazaro and Loinaz have served as
directors of the Company for more than five years. On the other hand, Messrs. Del Rosario, Periquet
and Amano have served as directors of the Company for less than five years.
The officers of the Company are elected annually by the Board during its organizational meeting.
A summary of the qualifications of the incumbent directors, nominees for directors for election at the
stockholders’ meeting and incumbent officers including positions currently held by the directors and
executive officers, as well as positions held during the past five years is set forth below.
Board of Directors
Jaime Augusto Zobel de Ayala
Fernando Zobel de Ayala
Yoshio Amano
Ramon R. del Rosario, Jr.
Delfin L. Lazaro
Xavier P. Loinaz
Antonio Jose U. Periquet
Chairman and Chief Executive Officer
President and Chief Operating Officer
Director
Independent Director
Director
Independent Director
Independent Director
Jaime Augusto Zobel de Ayala, Filipino, 54,Director of Ayala Corporation since May 1987. He is
the Chairman and CEO of Ayala Corporation since April 2006. He also holds the following positions:
Chairman of Globe Telecom, Inc., Integrated Micro-Electronics, Inc. and Bank of the Philippine
Islands; Co-Chairman of Ayala Foundation, Inc.; Vice Chairman of Ayala Land, Inc. and AC Energy
Holdings, Inc.; Chairman of Harvard Business School Asia-Pacific Advisory Board and Asia Business
Council; Vice Chairman of the Makati Business Club, and member of the Harvard Global Advisory
Council, Mitsubishi Corporation International Advisory Committee, JP Morgan International Council,
International Business Council of the World Economic Forum; Philippine Representative for APEC
Business Advisory Council.
Fernando Zobel de Ayala, Filipino, 53, Director of Ayala Corporation since May 1994. He is the
President and Chief Operating Officer of Ayala Corporation since April 2006. He is also Chairman of
Ayala Land, Inc., Manila Water Company, Inc., AC International Finance Ltd., AC Energy Holdings,
Inc., and Hero Foundation, Inc.; Co-Chairman of Ayala Foundation, Inc.;Director of Bank of The
Philippine Islands, Globe Telecom, Inc., Integrated Micro-Electronics, Inc., LiveIt Investments, Ltd.,
Ayala International Holdings Limited, Honda Cars Philippines, Inc., Isuzu Philippines Corporation,
Pilipinas Shell Petroleum Corp., Manila Peninsula and Habitat for Humanity International; Member of
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The Asia Society, INSEAD East Asia Council, Chairman of Habitat for Humanity’s Asia-Pacific Capital
Campaign Steering Committee; and Member of the Board of Trustees of Caritas Manila, Pilipinas
Shell Foundation, Kapit Bisig para sa Ilog Pasig Advisory Board and National Museum.
Yoshio Amano, Japanese, 55, Director of Ayala Corporation since April 2012. He is the General
Manager of Mitsubishi Corporation-Manila Branch; Chairman of International Elevator & Equipment
Inc., and MCPL (Philippines) Inc.; President of MC Diamond Realty Investment Phils., Inc. and MC
Oranbo Investment, Inc.; Director of Isuzu Philippines Corporation, Imasen Philippines Manufacturing
Corp., Kepco Ilijan Corporation, UniCharm Philippines Inc., Trans World Agro-Products Corp.,
Philippine Resins Industries, Inc., Philippine Integrated Energy, Inc., Portico Land Corporation,
Japanese Chamber of Commerce & Industry of the Philippines (JCCIPI), and The Japanese
Association Manila, Inc.
Ramon R. del Rosario, Jr., Filipino, 69, Independent Director of Ayala Corporation since April 2010.
He is the President and Chief Executive Officer of Philippine Investment Management, Inc. and
PHINMA Corp.; Chairman of Araullo University, University of Iloilo, University of Pangasinan,
Cagayan de Oro College, United Pulp and Paper Co., Inc., Microtel Inns and Suites (Pilipinas), Inc.,
Microtel Development Corp., Trans Asia Power Generation Corporation, Trans-Asia Renewable
Energy Corp., Trans-Asia Petroleum Corp., CIP II Power Corp., Fuld & Co., Inc., and Fuld & Co
(Philippines), Inc.; Vice-Chairman of Trans-Asia Oil & Energy Development Corporation, PHINMA
Property Holdings Corp., and PHINMA Foundation; Director of Holcim (Philippines), Inc., Union
Galvasteel Corp., and South Luzon Thermal Energy Corp.; Chairman of The National Museum of the
Philippines, the Makati Business Club, Philippine Business for Education, the Philippines-US
Business Council, and the Integrity Initiative; Vice-Chairman of Caritas Manila; and Trustee of De La
Salle University.
Delfin L. Lazaro, Filipino, 67, Director of Ayala Corporation since January 2007. His other significant
positions include: Chairman of Philwater Holdings Company, Inc., Atlas Fertilizer & Chemicals Inc.,
Chairman and President of Michigan Power, Inc., and A.C.S.T. Business Holdings, Inc.; Chairman of
Azalea Intl. Venture Partners, Ltd.; Director of Ayala Land, Inc., Integrated Micro-Electronics, Inc.,
Manila Water Co., Inc., Ayala DBS Holdings, Inc., AYC Holdings, Ltd., Ayala International Holdings,
Ltd., Bestfull Holdings Limited, AG Holdings, AI North America, Inc., Probe Productions, Inc. and
Empire Insurance Company; and Trustee of Insular Life Assurance Co., Ltd.
Xavier P. Loinaz, Filipino, 70, Independent Director of Ayala Corporation since April 2009. He was
formerly the President of the Bank of the Philippine Islands (BPI) from 1982 to 2004. He was also the
President of Bankers Association of the Philippines from 1989 to 1991. He currently holds the
following positions: Independent Director of BPI, BPI/MS Insurance Corporation, BPI Family Savings
Bank, Inc. and Globe Telecom, Inc.; Trustee of E. Zobel Foundation and PETA; and Chairman of Alay
Kapwa Kilusan Pangkalusugan.
Antonio Jose U. Periquet, Filipino, 52, Independent Director of Ayala Corporation since
September 2010. He is the Chairman of Pacific Main Holdings, Inc., Campden Hill Group, Inc., and
Regis Financial Advisers; Independent Director of ABS-CBN Corporation, ABS-CBN
Holdings Corporation, Straits Wine Company, BPI Capital Corporation, DMCI Holdings, Inc.,
Philippine Seven Corp., Bank of the Philippine Islands, BPI Family Savings Bank, Inc.; and Trustee of
Lyceum of the Philippines University, Inc. He was elected as independent director of Pancake House,
Inc. on February 24, 2014.
Nominees to the Board of Directors for election at the stockholders’ meeting
All the above incumbent directors.
Ayala Group Management Committee Members / Senior Leadership Team
*
*
**
Jaime Augusto Zobel de Ayala
Fernando Zobel de Ayala
Gerardo C. Ablaza, Jr.
**
**
Antonino T. Aquino
Cezar P. Consing
**
Arthur R. Tan
Chairman & Chief Executive Officer
President & Chief Operating Officer
Senior Managing Director, President and CEO of Manila Water
Company, Inc.
Senior Managing Director, President and CEO of Ayala Land, Inc.
Senior Managing Director, President and CEO of Bank of the
Philippine Islands
Senior Managing Director, President and CEO of Integrated MicroElectronics, Inc.
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**
**
Ernest Lawrence L. Cu
Alfredo I. Ayala
**
**
Maria Lourdes Heras-De Leon
John Eric T. Francia
**
**
Delfin C. Gonzalez, Jr.
Solomon M. Hermosura
***
**
****
*****
Ramon G. Opulencia
John Philip S. Orbeta
Ginaflor C. Oris
Ma. Cecilia T. Cruzabra
Josephine G. De Asis
Sheila Marie U. Tan
President and CEO of Globe Telecom, Inc.
Managing Director, Chief Executive Officer of LiveIt Investments,
Ltd.
Managing Director , President of Ayala Foundation, Inc.
Managing Director, Group Head of Corporate Strategy and
Development
Managing Director & Chief Finance Officer
Managing Director, Group Head of Corporate Governance, General
Counsel, Corporate Secretary &Compliance Officer
Managing Director & Treasurer
Managing Director, Group Head of Corporate Resources and
Chairman and President of Ayala Automotive Holdings Corporation
Managing Director
Treasurer
Controller
Assistant Corporate Secretary
* Members of the Board of Directors.
** Management Committee members.
*** Treasurer until December 31, 2013.
**** Treasurer effective January 1, 2014.
*****On leave effective November 1, 2013.
Gerardo C. Ablaza, Jr., Filipino, 60 has served as member of the Management Committee of Ayala
Corporation (Ayala Group) since 1998. He also holds the following positions: President and CEO of
Manila Water Company, Inc; Chairman of AAA Water Corporation, Boracay Island Water Company,
Inc., Cebu Manila Water Development, Inc., Clark Water Corporation, Manila Water Total Solutions
Corp., Manila Water Asia Pacific Pte. Ltd, Manila Water South Asia Holdings Pte. Ltd., Thu Duc Water
Holdings Pte.Ltd., and Kenh Dong Water Holdings Pte.Ltd; Chairman & President of Manila Water
Consortium, Inc. (formerly Northern Waterworks and Rivers of Cebu, Inc.), and Manila Water
International Solutions, Inc.; Vice-Chairman of Laguna AAAWater Corporation; Co-Vice Chairman of
Globe Telecom, Inc.; Director of Azalea International Venture Partners Limited, Asiacom Philippines,
Inc., and LiveIT Investment Ltd.; Member of the Board of Management of Thu Duc Water B.O.O.
Corp; and President of Manila Water Foundation. He was President and CEO of Globe Telecom, Inc.
from 1998 to April 2009. Mr. Ablaza was previously Vice-President and Country Business Manager for
the Philippines and Guam of Citibank, N.A. for its Global Consumer Banking Business. Prior to this
position, he was Vice-President for Consumer Banking of Citibank, N.A. Singapore. Attendant to his
last position in Citibank, N.A., he was the bank’s representative to the board of directors of City Trust
Banking Corporation and its various subsidiaries. In 2004, he was recognized by CNBC as the Asia
Business Leader of the Year, making him the first Filipino CEO to win the award. In the same year, he
was awarded by Telecom Asia as the Best Asian Telecom CEO.
Antonino T. Aquino, Filipino, 66, has served as a member of the Management Committee of Ayala
Corporation (Ayala Group) since August 1998. He also holds the following positions: President of
Ayala Land, Inc.; Chairman of Alveo Land Corp., Cebu Holdings, Inc., Cebu Property Ventures &
Development Corp., Ayala Hotels, Inc., Makati Development Corp., North Triangle Depot Commercial
Corp., and Station Square East Commercial Corp.; Presidentof Fort Bonifacio Development Corp.,
Alabang Commercial Corp., Accendo Commercial Corp., Aurora Properties, Inc., Ceci Realty, Inc.,
and Vesta Property Holdings, Inc.; and Director of Manila Water Company, Inc..He also serves as a
member of the board of various corporate social responsibility foundations such as Ayala Foundation,
Inc., Makati Commercial Estate Association, Inc., Hero Foundation, Inc., and Bonifacio Arts
Foundation, Inc. He also served as President of Manila Water Company, Inc., and Ayala Property
Management Corporation and a Business Unit Manager in IBM Philippines, Inc. He was named “CoManagement Man of the Year 2009” by the Management Association of the Philippines for his
leadership role in a very successful waterworks privatization and public-private sector partnership.
Cezar P. Consing, Filipino, 54, is a Senior Managing Director of Ayala Corporation and President and
CEO of Bank of the Philippine Islands since April 2013. He has been a director of BPI and an
independent director of Jollibee Foods Corporation since 2010. He was a partner at the Rohatyn
Group from 2004 to March 2013; an Investment Banker with J.P. Morgan & Co. from 1985 to 2004;
and an independent director of CIMB Group Holdings Berhad and CIMB Group Sdn. Berhad from
2004 to 2012 and First Gen Corporation from 2005 to 2013.
Arthur R. Tan, Filipino, 54, has been a member of the Management Committee of Ayala Corporation
(Ayala Group) since 2002. He is a Senior Managing Director of the Company since 2007. He has
been the President and Chief Executive Officer of Integrated Micro-Electronics, Inc. since April 2002.
117
Concurrently, he is the President and Chief Executive Officer of PSi Technologies Inc., and President
of Speedy-Tech Electronics Ltd.
Ernest Lawrence L. Cu, Filipino, 53, has been a member of the Management Committee of Ayala
Corporation (Ayala Group) since January 2009. He is the President and Chief Executive Officer of
Globe Telecom, Inc. In 2013, Ernest was the highest ranked Filipino in the Power 100 of Londonbased Global Telecoms Business Magazine that recognizes the 100 most influential telecom leaders
worldwide. He earned international accolade in 2012 as CEO of the Year by Frost & Sullivan Asia
Pacific. In 2010, he was adjudged Best CEO by Finance Asia. He was moreover conferred the
International Association of Business Communicators' (IABC) CEO EXCEL award for communication
excellence in telecoms and IT, and he was also voted as one of the Most Trusted Filipinos in a poll
conducted by Readers Digest. In 2003, he was awarded the Ernst & Young ICT Entrepreneur of the
Year. He is a trustee of Ayala Foundation, Inc., Hero Foundation, Inc., and De La Salle College of St.
Benilde. He is also a director of BPI Globe BanKo,Inc., Systems Technology Institute, Inc., and Prople
BPO, Inc. Prior to joining Globe, he was the President and CEO of SPI Technologies, Inc.
Alfredo I. Ayala, Filipino, 52, has been a Managing Director of Ayala Corporation since June 2006.
He is the Chief Executive Officer of LiveIt Investments, Ltd., the holding company of Ayala
Corporation for its investments in the BPO sector. Currently, he holds the following positions:
Chairman Emeritus of the IT & Business Process Association Philippines (IBPAP), Chairman of
Integreon Managed Solutions (Philippines), Inc.; Vice Chairman of Stream Global Solutions, Inc.; and
Director of NewBridge International Investment Limited, Affinity Express Holdings Limited and HRMall
Holdings Limited.
Maria Lourdes Heras-De Leon, Filipino, 59, has been a Managing Director of Ayala Corporation
since October 2011 and the President of Ayala Foundation, Inc. since January 2012. She was
formerly with Chevron Geothermal Philippines Holdings as Vice President for Policy, Government and
Public Affairs. She was expatriated to the Philippines as a member of the Senior Leadership Team to
lead Chevron Geothermal’s and Chevron Malampaya’s government affairs, policy advocacy and
public affairs. She also led the company’s community engagement and corporate social responsibility
programs refocusing its community development projects from traditional corporate donations into a
sustainable, public-private partnership process. Today, she spearheads the advocacies of Ayala
Foundation: Education, Youth Leadership, Sustainable Livelihood and Arts & Culture.
John Eric T. Francia, Filipino, 42, is a Managing Director and a member of the Ayala Corporation
Management Committee and the Group Management Committee since January 2009. He is the head
of Ayala’s Corporate Strategy and Development Group, which is responsible for overseeing Ayala’s
portfolio strategy and new business development. He is also holds the following positions: Chairman
and President of PhilNewEnergy, Inc.; President of AC Energy Holdings, Inc. and AC Infrastructure
Holdings Corp.;Director of Manila Water Company, Integrated Micro-Electronics, Inc., LiveIt
Investments Ltd. andHCM City Infrastructure Investment Joint Stock Company.Prior to joining Ayala,
Mr. Francia was a senior consultant and member of the management team of Monitor Group, a
strategy consulting firm based in Cambridge, Massachusetts, USA. Prior to consulting, he spent a few
years in the field of academe and media.
Delfin C. Gonzalez, Jr., Filipino, 64, is the Chief Finance Officer of Ayala Corporation and is also a
member of its Management Committee and Finance Committee since April 2010. He joined Ayala
Corporation in late 2000, assigned as Chief Finance Officer for its subsidiary, Globe Telecom, Inc.
until early 2010. He also holds the following positions in various companies of the Ayala Group:
Chairman of Darong Agricultural Development Corporation, AC Infrastructure Holdings Corporation
and AYC Finance Ltd.; President and Director of Ayala DBS Holdings Inc.; and Director of Integrated
Micro-Electronics, Inc., AC International Finance, Ltd., Asiacom Philippines, Inc., AC Energy Holdings,
Inc., LiveIt Investments, Ltd., Ayala Aviation Corporation, AYC Holdings Ltd., Michigan Holdings, Inc.,
Azalea International Venture Partners Ltd., Philwater Holdings Company, and various Ayala
international companies
Solomon M. Hermosura, Filipino, 51, has served as Managing Director of Ayala Corporation since
1999 and a member of its Management Committee since 2009 and the Ayala Group Management
Committee since 2010. He is also the Group Head of Corporate Governance, General Counsel,
Compliance Officer, and Corporate Secretary of Ayala Corporation. He is the CEO of Ayala Group
Legal. He serves as Corporate Secretary of Ayala Land, Inc., Globe Telecom, Inc., Manila Water
Company, Inc., Integrated Micro-Electronics, Inc. and Ayala Foundation, Inc.; and a member of the
Board of Directors of a number of companies in the Ayala group.
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Ramon G. Opulencia, Filipino, 57, served as Managing Director and Treasurer of Ayala Corporation
from September 2005 to December 31, 2013. Effective January 1, 2014, he was seconded to Bank of
the Philippine Islands (BPI) as Senior Vice President and Head of Remittance and European
Business Operations, and serves as Managing Director of Bank of the Philippine Islands (Europe) Plc.
He is currently a member of the Board of Directors of BPI Family Savings Bank, Inc. and Pameka
Holdings, Inc. He was the President of the Financial Executives Institute of the Philippines in 2012,
Chairman of the FINEX and Development Foundation, Inc. in 2013 and currently Trustee of CIBI
Foundation, Inc.
John Philip S. Orbeta, Filipino, 52, has served as a member of the Ayala Corporation Management
Committee since 2005 and the Group Management Committee since 2009. He is currently the
Managing Director and Group Head for Corporate Resources, covering Strategic Human Resources,
Corporate Communications and Information & Communications Technology at Ayala Corporation. He
is the President and CEO of Ayala Automotive Holdings, Corporation and Automobile Central
Enterprise, Inc. (Philippine importer of Volkswagen). He is Chairman and CEO of Honda Cars Makati,
Inc.,Isuzu Automotive Dealership, Inc., and Iconic Dealership, Inc.; Chairman of Ayala Aviation
Corporation and HRMall, Inc./IQBack Office. He also serves as a Director of AG Counselors
Corporation, BPI Family Bank, Inc. and ALFM Growth Fund, Inc. He is concurrently the Chairman of
the following councils at the Ayala Group: Human Resources Council, Corporate Security Council,
and the Ayala Business Clubs and is the Program Director of the Ayala Young Leaders Congress.
Prior to joining Ayala Corporation, he was the Vice President and Global Practice Director for the
firm's Human Capital Consulting Group at Watson Wyatt Worldwide (now Towers Watson),
overseeing the firm's practices in executive compensation, strategic rewards, data services and
organization effectiveness around the world. He was also a member of Watson Wyatt's Board of
Directors.
Ginaflor C. Oris, Filipino, 46, has served as Managing Director of Ayala Corporation since 2010. She
is also the head of Corporate Finance and Asset Management team of the Company. She also holds
the following positions: Chairman, President & Director of Pameka Holdings, Inc; Director, CFO and
Treasurer of Azalea Technology Investments, Inc.; Treasurer & CFO of Azalea International Venture
Partners, Ltd.; Director & CFO of Michigan Holdings Inc.; Director and Treasurer of AC Infrastructure
Holdings Corp.; Director of Purefoods International Limited, ASTICOM Technology, Inc., Darong
Agricultural & Development Corporation, Ayala Hotels, Inc., Water Capital Works, Renewable Energy
Test Center, Milestone Group, FineState, ACST Business Holdings, Inc., VIP Infrastructure Holdings,
Pte. Ltd., AIVP NA, PFIL NA and VinaPhil Technical Infrastructure Investment Joint Stock Co.;
Director and Audit Committee Member of IQ BackOffice, Inc.; Audit Committee Member of Affinity
Express Holdings Limited; President & Director of PPI Prime Venture, Inc.; Treasurer of Asiacom
Philippines, Inc.; and Chief Representative, The Representative Office of Ayala Corporation in Ho Chi
Minh City, Vietnam.
Ma. Cecilia T. Cruzabra, Filipino, 48, has served as Treasurer since January 1, 2014. Currently, she
also holds the following positions: Director/Treasurer of Technopark Land, Inc., Treasurer of Ayala
Foundation, Inc., Director of AYC Finance Limited, AYC Holdings Limited, Bayan
Telecommunications, Inc., Halo Holdings and Subsidiaries, and is an Adjunct Faculty at the Asian
Institute of Management. Prior to joining Ayala, she was the Treasurer of Halo Holdings and
Subsidiaries and the Corporate Finance Head of ALC Explo and General Services, Inc. She also
served as the Treasury and Enterprise-Wide Risk Management Head of Globe Telecom, Inc. from
1997 to 2006.
Josephine G. De Asis, Filipino, 42, has been the Controller of Ayala Corporation since August 2012.
Currently, she also holds the following positions: Chairwoman of PPI Prime Ventures, Inc., Treasurer
and CFO of Pameka Holdings, Inc., Director of Darong Agricultural & Development Corporation;
Director of Water Capital Works, Inc.; and Chief Finance Officer of AG Counselors Corporation. Prior
to joining Ayala Corporation, she served as the Head of Financial Control Division of Globe Telecom,
Inc. from 2010 to 2012 and Controller of the Wireless Business of Globe Telecom, Inc. from 20052010.
Sheila Marie U. Tan, Filipino, 46, is the Assistant Corporate Secretary of Ayala Corporation since
April 2011. She also holds the position of Corporate Secretary of Cebu Holdings, Inc., Cebu Property
Ventures & Development Corp., Makati Development Corporation, and Ayala Property Management
Corporation. She is also the Assistant Corporate Secretary of Ayala Land, Inc. Effective November
2013, however, Ms. Tan has been on leave from these posts in view of her reassignment to one of the
companies in the Ayala Group. Ms. Tanis currently an Executive Director in Ayala Corporation. She
was an Associate in Sycip Salazar Hernandez & Gatmaitan Law Firm until she joined Ayala Land, Inc.
119
in 1995. She headed the Legal Department of Ayala Land, Inc. until 2009. Thereafter, she was the
Managing Director of the Ayala Group Legal until end October 2013.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
The above named executive officers are covered by letters of appointment stating their respective job
functionalities, among others.
Significant Employees
The Company considers its human resources working as a team as a key element for its continued
success. But the Company has no employee who is not an executive officer and who is expected to
make individually on his own a significant contribution to the business.
Family Relationships
Jaime Augusto Zobel de Ayala, Chairman/Chief Executive Officer, and Fernando Zobel de Ayala,
President/Chief Operating Officer, are brothers.
There are no known family relationships between the current members of the Board and key officers
other than the above.
Ownership Structure and Parent Company
As of January 31, 2014, Mermac, Inc. owns 57.94% of the outstanding voting shares of the Company.
Involvement in Certain Legal Proceedings
Please refer to Part I - Item 3. Legal Proceedings.
Resignation of Directors/Management Committee members/Key Officers
To date, no director has resigned from, or declined to stand for re-election to the Board of Directors
since the date of the 2013 annual meeting of stockholders due to any disagreement with the Company
relative to its operations, policies and practices.
Item 10. Executive Compensation
Name and Principal Position
Year
Salary
Bonus
Other Annual
Compensation
P184M
P106M
P0
P199M
P213M
P131M
P93M
P0
P0
P396M
P186M
P0
P409M
P436M
P226M
P195M
P0
P0
Jaime Augusto Zobel de Ayala
Chairman& CEO
Fernando Zobel de Ayala
President & Chief Operating Officer
John Eric T. Francia
Managing Director
Delfin C. Gonzalez, Jr.
Managing Director & Chief Finance
Officer
Solomon M. Hermosura
Managing Director, General Counsel,
Corporate Secretary & Compliance
Officer
John Philip S. Orbeta
Managing Director
CEO & Most Highly Compensated
Executive Officers
All other officers** as a group unnamed
Actual 2012
(Restated)
Actual 2013
Projected 2014
Actual 2012
(Restated)
Actual 2013
Projected 2014
**Managers and up (including all above-named officers).
120
The total annual compensation consists of basic pay and other taxable income (guaranteed bonus
and performance-based bonus).
The Company has no other arrangement with regard to the remuneration of its existing directors and
officers aside from the compensation received as herein stated.
Warrants and options outstanding; repricing
i.
Since 1995, the Company has offered its officers options to acquire common shares under its
executive stock option plan (ESOP).Of the above named officers, there were options covering
328,467shares exercised in 2013by the following officers, to wit:
Name
John Eric T. Francia
Fernando Zobel de Ayala
Jaime Augusto Zobel de
Ayala
All above-named Officers
as a group
All officers ** and Directors
as a Group
No. of
Shares
Date of
Grant
Various
Various
Various
Exercise
Price
Various
Various
Various
Market Price at
Date of Grant
Various
Various
Various
328,467
245.80*
292.66*
766,993
153.45*
175.51*
* Average prices.
** Managers and up including the above-named officers.
ii.
The Company has adjusted the exercise price and market price of the options awarded to the
above named officers due to the stock dividend declared by the Company in May 2004, June
2007, May 2008 and July 2011 and to the reverse stock split in May 2005.
Compensation of Directors
Article IV, Section 21, of the By-Laws provides:
Section 21 - Each director shall be entitled to receive from the Corporation, pursuant to a resolution of
the Board of Directors, fees and other compensation for his services as director. The Board of
Directors shall have the sole authority to determine the amount, form and structure of the fees and
other compensation of the directors. In no case shall the total yearly compensation of directors
exceed one percent (1%) of the net income before income tax of the Corporation during the
preceding year.
The compensation and remuneration committee of the Board of Directors shall have the responsibility
of recommending to the Board of Directors the fees and other compensation for directors. In
discharging this duty, the committee shall be guided by the objective of ensuring that the level of
compensation should fairly pay directors for work required in a company of the Corporation’s size and
scope. (As amended on 18 April 2011)
i.
Standard arrangement
During the 2011 annual stockholders’ meeting, the stockholders approved a resolution fixing the
current remuneration of non-executive directors as follows:
Retainer Fee:
Board Meeting Fee per meeting attended:
Audit Committee Meeting Fee per meeting attended:
Other Committee Meeting Fee per meeting attended:
To
P 1,200,000.00
P 200,000.00
P 100,000.00
P 50,000.00
Directors who hold executive or management positions do not receive directors’ fees. The
compensation of executive directors is included in the compensation table in Item 10 above.
ii. Other arrangement
None of the directors who are paid fees as set forth above (Standard arrangement) is contracted
and compensated by the Company for services other than those provided as a director.
The Company has no other arrangement with regard to the remuneration of its existing directors
121
and officers aside from the compensation received as herein stated.
The Company’s Personnel and Compensation Committee is chaired by Mr. del Rosario, an
independent director, with Messrs. Lazaro and Amano as members.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Security ownership of certain record and beneficial owners (of more than 5%) as of January 31, 2014.
Title of
class
of voting
shares
Common
Voting
Preferred
Common
Common
Voting
Preferred
Common
Name and address of record owner
and relationship with Issuer
2
Mermac, Inc.
35/F Tower One, Ayala Triangle,
Ayala Ave., Makati City
Stockholder
PCD Nominee Corporation
4
(Non-Filipino)
G/F MSE Bldg.
Ayala Ave., Makati City
Mitsubishi Corporation6
3-1, Marunouchi 2- Chome, Chiyodaku, Tokyo 100-8086
PCD Nominee Corporation
3
(Filipino)
G/F MSE Bldg.
Ayala Ave., Makati City
Name of beneficial
owner and
relationship with
record owner
3
Mermac, Inc.
Citizenship
No. of
shares held
Filipino
303,689,196
159,577,460
Percent of
outstanding
voting
shares
37.9835%
19.9589%
PCD participants
acting for
themselves or for
their customers5
Mitsubishi
Corporation7
Various
142,867,006
17.8689%
Japanese
63,077,540
32,640,492
7.8893%
4.0825%
PCD participants
acting for
themselves or for
their customers4
Filipino
53,913,040
6.7431%
2
The Co-Vice Chairmen of Mermac, Inc. (“Mermac”), Jaime Augusto Zobel de Ayala and Fernando Zobel de Ayala, are the
Chairman/CEO and President/COO of the Company, respectively. Mr. Jaime Augusto Zobel de Ayala has been named and
appointed to exercise the voting power.
3
The Board of Directors of Mermac has the power to decide how Mermac shares in Ayala are to be voted.
4
PCD is not related to the Company.
5
Each beneficial owner of shares through a PCD participant is the beneficial owner to the extent of the number of shares in his
account with the PCD participant. Out of the 196,780,046 common shares registered in the name of PCD Nominee
Corporation, 64,047,054 (8.0106% of the voting stock) and 45,751,968 (5.7224% of the voting stock) are for the accounts of
Deutsche Bank Manila (DB) and The Hongkong and Shanghai Banking Corporation (HSBC), respectively. The Company has
no record relating to the power to decide how the shares held by PCD are to be voted. As advised to the Company, none of DB
and HSBC or any of their customers beneficially owns more than 5% of the Company’s common shares.
6
Mitsubishi Corporation (“Mitsubishi”) is not related to the Company.
7
The Board of Directors of Mitsubishi has the power to decide how Mitsubishi’s shares in Ayala are to be voted. Mr. Yoshio
Amano has been named and appointed to exercise the voting power.
122
Security ownership of directors and management as of January 31, 2014.
Title of class
of voting
shares
Directors
Common
Preferred “B”
Voting
Preferred
Common
Voting
Preferred
Common
Voting
Preferred
Common
Common
Voting
Preferred
Common
Common
Name of beneficial owner
Jaime Augusto Zobel de Ayala
Amount and nature of beneficial
ownership
82,470
20,000
543,802
(direct & indirect)
(indirect)
(direct)
Citizenship
Filipino
Fernando Zobel de Ayala
79,462
554,983
(direct & indirect)
(direct)
Filipino
Delfin L. Lazaro
159,869
258,297
(direct & indirect)
(direct)
Filipino
1
126,614
65,517
(direct)
(direct)
(direct)
Japanese
1,200
1
(direct)
(direct)
Filipino
Filipino
Yoshio Amano
Xavier P. Loinaz
Antonio Jose U. Periquet
Ramon R. Del Rosario, Jr.
CEO and most highly compensated officers
Common
82,470
(direct & indirect)
Preferred “B”
20,000
(indirect)
Jaime Augusto Zobel de Ayala
Voting
543,802
(direct)
Preferred
Common
79,462
(direct & indirect)
Fernando Zobel de Ayala
Voting
554,983
(direct)
Preferred
Common
John Eric T. Francia
46,587
(indirect)
Common
Delfin C. Gonzalez, Jr.
60,369
(direct& indirect)
Common
77,877
(direct & indirect)
Solomon M. Hermosura
Voting
53,583
(direct)
Preferred
Common
John Philip S. Orbeta
376,914
(direct & indirect)
Other executive officers (Ayala group ManCom members/Senior Leadership Team)
Common
Gerardo C. Ablaza, Jr.
464,807
(direct & indirect)
Common
391,450
(direct & indirect)
Antonino T. Aquino
Preferred “B”
30,000
(indirect)
Common
Cezar P. Consing
0
Common
Arthur R. Tan
247,454
(direct & indirect)
Common
Alfredo I. Ayala
111,500
(direct & indirect)
Common
Ma. Cecilia T. Cruzabra
240
(direct)
Common
Maria Lourdes Heras-De Leon
7,609
(indirect)
Common
77,989
(direct & indirect)
Preferred “B”
1,400
(indirect)
Ginaflor C. Oris
Voting
19,226
(direct)
Preferred
Common
Ernest Lawrence L. Cu
41,485
(indirect)
Common
Josephine G. De Asis
0
Common
21,083
(direct & indirect)
Sheila Marie U. Tan*
Voting
2,485
(direct)
Preferred
All Directors and Officers as a group
3,924,274
Percent of
total
outstanding
shares
0.0101%
0.0024%
0.0664%
0.0097%
0.0677%
0.0195%
0.0315%
0.0000%
0.0154%
Filipino
Filipino
Filipino
Filipino
Filipino
0.0080%
0.0001%
0.0000%
0.0101%
0.0024%
0.0664%
0.0097%
0.0677%
0.0057%
0.0074%
0.0095%
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
0.0065%
0.0460%
0.0567%
0.0478%
0.0037%
0.0000%
0.0302%
0.0136%
0.0000%
0.0009%
0.0095%
0.0002%
0.0023%
0.0051%
0.0000%
0.0026%
Filipino
0.0003%
0.4788%
* On leave effective November 1, 2013.
None of the Company’s directors and officers owns 2.0% or more of the outstanding capital stock of
the Company.
The Company knows of no person holding more than 5% of common shares under a voting trust or
similar agreement.
No change of control in the Company has occurred since the beginning of its last fiscal year.
123
Item 12. Certain Relationships and Related Transactions
The Company, in the regular conduct of business, has entered into transactions with associates, joint
ventures and other related parties principally consisting of advances, loans and reimbursement of
expenses, purchase and sale of real estate properties, various guarantees, construction contracts,
and development, management, underwriting, marketing and administrative service agreements.
Sales and purchases of goods and services to and from related parties are made at normal market
prices.
No other transaction was undertaken by the Company in which any director or executive officer was
involved or had a direct or indirect material interest.
To date, there are no complaints received by the Company regarding related-party transactions.
Transactions with Promoters
There are no transactions with promoters within the past five (5) years.
Events after the Reporting Period
For detailed discussion, please refer to Note 41 of the Consolidated Financial Statements for
December 31, 2013 which forms part of the Annex of this SEC17A report.
In addition, the Group has the following transactions:
The Company
a) On March 10, 2014, the Parent Company’s BOD approved the following:
i. Amendment of the Third Article of the Articles of Incorporation of the Company to change
the principal office address of the Company from Metro Manila, Philippines to 32/F to
35/F, Tower One and Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City,
incompliance with the Securities and Exchange Commission Memorandum Circular No.
6, Series of 2014.
ii.
Amendment of Section 2, Article III of our By-Laws, to allow our Board to hold meeting in
a place in Metro Manila other than in our principal office. Our Board approved the
amendment pursuant to its power, delegated by our stockholders in May 1989, to amend
our By-Laws.
b) On April 10, 2014, the Parent Company’s made the following press statement:
Ayala Corporation Announces Pricing of US$300,000,000 0.50% Exchangeable Bonds into
Common Shares of Ayala Land, Inc. due 2019
April 10, 2014 – Ayala Corporation (PSE:AC) (the “Company”), one of the largest
conglomerates in the Philippines, announced today the pricing of the offering by AYC Finance
Limited, a wholly-owned and guaranteed subsidiary of Ayala Corporation, of US$300,000,000
aggregate principal amount of its 0.50% bond due 2019 (the “Bonds”) exchangeable for
common shares of Ayala Land, Inc. (“Ayala Land”). The Bonds have been offered outside the
United States under Regulation S of the U.S. Securities Act of 1933 and to qualified
institutional investors within the Philippines in transactions that do not require registration of
the Bonds under the Philippine Securities Registration Code.
The Bonds will bear interest at a rate of 0.50% per year, payable semiannually. The Bonds
will mature on May 2, 2019, unless earlier exchanged, redeemed or repurchased in
accordance with the terms of the Bonds. The Bonds will be exchangeable at any time on or
after June 11, 2014 up to the close of business on the 10th day prior to the maturity date.
The Bonds will initially be exchangeable at P36.48 per Ayala Land share representing a
premium of 20% over Ayala Land’s closing price on April 10, 2014. On May 2, 2017, the
holders of the Bonds will have the right to require the Company to repurchase for cash all or
part of their Bonds at a repurchase price equal to 100% of the principal amount of the Bonds.
Starting May 2, 2017 the Company is able to call the Bond if the closing price of Ayala Land
shares for any 30 consecutive Trading Days is at least 130% of the Exchange Price.
The offering is the first equity-linked international issuance by a Philippine issuer in the past
two years. It has also achieved the lowest cost of financing across Asia ex-Japan in 2014.
124
The Company intends to use the net proceeds from the issue of the Bonds for general
corporate purposes.
The offering is expected to close on or about May 2, 2014, subject to the satisfaction of
customary closing conditions.
Ayala Land, Inc. (ALI)
a) On April 10, 2014, SEC has approved the planned issuance of up to P15-billion fixed rate
bonds of Ayala Land Inc. (ALI). The bonds offer will be implemented in one or more tranches
and sold to general public. The first tranche will involve the issuance of P8 billion in bonds
with the tenor of 11 years, maturing in 2025, at rate of 5.625% and will be offered to public
until April 21, 2014. Proceeds are expected to be used to partially finance ALIs 2014 capital
expenditures which include the construction of various leasing projects such as Vertis North
Mall, BPO and Hotel; Circuit Mall, Retail Strip and Hotel; and Southpark Mall and BPO.
125
PART IV – CORPORATE GOVERNANCE
Item 13. Corporate Governance
Please refer to the Annual Corporate Governance Report posted in the Company’s Official Website
www.ayala.com.ph. The detailed discussion of this Section deleted as per SEC Memorandum
Circular No. 5, series of 2013, issued last March 20, 2013.
126
PART V - EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C (Current Report)
(a)
Exhibits - See accompanying Index to Financial Statements and Supplementary Schedules
(b)
Reports on SEC Form 17-C
Aside from compliance with periodic reporting requirements, Ayala promptly discloses major and
market sensitive information such as dividend declarations, joint ventures and acquisitions, the sale
and disposition of significant assets, and other information that may affect the decision of the investing
public.
In 2013 the Company filed, among others, unstructured disclosures involving the following:
1. Placement and subscription to the 399,528,229 Ayala Land’s common shares
2. Acquisition of 20% ownership interest in Ayala DBS Holdings Inc. held by DBS Bank Ltd. resulting
to additional 4.3% effective ownership in the Bank of the Philippine Islands (BPI)
3. Acquisition of additional 140 million Manila Water common shares
4. SEC approval of the amendment in the Articles of Incorporation to exempt from pre-emptive rights
the sale of 100M common shares
5. Sale of 5,183,740 common Treasury Shares
6. Early Redemption of 12M preferred A shares and re-issuance of 20M preferred B shares
7. Participation in the stock rights offering of BPI
8. Appointment of a new company Treasurer
9. Declaration of cash dividends on all outstanding common and preferred shares
10. Dividend rate re-pricing on the voting preferred shares
11. Notices of interest payments for all outstanding corporate bonds
12. Various transactions of Ayala’s 100%-owned subsidiary, AC Energy Holdings, Inc. (ACEHI):
a. Signing of Power Purchase Agreement for the expansion of Batangas power plant
b. Signing of Joint Venture Agreement for the Wind Farm Projects
c. Singing of Joint Venture Agreement with Power Partners Ltd. Co. to build and operate a 3 X
135-megawatt thermal power plant in Kauswagn, Lanao del Norte
d. Expansion of Calaca thermal power plant and signing of engineering procurement and
construction contract with DMCI
e. Signing of loan facilities from various commercial banks for the expansion of Calaca thermal
power plant
f. Sale of 40% stake in Palm Concepcion Power Corporation and Panay Consolidated Land
Holdings Corp.
13. Various transactions of Ayala’s 100%-owned subsidiary, AC Infrastructure Holdings Corporation
(AC Infra):
a. Submission of prequalification documents to Department of Public Works and Highways for
the bidding of the Cavite-Laguna Expressway Project
b. Submission of bid document to the Department of Transportation and Communication for the
development of Mactan-Cebu International Airport
c. Submission of best bid for the LRT/MRT Contactless Fare System Project
14. News Clarification on:
a. AC Infra’s pre-qualification to bid for the 7-kilometer elevated roadway that will connect the
three terminals of NAIA
b. Studying possible investment opportunities in Myanmar
c. Acquisition by Stream Global Services, Inc. of the UK-based LBM Holdings, Ltd. and N2SP
Tunisie
d. Interest to bid for the PhP60 billion LRT -1 Cavite Extension Project
e. Interest to bid for United Leyte Geothermal Power Complex
f. Acquisition by ACEHI of additional equity interest in GN Power Mariveles Coal Plant, Ltd.
127
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
I.
2013 Consolidated Financial Statements of Registrant
1. Statement of Management’s Responsibility for Financial Statements
2. Ayala Corporation and Subsidiaries Consolidated Financial Statements
As of December 31, 2013 and 2012 and Years Ended December 31, 2013, 2012 and 2011
and Independent Auditors’ Report
II.
Supplementary Schedules
1. Independent Auditors’ on Supplementary Schedules
2. Supplementary Schedules Details
A.
Financial Assets (Current Marketable Equity Securities and Other Short-Term Cash
Investments)
B.
Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal
Stockholders (Other than Related Parties)
C-a. Amounts Receivable from Related Parties which are Eliminated during the
Consolidation of Financial Statements
C-b. Amounts Payable to Related Parties which are Eliminated during the Consolidation of
Financial Statements
D.
Intangible Assets and Other Assets (Deferred Charges)
E.
Long-term Debt
F.
Indebtedness to Related Parties (Long-term Loans from Related Parties)
G.
Guarantees of Securities of Other Issuers
H.
Capital Stock
I.
Reconciliation of Retained Earnings Available for Dividend Declaration
J.
Map of the Relationships of the Companies within the Group
K.
Schedule of All the Effective Standards and Interpretations as of December 31, 2013
L.
Financial Ratios
M.
Non-Current Investments
N.
Indebtedness of Unconsolidated Subsidiaries
III.
2013 Consolidated Financial Statements
1. Bank of the Philippine Islands and Subsidiaries
2. Globe Telecom, Inc. and Subsidiaries
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
Ayala Corporation
Tower One, Ayala Triangle
Ayala Avenue, Makati City
We have audited the accompanying consolidated financial statements of Ayala Corporation
and its subsidiaries, which comprise the consolidated statements of financial position 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 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.
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 Ayala Corporation and its 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.
Jessie D. Cabaluna
Partner
CPA Certificate No. 36317
SEC Accreditation No. 0069-AR-3 (Group A),
February 14, 2013, valid until February 13, 2016
Tax Identification No. 102-082-365
BIR Accreditation No. 08-001998-10-2012,
April 11, 2012, valid until April 10, 2015
PTR No. 4225155, January 2, 2014, Makati City
March 10, 2014
A member firm of Ernst & Young Global Limited
AYALA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in Thousands)
December 31
2012
2013
(As restated Note 3)
January 1
2012
(As restated Note 3)
ASSETS
Current Assets
Cash and cash equivalents (Notes 5, 31
and 32)
Short-term investments (Notes 6, 31 and 32)
Accounts and notes receivable (Notes 7, 31
and 32)
Inventories (Note 8)
Other current assets (Notes 9 and 32)
Total Current Assets
Noncurrent asset held for sale (Note 12)
Noncurrent Assets
Noncurrent accounts and notes receivable
(Notes 7 and 32)
Investments in bonds and other securities
(Notes 10, 31 and 32)
Land and improvements (Note 11)
Investments in associates and joint ventures
(Note 12)
Investment properties (Note 13)
Property, plant and equipment (Note 14)
Service concession assets (Note 15)
Intangible assets (Note 16)
Deferred tax assets - net (Note 25)
Pension and other noncurrent assets
(Note 17)
Total Noncurrent Assets
Total Assets
P
= 65,655,049
119,345
P
= 80,286,355
296,503
P
= 56,296,503
1,613,058
56,341,044
50,178,486
39,194,020
211,487,944
3,328,712
214,816,656
42,549,654
33,269,028
22,651,834
179,053,374
–
179,053,374
32,885,380
28,797,176
9,385,087
128,977,204
–
128,977,204
18,282,941
17,880,961
8,551,382
2,784,807
62,474,802
3,243,920
49,218,000
3,745,168
18,530,915
119,804,086
63,157,223
25,883,469
73,754,407
4,175,846
6,513,585
102,938,897
52,448,932
23,002,450
71,295,399
4,021,031
4,546,961
74,784,619
43,545,305
14,052,410
66,247,192
4,312,163
3,364,976
8,016,478
384,847,644
P
= 599,664,300
3,253,792
331,850,343
P
= 510,903,717
2,927,921
240,062,051
P
= 369,039,255
P
= 103,604,247
15,811,285
1,667,543
P
= 81,901,050
12,343,472
1,480,567
P
= 51,060,180
7,333,841
483,265
11,842,519
19,021,440
7,804,893
1,290,406
10,991,693
145,207,693
840,563
6,970,433
122,557,525
980,620
5,432,055
73,094,854
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses
(Notes 18, 31 and 32)
Short-term debt (Notes 20, 31 and 32)
Income tax payable
Current portion of:
Long-term debt (Notes 20, 31 and 32)
Service concession obligation (Notes 15
and 32)
Other current liabilities (Notes 19 and 32)
Total Current Liabilities
(Forward)
December 31
2012
2013
Noncurrent Liabilities
Long-term debt - net of current portion
(Notes 20, 31 and 32)
Service concession obligation - net of current
portion (Notes 15 and 32)
Deferred tax liabilities - net (Note 25)
Pension liabilities - net (Note 27)
Other noncurrent liabilities (Notes 21 and 32)
Total Noncurrent Liabilities
Total Liabilities
Equity
Equity attributable to owners of the parent
Paid-in capital (Note 22)
Share-based payments (Note 28)
Remeasurement gains/(losses) on
defined benefit plans (Note 27)
Net unrealized gain on available-for-sale
financial assets (Note 10)
Cumulative translation adjustments
Equity reserve (Note 2)
Retained earnings (Note 22)
Treasury stock (Note 22)
Parent Company preferred shares held by
subsidiaries (Note 22)
Non-controlling interests (Note 2)
Total Equity
Total Liabilities and Equity
(As restated Note 3)
January 1
2012
(As restated Note 3)
P
= 178,027,343
P
= 143,719,591
P
= 96,129,597
7,868,295
6,347,400
1,915,040
24,827,938
218,986,016
364,193,709
7,371,965
6,256,125
1,583,270
22,974,892
181,905,843
304,463,368
6,916,998
6,136,681
1,010,210
11,282,000
121,475,486
194,570,340
50,166,129
485,187
45,119,932
460,771
42,832,820
553,743
(1,317,954)
(943,361)
(456,254)
277,848
(1,256,831)
7,482,121
92,639,781
(5,000,000)
1,798,964
(3,238,400)
5,379,074
83,268,077
(7,497,344)
1,725,394
(2,311,050)
1,016,259
75,651,302
(12,408,886)
(250,000)
124,097,713
82,342,636
206,440,349
P
= 510,903,717
(250,000)
106,353,328
68,115,587
174,468,915
P
= 369,039,255
–
143,476,281
91,994,310
235,470,591
P
= 599,664,300
See accompanying Notes to Consolidated Financial Statements.
AYALA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Earnings Per Share Figures)
Years Ended December 31
2012
2011
(As restated - (As restated 2013
Note 3)
Note 3)
INCOME
Sale of goods (Note 31)
Rendering of services (Notes 13 and 31)
Share of profit of associates and joint ventures
Interest income (Note 31)
Other income (Note 23)
COSTS AND EXPENSES
Costs of sales (Notes 8 and 31)
Costs of rendering services (Notes 23 and 31)
General and administrative (Notes 23, 27 and 31)
Interest and other financing charges (Notes 20, 23
and 31)
Other charges (Note 23)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 25)
Current
Deferred
NET INCOME
Net Income Attributable to:
Owners of the parent (Note 26)
Non-controlling interests
EARNINGS PER SHARE (Note 26)
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
P
= 92,725,460
44,216,018
10,091,140
3,435,948
8,942,978
159,411,544
P
= 69,335,195
40,553,713
7,681,899
4,632,453
8,367,264
130,570,524
P
= 55,955,447
34,491,400
7,046,223
3,317,343
10,017,880
110,828,293
66,539,860
31,486,686
14,562,571
55,285,281
22,989,804
12,771,846
44,145,429
20,790,694
11,089,807
10,511,432
5,532,086
128,632,635
8,155,330
6,892,568
106,094,829
6,535,243
7,933,297
90,494,470
30,778,909
24,475,695
20,333,823
8,036,780
(1,382,570)
6,654,210
5,838,415
(861,978)
4,976,437
4,498,973
(271,483)
4,227,490
P
= 24,124,699
P
= 19,499,258
P
= 16,106,333
P
= 12,777,932
11,346,767
P
= 24,124,699
P
= 10,504,385
8,994,873
P
= 19,499,258
P
= 9,183,335
6,922,998
P
= 16,106,333
P
= 20.53
P
= 20.39
P
= 17.03
P
= 16.92
P
= 14.17
P
= 14.07
AYALA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
NET INCOME
Years Ended December 31
2011
2012
(As restated - (As restated 2013
Note 3)
Note 3)
P
= 24,124,699
P
= 19,499,258
P
= 16,106,333
OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income that may be
reclassified to profit or loss in subsequent
periods:
Exchange differences arising from translations of
foreign investments
Changes in fair values of available-for-sale
financial assets
Other comprehensive income not to be reclassified to
profit or loss in subsequent periods:
Remeasurement gains/(losses) on defined
benefit plans
Tax effect relating to components of other
comprehensive income
2,223,630
(1,137,783)
(611,877)
(79,486)
(360,318)
(34,375)
(566,140)
(104,709)
(689,834)
72,973
1,650,977
12,858
(1,589,952)
87,931
(1,248,155)
112,230
(108,187)
(12,638)
(1,346,297)
296,879
574,930
(104,731)
(1,338,798)
(533,205)
(344,513)
(85,082)
477,210
312,179
P
= 24,436,878
(1,934,465)
P
= 17,564,793
(770,945)
P
= 15,335,388
P
= 12,863,794
11,573,084
P
= 24,436,878
P
= 9,163,498
8,401,295
P
= 17,564,793
P
= 8,776,161
6,559,227
P
= 15,335,388
SHARE OF OTHER COMPREHENSIVE INCOME
OF ASSOCIATES AND JOINT VENTURES
Other comprehensive income that may be
reclassified to profit or loss in subsequent
periods:
Exchange differences arising from translations of
foreign investments
Changes in fair values of available-for-sale
financial assets
Other comprehensive income not to be reclassified to
profit or loss in subsequent periods:
Remeasurement gains/(losses) on defined
benefit plans
TOTAL OTHER COMPREHENSIVE
INCOME (LOSS), NET OF TAX
TOTAL COMPREHENSIVE INCOME
Total Comprehensive Income Attributable to:
Owners of the parent
Non-controlling interests
See accompanying Notes to Consolidated Financial Statements.
AYALA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in Thousands)
Paid-in
Capital
(Note 22)
At January 1, 2013, as previously
reported
Effect of adoption of new and revised
accounting standards (Note 3)
As of January 1, 2013, as restated
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
Exercise of ESOP/ESOWN
Cost of share-based payments
Sale of treasury stock
Redemption of preferred shares
Cash dividends
Change in non-controlling interests
At December 31, 2013
Remeasurement
Gain (Losses)
on Defined
Share-based
Benefit
Payments
Plans
(Note 28)
(Note 27)
P
= 45,119,932
P
= 460,771
–
45,119,932
–
–
–
287,338
–
9,558,859
(4,800,000)
–
–
P
= 50,166,129
–
460,771
–
–
–
(90,083)
114,499
–
–
–
–
P
= 485,187
P
=–
(943,361)
(943,361)
–
(374,593)
(374,593)
–
–
–
–
–
–
(P
= 1,317,954)
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
Other Comprehensive Income
Parent
Company
Net Unrealized
Preferred
Gain (Loss) on
Shares
Available-forCumulative
Equity
Retained
Held by
Sale Financial
Translation
Reserve
Earnings
Subsidiaries
Assets (Note 10)
Adjustments
(Note 2)
(Note 22)
(Note 22)
For the year ended December 31, 2013
Treasury Stock(Note 22)
Common
Preferred
Stock
Stock - B
Total
Non-controlling
Interests
Total Equity
P
= 2,055,500
(P
= 3,238,400)
P
= 5,379,074
P
= 83,572,053
(P
= 250,000)
(P
= 1,697,344)
(P
= 5,800,000)
P
= 125,601,586
P
= 77,893,853
P
= 203,495,439
(256,536)
1,798,964
–
(1,521,116)
(1,521,116)
–
–
–
–
–
–
P
= 277,848
–
(3,238,400)
–
1,981,569
1,981,569
–
–
–
–
–
–
(P
= 1,256,831)
–
5,379,074
–
–
–
–
–
–
–
–
2,103,047
P
= 7,482,121
(303,976)
83,268,077
12,777,932
–
12,777,932
–
–
–
–
(3,406,228)
–
P
= 92,639,781
–
(250,000)
–
–
–
–
–
–
(1,697,344)
–
–
–
–
–
1,697,344
–
–
–
P
=–
–
(5,800,000)
–
–
–
–
–
2,000,000
(1,200,000)
–
–
(P
= 5,000,000)
(1,503,873)
124,097,713
12,777,932
85,860
12,863,792
197,255
114,499
13,256,203
(5,750,000)
(3,406,228)
2,103,047
P
= 143,476,281
4,448,783
82,342,636
11,346,766
226,319
11,573,085
–
–
–
–
(3,529,114)
1,607,703
P
= 91,994,310
2,944,910
206,440,349
24,124,698
312,179
24,436,877
197,255
114,499
13,256,203
(5,750,000)
(6,935,342)
3,710,750
P
= 235,470,591
250,000
–
–
P
=–
Paid-in
Capital
(Note 22)
At January 1, 2012, as previously
reported
Effect of adoption new and revised
accounting standards (Note 3)
As of January 1, 2012, as restated
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
Exercise of ESOP/ESOWN
Cost of share-based payments
Sale of treasury stock
Cash dividends
Change in non-controlling interests
At December 31, 2012
Remeasurement
Gain (Losses)
on Defined
Share-based
Benefit
Payments
Plans
(Note 28)
(Note 27)
P
= 42,832,820
P
= 553,743
–
42,832,820
–
–
–
779,027
36,807
1,471,278
–
–
P
= 45,119,932
–
553,743
–
–
–
(171,284)
78,312
–
–
–
P
= 460,771
P
=–
(456,254)
(456,254)
–
(487,107)
(487,107)
–
–
–
–
–
(P
= 943,361)
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
Other Comprehensive Income
Parent
Company
Net Unrealized
Preferred
Gain (Loss) on
Shares
Available-forCumulative
Equity
Retained
Held by
Sale Financial
Translation
Reserve
Earnings
Subsidiaries
Assets (Note 10)
Adjustments
(Note 2)
(Note 22)
(Note 22)
For the year ended December 31, 2012 (As restated -Note 3)
Treasury Stock(Note 22)
Common
Preferred
Stock
Stock - B
Total
Non-controlling
Interests
Total Equity
P
= 1,725,394
(P
= 2,311,050)
P
= 1,016,259
P
= 75,885,784
(P
= 250,000)
(P
= 6,608,886)
(P
= 5,800,000)
P
= 107,044,064
P
= 64,193,972
P
= 171,238,036
–
1,725,394
–
73,570
73,570
–
–
–
–
–
P
= 1,798,964
–
(2,311,050)
–
(927,350)
(927,350)
–
–
–
–
–
(P
= 3,238,400)
–
1,016,259
–
–
–
–
–
–
–
4,362,815
P
= 5,379,074
(234,482)
75,651,302
10,504,385
–
10,504,385
–
–
–
(2,887,610)
–
P
= 83,268,077
–
(250,000)
–
–
–
–
–
–
–
–
(P
= 250,000)
–
(6,608,886)
–
–
–
–
–
4,911,542
–
–
(P
= 1,697,344)
–
(5,800,000)
–
–
–
–
–
–
–
–
(P
= 5,800,000)
(690,736)
106,353,328
10,504,385
(1,340,887)
9,163,498
607,743
115,119
6,382,820
(2,887,610)
4,362,815
P
= 124,097,713
3,921,615
68,115,587
8,994,873
(593,578)
8,401,295
–
–
–
(2,478,197)
8,303,951
P
= 82,342,636
3,230,879
174,468,915
19,499,258
(1,934,465)
17,564,793
607,743
115,119
6,382,820
(5,365,807)
12,666,766
P
= 206,440,349
Paid-in
Capital
(Note 22)
At January 1, 2011, as previously
reported
Effect of adoption of new and revised
accounting standards (Note 3)
As of January 1, 2011, as restated
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
Exercise of ESOP/ESOWN
Cost of share-based payments
Redemption of preferred B shares
Acquisition of treasury stock
Cash dividends
Stock dividends
Change in non-controlling interests
At December 31, 2011
Remeasurement
Gain (Losses)
on Defined
Share-based
Benefit
Payments
Plans
(Note 28)
(Note 27)
P
= 37,855,466
P
= 1,243,055
–
37,855,466
–
–
–
135,037
–
–
–
–
4,842,317
–
P
= 42,832,820
–
1,243,055
–
–
–
–
178,733
–
–
–
–
(868,045)
P
= 553,743
See accompanying Notes to Consolidated Financial Statements.
P
=–
–
–
–
(456,254)
(456,254)
–
–
–
–
–
–
–
(P
= 456,254)
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
Other Comprehensive Income
Parent
Company
Net Unrealized
Preferred
Gain (Loss) on
Shares
Available-forCumulative
Equity
Retained
Held by
Sale Financial
Translation
Reserve
Earnings
Subsidiaries
Assets (Note 10)
Adjustments
(Note 2)
(Note 22)
(Note 22)
For the year ended December 31, 2011 (As restated -Note 3)
Treasury Stock(Note 22)
Common
Preferred
Stock
Stock - B
P
= 1,128,734
(P
= 1,763,471)
P
= 148,302
P
= 74,011,144
(P
= 250,000)
(P
= 4,832,262)
–
1,128,734
–
596,660
596,660
–
–
–
–
–
–
–
P
= 1,725,394
–
(1,763,471)
–
(547,579)
(547,579)
–
–
–
–
–
–
–
(P
= 2,311,050)
–
148,302
–
–
–
–
–
–
–
–
–
867,957
P
= 1,016,259
(22,930)
73,988,214
9,183,335
–
9,183,335
–
–
–
–
(2,677,930)
(4,842,317)
–
P
= 75,651,302
–
(250,000)
–
–
–
–
–
–
–
–
–
–
(P
= 250,000)
–
(4,832,262)
–
–
–
–
–
–
(1,776,624)
–
–
–
(P
= 6,608,886)
P
=–
–
–
–
–
–
–
–
(5,800,000)
–
–
–
–
(P
= 5,800,000)
Total
Non-controlling
Interests
Total Equity
P
= 107,540,968
P
= 59,210,496
P
= 166,751,464
(22,930)
107,518,038
9,183,335
(407,173)
8,776,162
135,037
178,733
(5,800,000)
(1,776,624)
(2,677,930)
–
(88)
P
= 106,353,328
3,633,594
62,844,090
6,922,998
(363,772)
6,559,226
–
143,556
–
–
(2,231,826)
–
800,541
P
= 68,115,587
3,610,664
170,362,128
16,106,333
(770,945)
15,335,388
135,037
322,289
(5,800,000)
(1,776,624)
(4,909,756)
–
800,453
P
= 174,468,915
AYALA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31
2012
2011
(As restated - (As restated 2013
Note 3)
Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Interest and other financing charges - net of
amount capitalized (Note 23)
Depreciation and amortization (Note 23)
Cost of share-based payments (Note 28)
Provision for impairment on:
Available-for-sale financial assets (Note 23)
Property, plant and equipment (Note 23)
Investment properties (Note 23)
Intangible assets (Note 23)
Gain on sale of:
Investments (Note 23)
Other assets (Note 23)
Other investment income (Note 23)
Interest income
Share of profit of associates and joint ventures
Remeasurement gain arising from business
combinations - net (Notes 23 and 24)
Loss on derecognition of derivative asset (Note 23)
Bargain purchase gain (Note 23)
Operating income before changes in working capital
Decrease (increase) in:
Accounts and notes receivable - trade
Inventories
Service concession asset
Other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Net pension liabilities
Other current liabilities
Net cash generated from operations
Interest received
Interest paid
Income tax paid
Net cash provided by operating activities
(Forward)
P
= 30,778,909
P
= 24,475,695
P
= 20,333,823
10,511,432
8,643,905
199,301
8,155,330
7,195,902
217,333
6,535,243
7,217,033
212,841
228,580
222
400
31,830
61,076
11,575
19,500
–
157,314
–
–
139,170
(190,296)
(19,382)
(879,951)
(3,435,948)
(10,091,139)
(67,847)
(26,588)
(531,714)
(4,632,453)
(7,681,899)
(539,713)
(131,078)
(572,012)
(3,317,343)
(7,046,223)
–
–
–
35,777,863
(593,853)
–
–
26,602,057
–
229,613
(558,233)
22,660,435
(8,361,297)
(2,285,580)
(5,457,889)
(2,895,043)
(9,005,266)
(1,861,119)
(5,686,589)
(10,253,547)
(6,792,198)
(6,886,072)
(8,419,716)
(2,182,147)
19,236,450
169,723
4,021,260
40,205,487
3,227,749
(10,056,631)
(7,849,804)
25,526,801
13,058,649
149,365
4,964,574
17,968,124
4,207,527
(8,398,754)
(4,983,373)
8,793,524
11,982,192
848,626
2,752,148
13,963,268
3,336,277
(5,070,594)
(3,955,793)
8,273,158
Years Ended December 31
2012
2011
(As restated - (As restated 2013
Note 3)
Note 3)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale/maturities of available-for-sale financial
assets
Sale/maturities of financial assets at fair value
through profit or loss
Sale/redemptions of investments in associates and
joint ventures
Disposals of:
Property, plant and equipment (Note 14)
Investment properties (Note 13)
Land and improvements (Note 11)
Maturities of short-term investments
Additions to:
Service concession assets (Note 15)
Investments in associates and joint ventures
Property, plant and equipment (Note 14)
Investment properties (Note 13)
Land and improvements (Note 11)
Accounts and notes receivable - non trade
Financial assets at fair value through profit or loss
Available-for-sale financial assets
Intangible assets (Note 16)
Dividends received from associates, joint ventures
and available-for-sale financial assets
Acquisitions through business combinations - net of
cash acquired (Note 24)
Decrease (increase) in other noncurrent assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term and long-term debt
Payments of short-term and long-term debt
Reissuance of treasury shares (Note 22)
Dividends paid
Redemption of preferred shares (Note 22)
Service concession obligation paid (Note 15)
Collections of subscriptions receivable
Acquisition of treasury shares (Note 22)
(Forward)
P
= 653,327
P
= 1,281,413
P
= 1,591,464
1,046,783
449,557
560,973
681,120
113,858
5,329,179
101,797
131,781
–
177,159
213,612
1,653
1,613
1,316,555
246,408
148,823
–
2,380,475
–
(18,574,892)
(6,838,751)
(12,086,027)
(29,446,957)
(2,607,547)
(13,823,514)
(1,119,885)
(175,883)
(907,753)
(18,776,599)
(6,768,129)
(9,232,788)
(31,882,873)
(7,580,428)
(797,175)
(647,266)
(41,538)
–
(6,152,019)
(3,751,864)
(10,427,870)
(3,959,279)
(2,734,569)
(870,240)
(848,217)
(86,250)
6,131,475
6,648,576
4,484,010
2,766
(4,906,765)
(80,654,013)
(1,096,432)
(2,127,413)
(69,831,557)
(2,023,820)
(6,982,803)
(23,095,599)
76,845,127
(45,973,965)
13,256,203
(6,640,418)
(5,750,000)
(924,936)
112,453
–
83,427,558
(21,234,866)
6,382,820
(5,777,400)
–
(356,385)
448,040
–
53,830,372
(27,804,022)
–
(5,304,555)
(5,800,000)
(305,597)
100,928
(1,776,624)
Years Ended December 31
2012
2011
(As restated - (As restated 2013
Note 3)
Note 3)
Increase (decrease) in:
Other noncurrent liabilities
Non-controlling interests in consolidated
subsidiaries
Net cash provided by financing activities
P
= 2,044,949
P
= 9,521,838
7,526,493
40,495,906
12,616,280
85,027,885
5,252,408
17,976,167
(14,631,306)
23,989,852
3,153,726
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
80,286,355
56,296,503
53,142,777
CASH AND CASH EQUIVALENTS AT
END OF YEAR (Note 5)
P
= 65,655,049
P
= 80,286,355
P
= 56,296,503
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
See accompanying Notes to Consolidated Financial Statements.
(P
= 216,743)
AYALA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Ayala Corporation (the Company) is incorporated in the Republic of the Philippines on
January 23, 1968. The Company’s registered office address and principal place of business is
Tower One, Ayala Triangle, Ayala Avenue, Makati City. The Company is a publicly listed
company which is 50.66% owned by Mermac, Inc., 10.52% owned by Mitsubishi Corporation and
the rest by the public.
The Company is the holding company of the Ayala Group of Companies, with principal business
interests in real estate and hotels, financial services and insurance, telecommunications, water
distribution and wastewater services, electronics, information technology, business process
outsourcing (BPO) services, automotive, infrastructure, power, international and others.
2. Group Information
The consolidated financial statements comprise the financial statements of the Company and the
following subsidiaries of the Group:
Subsidiaries
AC Energy Holdings, Inc. (ACEHI)
AC Infrastructure Holdings Corporation
(AC Infra)
AC International Finance Limited
(ACIFL)*
AG Counselors Corporation (AGCC)
Ayala Automotive Holdings Corporation
(AAHC)
Ayala Aviation Corporation (AAC)
Ayala Land, Inc. (ALI)
AYC Finance Ltd. (AYCFL)*
Azalea International Venture Partners
Limited (AIVPL)**
Azalea Technology Investments, Inc.
(Azalea Technology)
Bestfull Holdings Limited (BHL)***
Darong Agricultural and Development
Corporation (DADC)
Integrated Microelectronics, Inc. (IMI)
LiveIt Global Services Management
Institute, Inc. (LGSMI)
Manila Water Company, Inc. (MWC)
Michigan Holdings, Inc. (MHI)
MPM Noodles Corporation
Philwater Holdings Company, Inc.
(Philwater)
Purefoods International, Ltd. (PFIL)**
Technopark Land, Inc. (TLI)
Water Capital Works, Inc. (WCW)
*Incorporated in Cayman Islands
**Incorporated in British Virgin Islands
***Incorporated in Hong Kong
Nature of Business
Power
Transport Infrastructure
% of Ownership
Interest held by the Group
2013
2012
100.0%
100.0%
100.0
100.0
Investment Holding
100.0
100.0
Legal Services
Automotive
100.0
100.0
100.0
100.0
Air Charter
Real Estate and Hotels
Investment Holding
BPO
100.0
48.9
100.0
100.0
100.0
50.4
100.0
100.0
Information
Technology
International
Agriculture
100.0
100.0
100.0
100.0
100.0
100.0
Electronics Manufacturing
Education
57.8
100.0
57.8
100.0
Water Distribution and
Wastewater Services
Investment Holding
Investment Holding
Investment Holding
48.8
42.9
100.0
100.0
100.0
100.0
100.0
100.0
Investment Holding
Real Estate
Investment Holding
100.0
78.8
100.0
100.0
78.8
100.0
Unless otherwise indicated, the principal place of business and country of incorporation of the
Group’s investments in subsidiaries is the Philippines.
Except as discussed in subsequent notes, the voting rights held by the Group in its investments in
subsidiaries are in proportion to its ownership interest.
Equity transactions with subsidiaries
ALI
In July 2012, ALI redeemed all of its outstanding preferred shares from the shareholders of record
as of June 4, 2012. As of June 4, 2012, the Company held 12.8 billion outstanding preferred
shares. Such shares were redeemed at P
= 0.10 per share plus a cash dividend of P
= 0.003 per
share. Total consideration received including cash dividends amounted to P
= 1.3 billion.
Subsequently, the Company subscribed to 12.2 billion of ALI’s voting preferred shares for
P
= 0.10 per share.
ALI shares with carrying value of P
= 301.2 million and P
= 305.5 million facility as of
December 31, 2013 and 2012, respectively were collateralized to secure the Company’s loan.
Fair value of ALI shares collateralized amounted to P
= 9.8 billion and P
= 10.6 billion as of
December 31, 2013 and 2012, respectively.
The Company owns 93.1% and 93.3% of the total preferred shares of ALI as of December 31,
2013 and 2012, respectively. The voting rights held by the Group in ALI as of December 31, 2013
is equal to 70.1%.
AAHC
In July 2013, the Company subscribed to 3.0 million common shares of AAHC amounting to
P
= 300 million. The proceeds was used by AAHC to fund the 2013 operating requirements of the
Volkswagen brand project.
On February 2, 2012, the Company received excess deposits over unissued authorized common
shares in AAHC amounting to P
= 84.6 million.
ACEHI
In January 2012, the Company converted its subscription and advances to ACEHI with an
aggregate amount of P
= 2,178.0 million into additional equity for 21.8 million common shares.
In September 2013 and November 2012, the Company converted its subscription to ACEHI
amounting to P
= 3.4 billion and P
= 1.4 billion, respectively, into additional equity for 34.6 million and
14.4 million common shares, respectively.
On various dates in 2013 and 2012, the Company infused additional capital to ACEHI in the form
of subscription which amounted to P
= 3.4 billion and P
= 1.1 billion, respectively. The proceeds were
used to finance the various energy projects of ACEHI.
AC Infra
In 2012, the Company subscribed to 1.5 million common shares of AC Infra amounting to
P
= 150.0 million. In 2013, the Company partially paid the subscription amounting to P
= 50.0 million.
BHL
In December 2012, the Company converted advances to BHL amounting to P
= 110.8 million by
subscribing 0.3 million redeemable preferred shares of BHL.
ACIFL
On January 11, 2012, the Company subscribed to 2.0 million shares of common stock of ACIFL
with a par value of US$1 per share. Payment for the total subscribed shares was made through
conversion of the Company’s existing deposits for future subscription which amounted to
P
= 91.3 million.
As of December 31, 2013 and 2012, ACIFL, through its wholly-owned subsidiary, AYC Holdings,
Ltd., owns 57.8% of IMI. The voting rights held by the Group in IMI as of December 31, 2013 is
equal to 70.2%.
AAC
In 2013 and 2012, the Company infused additional capital to AAC amounting to P
= 40.6 million and
P
= 30.1 million, respectively.
AGCC
In 2012, the Company subscribed to 2.0 million shares of common stock of AGCC amounting to
P
= 20.0 million.
LGSMI
On September 14, 2012, the Company incorporated LGSMI to provide services oriented towards
the promotion of service management, including but not limited to the design, marketing,
management and/or conduct of seminars, conventions, courses, conferences, special programs,
symposia for service management excellence, by itself or in partnership with other entities or
institutions except management of funds, securities portfolios or similar assess of managed entity,
without operating a school.
On various dates in 2012, the Company provided initial equity funding to LGSMI amounting to
P
= 37.6 million.
In 2013, the Company infused additional capital to LGSMI amounting to P
= 57.1 million.
Movements in ownership interest in subsidiaries
Real Estate and Hotels
In March 2013 and July 2012, the Company participated in the placement and subscription of
399.5 million and 680.0 million common shares of stock in ALI, respectively, whereby the
Company sold its listed ALI common shares through a private placement and infused the
proceeds into ALI as subscription for the same number of new ALI shares at the same price. This
transaction supports ALI’s fund raising initiatives to acquire assets for its next phase of expansion.
Following these transactions, the Company’s ownership interest in ALI’s common stock was
reduced from 53.2% to 50.4% as of July 2012 and further reduced to 48.9% as of March 2013.
The Company maintained the same number of common shares it held in ALI prior to the
transaction. The transaction increased the equity reserve account by P
= 2.7 billion and P
= 5.3 billion
in 2013 and 2012, respectively.
Electronics
ACIFL’s ownership interest in IMI was reduced from 67.4% to 59.1% as result of IMI Philippines’
share exchange with IMI Singapore (see Note 24). On December 19, 2012, ACIFL sold
12.0 million IMI common shares at P
= 3.5 per share or for a total consideration of P
= 42.0 million.
Accordingly, the Group’s ownership interest in IMI’s common stock was reduced from 59.1% to
57.8%. The transaction decreased the equity reserve account by P
= 179.9 million and
P
= 613.0 million in 2013 and 2012, respectively.
Water Distribution and Wastewater Services
In August and December 2013, the Company acquired 0.05 million and 140.0 million MWC
common shares, respectively, for a total consideration of P
= 2.8 billion. The combination of the
transactions resulted to an increase in ownership interest in MWC from 43.1% to 48.8%. The
transaction decreased the equity reserve account by P
= 1.1 billion in 2013.
The voting rights held by the Group in MWC as of December 31, 2013 is equal to 79.3%.
Material partly-owned subsidiaries
Information of subsidiaries that have material non-controlling interests is provided below:
Subsidiary
ALI
IMI
MWC
Accumulated Balances of
Profit (Loss) Allocated to
Non-controlling Interest
Non-controlling Interest
2013
2012
2013
2012
(In Thousands)
P
= 62,779,490
P
= 49,259,197
P
= 8,150,756
P
= 6,368,764
3,100,466
3,247,728
155,840
(21,296)
25,631,434
25,168,712
2,917,444
2,815,231
The summarized financial information of these subsidiaries is provided below. These information
is based on amounts before inter-company eliminations.
2013
Statement of financial position
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Dividends paid to non-controlling interests
Statement of comprehensive income
Revenue
Profit (loss) attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income attributable
to:
Equity holders of the parent
Non-controlling interests
Statement of cash flows
Operating activities
Investing activities
Financing activities
Effect of changes in foreign exchange on
cash and cash equivalents
Net increase (decrease) in cash and
cash equivalents
ALI
MWC
(In Thousands)
IMI*
P
= 146,986,957
178,486,728
101,623,207
111,752,912
1,109,467
P
= 9,069,404
63,788,120
8,072,931
33,730,537
–
P
= 15,017,182
6,657,736
9,824,702
3,413,147
–
P
= 81,523,070
P
= 15,925,817
P
= 33,075,690
11,741,764
2,562,929
5,752,362
28,199
464,949
(56,691)
11,466,162
2,557,938
5,793,305
28,102
310,910
(56,691)
P
= 27,238,649
(69,952,151)
38,557,555
P
= 4,345,087
15,820
(3,121,277)
–
(P
= 4,155,947)
P
= 667,817
(749,138)
(233,233)
–
(3,038)
P
= 1,239,630
(P
= 317,592)
2012
Statement of financial position
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Dividends paid to non-controlling interests
Statement of comprehensive income
Revenue
Profit (loss) attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income attributable
to:
Equity holders of the parent
Non-controlling interests
Statement of cash flows
Operating activities
Investing activities
Financing activities
Effect of changes in foreign exchange on
cash and cash equivalents
Net increase in cash and
cash equivalents
2011
Statement of financial position
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Dividends paid to non-controlling interests
Statement of comprehensive income
Revenue
Profit (loss) attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income
Equity holders of the parent
Non-controlling interests
Statement of cash flows
Operating activities
Investing activities
Financing activities
Effect of changes in foreign exchange on
cash and cash equivalents
Net increase in cash and
cash equivalents
ALI
MWC
(In Thousands)
IMI*
P
= 111,055,354
143,060,326
78,671,224
79,904,242
1,034,264
P
= 8,217,497
58,909,532
9,899,094
30,473,666
–
P
= 12,337,004
6,273,132
7,888,700
3,006,112
635
P
= 59,932,162
P
= 14,553,068
P
= 27,168,931
9,038,328
2,038,158
5,490,443
12,849
229,248
(190,972)
8,875,391
2,045,135
5,372,724
11,530
450,370
(190,972)
P
= 8,422,529
(54,914,554)
51,328,434
P
= 3,163,912
(663,375)
(2,195,527)
P
= 376,064
(511,654)
237,331
–
–
P
= 4,836,409
P
= 305,010
ALI
(14,419)
P
= 87,322
MWC
(In Thousands)
IMI*
P
= 79,783,136
86,615,862
48,504,579
41,914,092
857,040
P
= 7,819,348
53,077,794
6,288,023
31,896,727
–
P
= 12,266,488
7,105,769
8,109,178
3,186,833
867
P
= 47,667,610
P
= 12,003,913
P
= 25,227,899
7,140,308
1,448,561
4,270,205
11,955
142,693
(87,584)
7,122,155
1,450,525
4,181,819
11,704
(164,778)
(87,584)
P
= 9,913,005
(15,026,185)
12,790,907
P
= 529,128
(2,455,121)
4,748,222
P
= 704,417
(259,692)
254,999
–
–
P
= 7,677,727
P
= 2,822,229
(1,158)
P
= 698,566
*Translated using the exchange rate at the reporting date (US$1:P
= 44.395 in December 31, 2013, US$1:P
= 41.05 in
December 31, 2012 and US$1:P
= 43.84 in January 1, 2012).
3. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements of the Group have been prepared on a
historical cost basis, except for financial assets at fair value through profit or loss (FVPL),
available-for-sale (AFS) financial assets and derivative financial instruments that have been
measured at fair value. The consolidated financial statements are presented in Philippine Peso
(P
= ) and all values are rounded to the nearest thousand pesos (P
= 000) unless otherwise indicated.
The consolidated financial statements provide comparative information in respect of the previous
period. In addition, the Group presents an additional statement of financial position 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 financial
statements. An additional statement of financial position as at January 1, 2012 is presented in
these consolidated financial statements due to retrospective application of certain accounting
policies.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group as of
December 31, 2013 and 2012 and for each of the three years in the period ended
December 31, 2013.
Control is achieved when the Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if and only if the Group has:
a. Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee)
b. Exposure, or rights, to variable returns from its involvement with the investee, and
c. 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:
a. The contractual arrangement with the other vote holders of the investee
b. Rights arising from other contractual arrangements
c. The Group’s voting rights and potential voting rights
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 interests pertain to the equity in a subsidiary not attributable, directly or indirectly
to the Company. Any equity instruments issued by a subsidiary that are not owned by the
Company are non-controlling interests including preferred shares and options under share-based
transactions.
Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries not
wholly-owned and are presented separately in the consolidated statements of income,
consolidated statements of comprehensive income, consolidated statements of changes in equity
and consolidated statements of financial position, separately from the Company’s equity.
Non-controlling interests are net of any outstanding subscription receivable.
Losses within a subsidiary are attributed to the non-controlling interests even if that results in a
deficit balance.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. Any difference between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received is recognized directly in equity as
“Equity reserve” and attributed to the owners of the Company. If the Group losses control over a
subsidiary, it:
·
·
·
·
·
·
·
Derecognizes the assets (including goodwill) and liabilities of the subsidiary;
Derecognizes the carrying amount of any non-controlling interests;
Derecognizes the cumulative translation adjustments 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; and
Reclassifies the parent’s share of components previously recognized in OCI to profit or loss or
retained earnings, as appropriate, as would be required if the Group had directly disposed of
the related assets and liabilities.
Changes in Accounting Policies
The accounting policies adopted in the preparation of the consolidated financial statements are
consistent with those of the previous financial years except for the new PFRS, amended PFRS
and improvements to PFRS which were adopted beginning January 1, 2013. The nature and the
impact of each new standards and amendments is described below:
New and amended standards and interpretations
The Group applied, for the first time, certain standards and amendments that require restatement
of previous financial statements. These include PFRS 10, Consolidated Financial Statements,
PFRS 11, Joint Arrangements, PAS 19, Employee Benefits (Revised 2011), and amendments to
PAS 1, Presentation of Financial Statements. In addition, the application of PFRS 12, Disclosure
of Interests in Other Entities resulted in additional disclosures in the consolidated financial
statements.
Several other amendments apply for the first time in 2013. The nature and the impact of each
new standards and amendments are described below:
PFRS 7, Financial instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities
(Amendments)
These amendments require an entity to disclose information about rights of set-off and related
arrangements (such as collateral agreements). The new disclosures are required for all
recognized financial instruments that are set off in accordance with PAS 32. These disclosures
also apply to recognized financial instruments that are subject to an enforceable master netting
arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with
PAS 32. The amendments require entities to disclose, in a tabular format, unless another format
is more appropriate, the following minimum quantitative information. This is presented separately
for financial assets and financial liabilities recognized at the end of the reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities;
b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the
net amounts presented in the statement of financial position;
c) The net amounts presented in the statement of financial position;
d) The amounts subject to an enforceable master netting arrangement or similar agreement that
are not otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of the
offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments affect disclosures only and have no impact on the Group’s financial position or
performance. The additional disclosures required by the amendments are presented in Note 32 to
the financial statements.
PFRS 10, Consolidated Financial Statements
The Group adopted PFRS 10 in the current year. PFRS 10 replaced the portion of PAS 27,
Consolidated and Separate Financial Statements, that addressed the accounting for consolidated
financial statements. It also included the issues raised in SIC 12, Consolidation - Special Purpose
Entities. PFRS 10 established a single control model that applied to all entities including special
purpose entities. The changes introduced by PFRS 10 require management to exercise
significant judgment to determine which entities are controlled, and therefore, are required to be
consolidated by a parent, compared with the requirements that were in PAS 27.
The application of PFRS 10 affected the accounting for ALI Group’s interests in North Triangle
Depot Commercial Corporation (NTDCC), Cebu Holdings, Inc. (CHI), Alabang Commercial
Corporation (ACC), BG West Properties, Inc. (BGW), BG South Properties, Inc. (BGS), BG North
Properties, Inc. (BGN). For all financial years up to December 31, 2012, NTDCC, CHI and ACC
were considered to be associates under the previously existing PAS 28, Investments in
Associates while BGW, BGS and BGN were considered to be jointly controlled entities under the
previously existing PAS 31, Interests in Joint Ventures. These entities were accounted for using
the equity method. At the date of initial application of PFRS 10, the Group assessed that it
controls these companies based on the factors explained in Note 4, Judgments and Estimates.
The Group consolidated the financial statements of NTDCC, CHI, ACC, BGW, BGS and BGN
based on its equity interest as follows:
Entity Name
NTDCC
CHI
ACC
BGW
BGS
BGN
Equity Interest of the Group
49.3%
49.8
50.0
50.0
50.0
50.0
Non-controlling Interest
(In Thousands)
P
= 1,137,387
3,324,225
481,261
526,553
630,792
587,887
P
= 6,688,105
The assets, liabilities and equity of these entities have been retrospectively consolidated in the
financial statements of the Group. Non-controlling interests have been recognized at a
proportionate share of the net assets of the subsidiaries. The opening balances at
January 1, 2012 and comparative information for years ended December 31, 2012 and 2011 have
been restated in the consolidated financial statements.
The quantitative impact on the financial statements is provided below.
Impact on the consolidated statements of income (increase/(decrease) in net equity):
Years ended December 31
2012
2011
(In Thousands)
Income
Sale of goods
Interest income
Share of profit of associates and joint ventures
Other income
Cost and Expenses
Cost of sales
General and administrative
Interest and other financing charges
Other charges
Income Before Income Tax
Provision for Income Tax
Current
Deferred
Net Income
Attributable to:
Equity holders of the parent
Non-controlling interests
P
= 5,850,603
502,218
(798,344)
(147,130)
5,407,347
P
= 3,607,150
35,748
(509,586)
328,765
3,462,077
3,586,671
283,578
214,141
1,846
4,086,236
1,321,111
2,049,986
284,282
219,106
22,698
2,576,072
886,005
1,057,109
(478,097)
579,012
P
= 742,099
419,738
(32,021)
387,717
P
= 498,288
P
=–
742,099
P
= 742,099
P
=–
498,288
P
= 498,288
December 31,
2012
January 1,
2012
P
= 3,525,687
–
561,637
3,252,358
3,284,651
10,624,333
P
= 2,681,963
3,456
620,044
1,026,107
134,924
4,466,494
5,022,942
18,645
1,105,291
(5,272,656)
11,666,598
182,406
591,548
46,642
13,361,416
P
= 23,985,749
1,245,660
(4,988)
–
(4,617,973)
10,410,347
201,454
136,323
(12,611)
7,358,212
P
= 11,824,706
Impact on equity (increase/(decrease) in net equity):
Assets
Current Assets
Cash and cash equivalents
Short-term investments
Accounts and notes receivables
Inventories
Other current assets
Total Current Assets
Noncurrent Assets
Noncurrent accounts and notes receivables
Investments in bonds and other securities
Land and improvements
Investment in associates and joint ventures
Investment properties
Property, plant and equipment
Deferred tax assets - net
Other noncurrent assets
Total Noncurrent Assets
(Forward)
Liabilities
Current Liabilities
Accounts payable and accrued expenses
Short-term debt
Income tax payable
Current portion of long-term debt
Other current liabilities
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion
Pension liabilities - net
Deferred income tax liabilities - net
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
Net Impact on Equity
December 31,
2012
January 1,
2012
P
= 5,699,530
496,315
180,771
204,520
1,326,289
7,907,425
P
= 1,370,443
668,000
87,482
305,000
444,376
2,875,301
4,626,777
54,636
82,703
6,984,025
11,748,141
19,655,566
P
= 4,330,183
3,614,426
19,621
17,824
1,184,762
4,836,633
7,711,934
P
= 4,112,772
Impact on statements of cash flows (increase/(decrease) in cash flows):
Operating Activities
Investing Activities
Financing Activities
Net increase in cash and cash equivalents
Years ended December 31
2011
2012
(P
= 2,057,579)
P
= 1,154,150
(2,535,305)
(93,637)
5,436,108
32,808
P
= 843,224
P
= 1,093,321
PFRS 11, Joint Arrangements
PFRS 11 replaced PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities Non-Monetary Contributions by Venturers. PFRS 11 removed the option to account for jointly
controlled entities using proportionate consolidation. Instead, jointly controlled entities that meet
the definition of a joint venture must be accounted for using the equity method. The Group has
concluded that existing jointly controlled entities as of December 31, 2012 meet the definition of
joint venture as set forth in the Standard. Likewise, this Standard has no impact in the Group’s
financial statements as the Group already accounts for its investments in jointly controlled entities
under the equity method of accounting.
PFRS 12, Disclosure of Interests in Other Entities
PFRS 12 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. While the
Group has subsidiaries with material non-controlling interests, there are no unconsolidated
structured entities. Additional disclosures required under PFRS 12 are disclosed in Notes 2 and
12 to the consolidated financial statements.
PFRS 13, Fair Value Measurement
PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements.
PFRS 13 does not change when an entity is required to use fair value, but rather provides
guidance on how to measure fair value under PFRS. PFRS 13 defines fair value as an exit price.
PFRS 13 also requires additional disclosures.
As a result of the guidance in PFRS 13, the Group re-assessed its policies for measuring fair
values. The Group has assessed that the application of PFRS 13 has not materially impacted the
fair value measurements of the Group. Additional disclosures, where required, are provided in the
individual notes relating to the assets and liabilities whose fair values were determined. Fair value
hierarchy is provided in Note 33.
PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive
Income or OCI (Amendments)
The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be
reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon
derecognition or settlement) will be presented separately from items that will never be recycled.
The amendments resulted to the modification of the presentation of items of OCI and have no
impact on the Group’s financial position or performance. .
PAS 19, Employee Benefits (Revised 2011)
For defined benefit plans, the revised standard requires all actuarial gains and losses to be
recognized in other comprehensive income and unvested past service costs previously recognized
over the average vesting period to be recognized immediately in profit or loss when incurred.
Prior to adoption of the revised standard, the Group recognized actuarial gains and losses as
income or expense when the net cumulative unrecognized gains and losses for each individual
plan at the end of the previous period exceeded 10% of the higher of the defined benefit obligation
and the fair value of the plan assets and recognized unvested past service costs as an expense
on a straight-line basis over the average vesting period until the benefits become vested. Upon
adoption of the revised standard, the Group changed its accounting policy to recognize all
actuarial gains and losses in other comprehensive income and all past service costs in profit or
loss in the period they occur.
The revised standard replaced the interest cost and expected return on plan assets with the
concept of net interest on defined benefit liability or asset which is calculated by multiplying the net
balance sheet defined benefit liability or asset by the discount rate used to measure the employee
benefit obligation, each as at the beginning of the annual period.
The revised 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. In addition, the revised standard modifies the
timing of recognition for termination benefits. The modification requires the termination benefits to
be recognized at the earlier of when the offer cannot be withdrawn or when the related
restructuring costs are recognized.
Changes to definition of short-term employee benefits and timing of recognition for termination
benefits do not have any impact to the Group’s financial position and financial performance.
The changes in accounting policies have been applied retrospectively. The effects of adoption on
the financial statements are as follows:
As at
31 December
2012
(Increase) decrease in
Statement of financial position
Net defined benefit asset (liability)
Deferred tax liability (asset)
Investments in associates and joint ventures
Retained earnings
Other comprehensive income
Non-controlling interest
`
As at
1 January
2012
In Thousands
(P
= 129,383)
(62,634)
(582,640)
–
487,107
137,949
(P
= 808,840)
(148,068)
(256,488)
39,189
456,254
230,731
For the Year Ended
December 31
2012
2011
Statement of comprehensive income
Equity in net earnings
Retirement costs
Other financing charges
Deferred income tax
P
= 48,991
(70,765)
64,922
(18,815)
P
= 171,406
65,085
113,734
(28,968)
The adoption did not have impact on consolidated statement of cash flows.
Change of presentation
Upon adoption of the revised standard, the presentation of the consolidated statement of income
was updated to reflect these changes. Net interest is now shown under the interest income/
interest and other financing charges line item (previously under personnel costs under general and
administrative expenses). This presentation better reflects the nature of net interest since it
corresponds to the compounding effect of the long-term net defined benefit liability (net defined
benefit asset). In the past, the expected return on plan assets reflected the individual performance
of the plan assets, which were regarded as part of the operating activities.
PAS 27, Separate Financial Statements (as revised in 2011)
As a consequence of the issuance of the new PFRS 10, Consolidated Financial Statements, and
PFRS 12, Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to
accounting for subsidiaries, jointly controlled entities, and associates in the separate financial
statements. The adoption of the amended PAS 27 did not have a significant impact on the
separate financial statements of the entities in the Group.
PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)
As a consequence of the issuance of the new PFRS 11, Joint Arrangements, and PFRS 12,
Disclosure of Interests in Other Entities, PAS 28 has been renamed PAS 28, Investments in
Associates and Joint Ventures, and describes the application of the equity method to investments
in joint ventures in addition to associates.
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
This interpretation applies to waste removal (stripping) costs incurred in surface mining activity,
during the production phase of the mine. The interpretation addresses the accounting for the
benefit from the stripping activity. This new interpretation is not relevant to the Group.
PFRS 1, First-time Adoption of International Financial Reporting Standards – Government Loans
(Amendments)
The amendments to PFRS 1 require first-time adopters to apply the requirements of PAS 20,
Accounting for Government Grants and Disclosure of Government Assistance, prospectively to
government loans existing at the date of transition to PFRS. However, entities may choose to
apply the requirements of PAS 39, Financial Instruments: Recognition and Measurement, and
PAS 20 to government loans retrospectively if the information needed to do so had been obtained
at the time of initially accounting for those loans. These amendments are not relevant to the
Group.
Annual Improvements to PFRSs (2009-2011 cycle)
The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary
amendments to PFRSs. The Group adopted these amendments for the current year.
PFRS 1, First-time Adoption of PFRS - Borrowing Costs
The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in
accordance with its previous generally accepted accounting principles, may carry forward, without
any adjustment, the amount previously capitalized in its opening statement of financial position at
the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in
accordance with PAS 23, Borrowing Costs. The amendment does not apply to the Group as it is
not a first-time adopter of PFRS.
PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative
information
The amendments clarify the requirements for comparative information that are disclosed
voluntarily and those that are mandatory due to retrospective application of an accounting policy,
or retrospective restatement or reclassification of items in the financial statements. An entity must
include comparative information in the related notes to the financial statements when it voluntarily
provides comparative information beyond the minimum required comparative period. The
additional comparative period does not need to contain a complete set of financial statements. On
the other hand, supporting notes for the third 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
The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be
recognized as property, plant and equipment when they meet the definition of property, plant and
equipment and should be recognized as inventory if otherwise.
PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity
instruments
The amendment clarifies that income taxes relating to distributions to equity holders and to
transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income
Taxes. The amendment does not have any significant impact on the Group’s financial position or
performance.
PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total
assets and liabilities
The amendment clarifies that the total assets and liabilities for a particular reportable segment
need to be disclosed only when the amounts are regularly provided to the chief operating decision
maker and there has been a material change from the amount disclosed in the entity’s previous
annual financial statements for that reportable segment. The amendment affects disclosures only
and has no impact on the Group’s financial position or performance.
Standards and interpretation issued but not yet effective
The Group will adopt the following new and amended Standards and Philippine Interpretations of
International Financial Reporting Interpretations Committee (IFRIC) enumerated below when
these become effective. Except as otherwise indicated, the Group does not expect the adoption
of these new and amended PFRS and Philippine Interpretations to have significant impact on the
consolidated financial statements.
Effective 2014
PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets
(Amendments)
These amendments remove the unintended consequences of PFRS 13 on the disclosures
required under PAS 36. In addition, these amendments require disclosure of the recoverable
amounts for the assets or cash-generating units (CGUs) for which impairment loss has been
recognized or reversed during the period. These amendments are effective retrospectively for
annual periods beginning on or after January 1, 2014 with earlier application permitted, provided
PFRS 13 is also applied. The amendments affect disclosures only and have no impact on the
Group’s financial position or performance.
Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)
These amendments are effective for annual periods beginning on or after January 1, 2014. They
provide an exception to the consolidation requirement for entities that meet the definition of an
investment entity under PFRS 10. The exception to consolidation requires investment entities to
account for subsidiaries at fair value through profit or loss. It is not expected that this amendment
would be relevant to the Group since none of the entities in the Group would qualify to be an
investment entity under PFRS 10.
Philippine Interpretation IFRIC 21, Levies (IFRIC 21)
IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers
payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon
reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated
before the specified minimum threshold is reached. IFRIC 21 is effective for annual periods
beginning on or after January 1, 2014. The Group does not expect that IFRIC 21 will have
material financial impact in future financial statements.
PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and
Continuation of Hedge Accounting (Amendments)
These amendments provide relief from discontinuing hedge accounting when novation of a
derivative designated as a hedging instrument meets certain criteria. These amendments are
effective for annual periods beginning on or after January 1, 2014. These amendments are not
expected to have a significant impact on the Group’s financial position or performance.
PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities
(Amendments)
The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and
also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central
clearing house systems) which apply gross settlement mechanisms that are not simultaneous.
The amendments affect presentation only and have no impact on the Group’s financial position or
performance. The amendments to PAS 32 are to be retrospectively applied for annual periods
beginning on or after January 1, 2014.
Effective 2015
PAS 19, Employee Benefits – Defined Benefit Plans: Employee Contributions (Amendments)
The amendments 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 to PAS 19 are to be retrospectively applied for annual periods
beginning on or after July 1, 2014.
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
The amendment revised the definitions of vesting condition and market condition and added the
definitions of performance condition and service condition to clarify various issues. This
amendment shall be prospectively applied to share-based payment transactions for which the
grant date is on or after July 1, 2014. The amendment affects disclosures only and has no impact
on the Group’s financial position or performance.
PFRS 3, Business Combinations – Accounting for Contingent Consideration in a Business
Combination
The amendment clarifies that a contingent consideration that meets the definition of a financial
instrument should be classified as a financial liability or as equity in accordance with PAS 32.
Contingent consideration that is not classified as equity is subsequently measured at fair value
through profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9 is
not yet adopted) The amendment shall be prospectively applied to business combinations for
which the acquisition date is on or after July 1, 2014. The amendment will not have any impact on
the Group’s financial position or performance.
PFRS 8, Operating Segments – Aggregation of Operating Segments and Reconciliation of the
Total of the Reportable Segments’ Assets to the Entity’s Assets
The amendments require entities to disclose the judgment made by management in aggregating
two or more operating segments. This disclosure should include a brief description of the
operating segments that have been aggregated in this way and the economic indicators that have
been assessed in determining that the aggregated operating segments share similar economic
characteristics. The amendments also clarify that an entity shall provide reconciliations of the total
of the reportable segments’ assets to the entity’s assets if such amounts are regularly provided to
the chief operating decision maker. These amendments are effective for annual periods beginning
on or after July 1, 2014 and are applied retrospectively. The amendments affect disclosures only
and have no impact on the Group’s financial position or performance.
PFRS 13, Fair Value Measurement – Short-term Receivables and Payables
The amendment clarifies that short-term receivables and payables with no stated interest rates
can be held at invoice amounts when the effect of discounting is immaterial.
PAS 16, Property, Plant and Equipment – Revaluation Method – Proportionate Restatement of
Accumulated Depreciation
The amendment clarifies that, upon revaluation of an item of property, plant and equipment, the
carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be
treated in one of the following ways:
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 amendment is effective for annual periods beginning on or after July 1, 2014. The amendment
shall apply to all revaluations recognized in annual periods beginning on or after the date of initial
application of this amendment and in the immediately preceding annual period. The amendment
has no impact on the Group’s financial position or performance.
PAS 24, Related Party Disclosures – Key Management Personnel
The amendments clarify that an entity is a related party of the reporting entity if the said entity, or
any member of a group for which it is a part of, provides key management personnel services to
the reporting entity or to the parent company of the reporting entity. The amendments also clarify
that a reporting entity that obtains management personnel services from another entity (also
referred to as management entity) is not required to disclose the compensation paid or payable by
the management entity to its employees or directors. The reporting entity is required to disclose
the amounts incurred for the key management personnel services provided by a separate
management entity. The amendments are effective for annual periods beginning on or after
July 1, 2014 and are applied retrospectively. The amendments affect disclosures only and have no
impact on the Group’s financial position or performance.
PAS 38, Intangible Assets – Revaluation Method – Proportionate Restatement of Accumulated
Amortization
The amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the
asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the
following ways:
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 are effective for annual periods beginning on or after July 1, 2014. The
amendments shall apply to all revaluations recognized in annual periods beginning on or after the
date of initial application of this amendment and in the immediately preceding annual period. The
amendments 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’
The amendment clarifies that an entity may choose to apply either a current standard or a new
standard that is not yet mandatory, but that permits early 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
The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint
arrangement in the financial statements of the joint arrangement itself. The amendment is effective
for annual periods beginning on or after July 1, 2014 and is applied prospectively.
PFRS 13, Fair Value Measurement – Portfolio Exception
The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial
assets, financial liabilities and other contracts. The amendment is effective for annual periods
beginning on or after July 1, 2014 and is applied prospectively. The amendment has no significant
impact on the Group’s financial position or performance.
PAS 40, Investment Property
The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying
property as investment property or owner-occupied property. The amendment stated that
judgment is needed when determining whether the acquisition of investment property is the
acquisition of an asset or a group of assets or a business combination within the scope of PFRS 3.
This judgment is based on the guidance of PFRS 3. This amendment is effective for annual
periods beginning on or after July 1, 2014 and is applied prospectively. The amendment has no
significant impact on the Group’s financial position or performance.
Standard with No Mandatory Effective Date
PFRS 9, Financial Instruments
PFRS 9, 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 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 other comprehensive
income (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 fair value option, 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 non-financial 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.
Interpretation with Deferred Effectivity Date
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This interpretation covers accounting for revenue and associated expenses by entities that
undertake the construction of real estate directly or through subcontractors. The interpretation
requires that revenue on construction of real estate be recognized only upon completion, except
when such contract qualifies as construction contract to be accounted for under PAS 11 or
involves rendering of services in which case revenue is recognized based on stage of completion.
Contracts involving provision of services with the construction materials and where the risks and
reward of ownership are transferred to the buyer on a continuous basis will also be accounted for
based on stage of completion. The 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 (IASB) and an evaluation of the requirements of the
final Revenue standard against the practices of the Philippine real estate industry is completed.
The significant accounting policies that have been used in the preparation of the consolidated
financial statements are summarized below. These policies have been consistently applied to all
the years presented, unless otherwise stated.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of three
months or less from dates of acquisition and which are subject to an insignificant risk of change in
value.
Short-term Investments
Short-term investments are short-term placements with maturities of more than three months but
less than one year from the date of acquisition. These earn interest at the respective short-term
investment rates.
Financial Instruments
Date of recognition
The Group recognizes a financial asset or a financial liability in the consolidated statement of
financial position when it becomes a party to the contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace are recognized on the settlement date.
In the case of derivatives, the Group follows trade date accounting.
Initial recognition of financial instruments
All financial assets and financial liabilities are recognized initially at fair value. Except for financial
instruments at FVPL, the initial measurement of financial instruments includes transaction costs.
The Group classifies its financial assets in the following categories: financial assets at FVPL, loans
and receivables, held-to-maturity (HTM) investments and AFS financial assets. The Group also
classifies its financial liabilities into financial liabilities at FVPL and other financial liabilities. The
classification depends on the purpose for which the investments were acquired and whether they
are quoted in an active market.
The Group determines the classification of its financial instruments at initial recognition and, where
allowed and appropriate, re-evaluates such designation at every reporting date.
Financial instruments are classified as liability 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.
Determination of fair value
The fair value for financial instruments traded in active markets at the reporting date is based on
their quoted market price or dealer price quotations (bid price for long positions and ask price for
short positions), without any deduction for transaction costs. When current bid and ask prices are
not available, the price of the most recent transaction provides evidence of the current fair value
as long as there has not been a significant change in economic circumstances since the time of
the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation methodologies. Valuation methodologies include net present value
techniques, comparison to similar instruments for which market observable prices exist, option
pricing models, and other relevant valuation models.
Day 1 difference
Where the transaction price in a non-active market is different from the fair value from 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’ difference) in the consolidated statement of
income under “Interest income” or “Interest and other financing charges” unless it qualifies for
recognition as some other type of asset or liability. In cases where use is made of data which is
not observable, the difference between the transaction price and model value is only recognized in
the consolidated statement of income when the inputs become observable or when the instrument
is derecognized. For each transaction, the Group determines the appropriate method of
recognizing the ‘Day 1’ difference amount.
Financial assets and financial liabilities at FVPL
Financial assets and financial liabilities at FVPL include derivatives, financial assets and financial
liabilities held for trading and financial assets and financial liabilities designated upon initial
recognition as at FVPL.
Financial assets and financial liabilities are classified as held for trading if they are acquired for the
purpose of selling or repurchasing in the near term. Derivatives, including separated embedded
derivatives, are also classified as held for trading unless they are designated as effective hedging
instruments or a financial guarantee contract. Fair value gains or losses on investments held for
trading, net of interest income or expense accrued on these assets, are recognized in the
consolidated statement of income under “Other income” or “Other charges”. Interest earned or
incurred is recorded in “Interest income” or “Interest and other financing charges” while dividend
income is recorded in “Other income” when the right to receive payment has been established.
Where a contract contains one or more embedded derivatives, the hybrid contract may be
designated as financial asset or financial liability at FVPL, except where the embedded derivative
does not significantly modify the cash flows or it is clear that separation of the embedded
derivative is prohibited.
Financial assets and financial liabilities may be designated at initial recognition as at FVPL if any
of the following criteria are met:
(i) the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on
them on a different basis; or
(ii) the assets or liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance evaluated on a fair value basis, in accordance
with a documented risk management or investment strategy; or
(iii) the financial instrument contains an embedded derivative that would need to be
separately recorded.
The Group’s financial assets and financial liabilities at FVPL pertain to government securities,
other investment securities, derivatives not designated as accounting hedges and embedded
derivative arising from the acquisition of PSi.
Derivative instruments (including bifurcated embedded derivatives) are initially recognized at fair
value on the date in which a derivative transaction is entered into or bifurcated, and are
subsequently remeasured at fair value. Any gains or losses arising from changes in fair value of
derivatives that do not qualify for hedge accounting are taken directly to the consolidated
statement of income. Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative.
The Group uses derivative instruments such as structured currency options and currency forwards
to hedge its risks associated with foreign currency fluctuations. Such derivative instruments
provide economic hedges under the Group’s policies but are not designated as accounting
hedges.
An embedded derivative is separated from the host contract and accounted for as a derivative if all
of the following conditions are met: a) the economic characteristics and risks of the embedded
derivative are not closely related to the economic characteristics and risks of the host contract; b)
a separate instrument with the same terms as the embedded derivative would meet the definition
of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL.
The Group assesses whether embedded derivatives are required to be separated from the host
contracts when the Group first becomes a party to the contract. Reassessment of embedded
derivatives is only done when there are changes in the contract that significantly modifies the
contractual cash flows that otherwise would be required under the contract.
HTM investments
HTM investments are quoted nonderivative financial assets with fixed or determinable payments
and fixed maturities that the Group has the positive intention and ability to hold to maturity. Where
the Group sells other than an insignificant amount of HTM investments, the entire category would
be tainted or reclassified as AFS financial assets. After initial measurement, these investments
are measured at amortized cost using the effective interest rate method, less impairment in value.
Amortized cost is calculated by taking into account any discount or premium on acquisition and
fees that are integral parts of the effective interest rate. The amortization is included in “Interest
income” in the consolidated statement of income. Gains and losses are recognized in the
consolidated statement of income when the HTM investments are derecognized or impaired, as
well as through the amortization process. The losses arising from impairment of such investments
are recognized in the consolidated statement of income under “Provision for impairment losses”
account. HTM investments are included under “Other current assets” if the maturity falls within 12
months from reporting date.
As of December 31, 2013 and 2012, the Group has no outstanding HTM investments.
Loans and receivables
Loans and receivables are nonderivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are not entered into with the intention of immediate or
short-term resale and are not designated as AFS financial assets or financial asset at FVPL. This
accounting policy relates to the consolidated statement of financial position captions “Cash and
cash equivalents”, “Short-term investments” and “Accounts and notes receivable” (except for
Advances to contractors and suppliers).
After initial measurement, loans and receivables are subsequently measured at amortized cost
using the effective interest rate method, less any allowance for impairment losses. Amortized cost
is calculated by taking into account any discount or premium on acquisition and fees that are
integral parts of the effective interest rate. Gains and losses are recognized in the consolidated
statement of income when the loans and receivables are derecognized or impaired, as well as
through the amortization process. The amortization is included in the “Interest income” account in
the consolidated statement of income. The losses arising from impairment of such loans and
receivables are recognized under “Provision for doubtful accounts” in the consolidated statement
of income.
Loans and receivables are included in current assets if maturity is within 12 months or when the
Group expects to realize or collect within 12 months from the reporting date. Otherwise, they are
classified as noncurrent assets.
AFS financial assets
AFS financial assets are those which are designated as such or do not qualify to be classified as
designated at FVPL, HTM, or loans and receivables.
Financial assets may be designated at initial recognition as AFS if they are purchased and held
indefinitely, and may be sold in response to liquidity requirements or changes in market
conditions.
After initial measurement, AFS financial assets are measured at fair value. The unrealized gains
or losses arising from the fair valuation of AFS financial assets are recognized in other
comprehensive income and are reported as “Net unrealized gain (loss) on available-for-sale
financial assets” (net of tax where applicable) in equity. The Group’s share in its associates’ or
joint ventures’ net unrealized gain (loss) on AFS is likewise included in this account.
When the security is disposed of, the cumulative gain or loss previously recognized in equity is
recognized in the consolidated statement of income under “Other income” or “Other charges”.
Where the Group holds more than one investment in the same security, the cost is determined
using the weighted average method. Interest earned on AFS financial assets is reported as
interest income using the effective interest rate. Dividends earned are recognized under “Other
income” in the consolidated statement of income when the right to receive payment is established.
The losses arising from impairment of such investments are recognized under “Provision for
impairment losses” in the consolidated statement of income.
When the fair value of AFS financial assets cannot be measured reliably because of lack of
reliable estimates of future cash flows and discount rates necessary to calculate the fair value of
unquoted equity instruments, these investments are carried at cost, less any allowance for
impairment losses.
The Group’s AFS financial assets pertain to investments in debt and equity securities included
under “Investments in bonds and other securities” in the consolidated statement of financial
position. AFS financial assets are included under “Other current assets” if expected to be realized
within 12 months from reporting date.
Other financial liabilities
Issued financial instruments or their components, which are not designated at FVPL are classified
as other financial liabilities where the substance of the contractual arrangement results in the
Group having an obligation either to deliver cash or another financial asset to the holder, or to
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of its own equity shares. 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.
After initial measurement, other financial liabilities are subsequently measured at amortized cost
using the effective interest rate method. Amortized cost is calculated by taking into account any
discount or premium on the issue and fees that are an integral part of the effective interest rate.
Any effects of restatement of foreign currency-denominated liabilities are recognized in the
consolidated statement of income.
This accounting policy applies primarily to the Group’s short-term and long-term debt, accounts
payable and accrued expenses, and other current and noncurrent liabilities and obligations that
meet the above definition (other than liabilities covered by other accounting standards, such as
income tax payable).
Other financial liabilities are included in current liabilities if maturity is within 12 months or when
the Group expects to realize or collect within 12 months from the reporting date. Otherwise, they
are classified as noncurrent liabilities.
Deposits and retentions payable
Deposits and retentions payable are initially measured at fair value. After initial recognition,
deposits and retentions payable are subsequently measured at amortized cost using the effective
interest rate method.
For deposits, the difference between the cash received and its fair value is deferred (included in
the “Deferred credits” account in the consolidated statement of financial position) and amortized
using the straight-line method with the amortization included under the “Rendering of services”
account in the consolidated statement of income.
Customers’ guaranty and other deposits
Customers’ guaranty and other deposits are initially measured at fair value. After initial
recognition, these deposits are subsequently measured at amortized cost using the effective
interest rate method. Amortization of customers’ guaranty and other deposits are included under
“Interest and other financing charges” in the consolidated statement of income. The difference
between the cash received and its fair value is recognized as “Deferred credits”. Deferred credits
are amortized over the remaining concession period using the effective interest rate method.
Financial guarantee contracts
Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for
transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the
liability is measured at the higher of the best estimate of expenditure required to settle the present
obligation at the reporting date and the amount recognized less cumulative amortization.
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 financial
assets) is derecognized where:
· the rights to receive cash flows from the assets have expired;
· the Group retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third-party under a “pass-through”
arrangement; or
· the Group has transferred its right to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred
nor retained the risks and rewards of the asset but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into
a pass-through arrangement, and has neither transferred nor retained substantially all the risks
and rewards of 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.
Financial liability
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or has expired. Where an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is
recognized in the consolidated statement of income.
Impairment of Financial Assets
The Group assesses at each reporting date whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is
deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one
or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’)
and that loss event (or events) has an impact on the estimated future cash flows of the financial
asset or the group of financial assets that can be reliably estimated. Evidence of impairment may
include indications that the borrower or a group of borrowers is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will enter
bankruptcy or other financial reorganization and where observable data indicate that there is
measurable decrease in the estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.
Loans and receivables
For loans and receivables carried at amortized cost, the Group first assesses whether objective
evidence of impairment exists individually 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, it includes the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses for impairment. Those characteristics are relevant to the
estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability
to pay all amounts due according to the contractual terms of the assets being evaluated. 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 for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been incurred) discounted
at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at
initial recognition). The carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is charged to the consolidated statement of income under
“Provision for doubtful accounts”. Interest income continues to be recognized based on the
original effective interest rate of the asset. Loans and receivables, together with the associated
allowance accounts, are written off when there is no realistic prospect of future recovery and all
collateral has been realized. If, in a subsequent period, the amount of the estimated impairment
loss decreases because of an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in consolidated statement of income, to the extent that the carrying value of the asset
does not exceed its amortized cost at the reversal date.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis
of such credit risk characteristics such as customer type, payment history, past-due status and
term.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of historical loss experience for assets with credit risk characteristics
similar to those in the group. Historical loss experience is adjusted on the basis of current
observable data to reflect the effects of current conditions that did not affect the period on which
the historical loss experience is based and to remove the effects of conditions in the historical
period that do not exist currently. The methodology and assumptions used for estimating future
cash flows are reviewed regularly by the Group to reduce any differences between loss estimates
and actual loss experience.
Financial assets carried at cost
If there is an objective evidence that an impairment loss has been incurred on an unquoted equity
instrument that is not carried at fair value because its fair value cannot be reliably measured, or on
derivative asset that is linked to and must be settled by delivery of such an unquoted equity
instrument, the amount of the loss is measured as the difference between the 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 financial assets
In the case of equity investments classified as AFS financial assets, impairment would include a
significant or prolonged decline in the fair value of the investments below its cost. “Significant” is
to be evaluated against the original cost of the investment and “prolonged” against the period in
which the fair value has been below its original cost. Where there is evidence of impairment loss,
the cumulative loss - measured as the difference between the acquisition cost and the current fair
value, less any impairment loss on that financial asset previously recognized in the consolidated
statement of income - is removed from other comprehensive income and recognized in the
consolidated statement of income under “Other charges.” Impairment losses on equity
investments are not reversed through the consolidated statement of income. Increases in fair
value after impairment are recognized directly in the consolidated statement of comprehensive
income.
In the case of debt instruments classified as AFS, impairment is assessed based on the same
criteria as financial assets carried at amortized cost. Future interest income is based on the
reduced carrying amount and is accrued using the rate of interest used to discount future cash
flows for the purpose of measuring impairment loss and is recorded as part of “Interest income”
account in the consolidated statement of income. If, in a subsequent year, the fair value of a debt
instrument increased and the increase can be objectively related to an event occurring after the
impairment loss was recognized in the consolidated statement of income, the impairment loss is
reversed through the consolidated statement of income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated
statement of financial position if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the asset and
settle the liability simultaneously.
Inventories
Inventories are carried at the lower of cost and net realizable value (NRV). Costs incurred in
bringing each product to its present location and conditions are generally accounted for as follows:
Real estate inventories
· Land cost
· Land improvement cost
· Amounts paid to contractors for construction and development
· Borrowing costs, planning and design costs, costs of site preparation, professional fees,
property transfer taxes, construction overheads and other related costs
Club shares - cost is determined mainly on the basis of the actual development cost incurred plus
the estimated development cost to complete the project based on the estimates as determined by
the in-house engineers, adjusted with the actual costs incurred as the development progresses,
including borrowing costs during the development stage.
Vehicles - purchase cost on specific identification basis.
Finished goods and work-in-process - determined on a moving average basis; cost includes direct
materials and labor and a proportion of manufacturing overhead costs based on normal operating
capacity.
Parts and accessories, materials, supplies and others - purchase cost on a moving average basis.
NRV for real estate inventories, vehicles, finished goods and work-in-process and parts and
accessories is the estimated selling price in the ordinary course of business, less estimated costs
of completion and estimated costs necessary to make the sale, while NRV for materials, supplies
and others represents the related replacement costs. In the event that NRV is lower than cost, the
decline shall be recognized as an expense in the consolidated statement of income.
The cost of real estate inventory recognized in the consolidated statement of income on disposal
is determined with reference to the specific costs incurred on the property and allocated to
saleable area based on relative size.
An allowance for inventory losses is provided for slow-moving, obsolete and defective inventories
based on management’s physical inspection and evaluation. When inventories are sold, the cost
and related allowance is removed from the account and the difference is charged against
operations.
Prepaid Expenses
Prepaid expenses are carried at cost less the amortized portion. These typically comprise
prepayments for commissions, marketing fees and promotion, taxes and licenses, rentals and
insurance.
Creditable Withholding Tax
This pertains to the tax withheld at source by the Group’s customer and is creditable against the
income tax liability of the Group.
Value-Added Tax (VAT)
The input VAT pertains to the 12% indirect tax paid by the Group in the course of the Group’s
trade or business on local purchase of goods or services.
Output VAT pertains to the 12% tax due on the local sale of goods or services by the Group.
If at the end of any taxable month, the output VAT exceeds the input VAT, the outstanding
balance is included under “Other current liabilities” account. If the input VAT exceeds the output
VAT, the excess shall be carried over to the succeeding months and included under “Other current
asset” account.
Noncurrent Assets Held for Sale
Noncurrent assets held for sale are carried at the lower of its carrying amount and fair value less
costs to sell. At reporting date, the Group classifies assets as held for sale (disposal group) when
their carrying amount will be recovered principally through a sale transaction rather than through
continuing use. For this to be the case the asset must be available for immediate sale in its
present condition subject only to terms that are usual and customary for sales of such assets and
its sale must be highly probable. For the sale to be highly probable, the appropriate level of
management must be committed to a plan to sell the asset and an active program to locate a
buyer and complete the plan must have been initiated. Further, the asset must be actively
marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the
sale should be expected to qualify for recognition as a completed sale within one year from the
date of classification.
Land and Improvements
Land and improvements consist of properties for future development and are carried at the lower
of cost and NRV. NRV is the estimated selling price in the ordinary course of business, less
estimated cost of completion and estimated costs necessary to make the sale. Cost includes cost
of purchase and those costs incurred for improvement of the properties.
Investments in Associates and Joint Ventures
An associate is an entity over which the Group has significant influence. Significant influence is
the power to participate in the financial and operating policy decisions of the investee, but is not
control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually
agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those
necessary to determine control over subsidiaries.
The Group’s investments in associates and joint ventures are accounted for using the equity
method.
Under the equity method, the investment in associates or joint ventures is initially recognized at
cost. The carrying amount of the investment is adjusted to recognize changes in the Group’s
share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to
the associate or joint venture is included in the carrying amount of the investment and is neither
amortized nor individually tested for impairment.
The consolidated statement of income reflects the Group’s share of the results of operations of the
associate or joint venture. Any change in OCI of these investees is presented as part of the
Group’s OCI. In addition, when there has been a change recognized directly in the equity of the
associate or joint venture, the Group recognizes its share of any changes, when applicable, in the
consolidated statement of changes in equity. Unrealized gains and losses resulting from
transactions between the Group and the associate or joint venture are eliminated to the extent of
the interest in the associate or joint venture.
The aggregate of the Group’s share of profit or loss of associates and joint ventures is shown on
the face of the consolidated statement of income outside operating profit and represents profit or
loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture.
The financial statements of the associate or joint venture are prepared for the same reporting
period as the Group. When necessary, adjustments are made to bring the accounting policies in
line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognize
an impairment loss on its investment in its associate or joint venture. At each reporting date, the
Group determines whether there is objective evidence that the investment in the associate or joint
venture is impaired. If there is such evidence, the Group calculates the amount of impairment as
the difference between the recoverable amount of the associate or joint venture and its carrying
value, then recognizes the loss as “Share of profit of associates and joint ventures” in the
statement of income.
Upon loss of significant influence over the associate or joint control over the joint venture, the
Group measures and recognizes any retained investment at its fair value. Any difference between
the carrying amount of the associate or joint venture upon loss of significant influence or joint
control and the fair value of the retained investment and proceeds from disposal is recognized in
profit or loss.
Interest in a Joint Operation
Makati Development Corporation (MDC), an ALI subsidiary, has an interest in a joint operation,
whereby the venturers have a contractual arrangement that establishes joint control. MDC
recognizes its share of jointly held assets, liabilities, income and expenses of the joint venture with
similar items, line by line, in its financial statements. The financial statements of the joint venture
are prepared for the same reporting period as the Group. Adjustments are made where
necessary to bring the accounting policies into line with those of the Group.
Investment Properties
Investment properties comprise completed property and property under construction or
re-development that are held to earn rentals and for capital appreciation, and are not occupied by
the companies in the Group. Investment properties, except for land, are carried at cost less
accumulated depreciation and amortization and any impairment in value. Land is carried at cost
less any impairment in value.
Expenditures incurred after the investment property has been put in operation, such as repairs
and maintenance costs, are normally charged against income in the period in which the costs are
incurred.
Construction-in-progress (including borrowing cost) are carried at cost and transferred to the
related investment property account when the construction and related activities to prepare the
property for its intended use are complete, and the property is ready for occupation.
Depreciation and amortization are computed using the straight-line method over the estimated
useful lives of the assets, regardless of utilization. The estimated useful lives and the depreciation
and amortization method are reviewed periodically to ensure that the period and method of
depreciation and amortization are consistent with the expected pattern of economic benefits from
items of investment properties.
The estimated useful lives of buildings range from 20 to 40 years.
Investment properties are derecognized when either they have been disposed of or when the
investment property is permanently withdrawn from use and no future economic benefit is
expected from its disposal. Any gain or loss on the retirement or disposal of an investment
property is recognized in the consolidated statement of income in the year of retirement or
disposal.
Transfers are made to investment property when there is a change in use, evidenced by ending of
owner-occupation, commencement of an operating lease to another party or ending of
construction or development. Transfers are made from investment property when, and only when,
there is a change in use, evidenced by commencement of owner-occupation or commencement of
development with a view to sale. Transfers between investment property, owner-occupied
property and inventories do not change the carrying amount of the property transferred and they
do not change the cost of the property for measurement or for disclosure purposes.
Property, Plant and Equipment
Property, plant and equipment, except for land, are carried at cost less accumulated depreciation
and amortization and any impairment in value. Land is carried at cost less any impairment in
value. The initial cost of property, plant and equipment consists of its construction cost or
purchase price and any directly attributable costs of bringing the property, plant and equipment to
its working condition and location for its intended use.
Construction-in-progress is stated at cost. This includes cost of construction and other direct
costs. Construction-in-progress is not depreciated until such time that the relevant assets are
completed and put into operational use.
Major repairs are capitalized as part of property, plant and equipment only when it is probable that
future economic benefits associated with the item will flow to the Group and the cost of the items
can be measured reliably. All other repairs and maintenance are charged against current
operations as incurred.
Depreciation and amortization of property, plant and equipment commences once the property,
plant and equipment are available for use and computed on a straight-line basis over the
estimated useful lives of the property, plant and equipment as follows:
Buildings and improvements
Machinery and equipment
Hotel property and equipment
Furniture, fixtures and equipment
Transportation equipment
3 to 40 years
3 to 10 years
20 to 50 years
2 to 10 years
3 to 5 years
The assets’ residual values, useful lives and depreciation and amortization methods are reviewed
periodically to ensure that the amounts, periods and method of depreciation and amortization are
consistent with the expected pattern of economic benefits from items of property, plant and
equipment.
When property, plant and equipment are retired or otherwise disposed of, the cost and the related
accumulated depreciation and amortization and accumulated provision for impairment losses, if
any, are removed from the accounts and any resulting gain or loss is credited to or charged
against current operations.
Service Concession Assets and Obligations
The Group accounts for its concession arrangements with Department of Public Works and
Highways (DPWH), Metropolitan Waterworks and Sewerage System (MWSS), Province of Laguna
(POL), Tourism Infrastructure and Enterprise Zone Authority (TIEZA) and Clark Development
Corporation (CDC) under the Intangible Asset model as it receives the right (license) to charge
users of public service. Under the Group’s concession agreements, the Group is granted the sole
and exclusive right and discretion during the concession period to manage, occupy, operate,
repair, maintain, decommission and refurbish the identified facilities required to provide the public
water services. The legal title to these assets shall remain with DPWH, MWSS, POL, TIEZA and
CDC at the end of the concession period.
On the other hand, the concession arrangements with the Provincial Government of Cebu are
accounted for under the Financial Asset model as it has an unconditional contractual right to
receive cash or other financial asset for its construction services from or at the direction of the
grantor. Under the concession arrangement, Cebu Manila Water Development, Inc. (CMWD) (a
subsidiary of MWC) is awarded the right to deliver Bulk Water supply to the grantor for a specific
period of time under the concession period.
The “Service concession assets” (SCA) pertain to the fair value of the service concession
obligations at drawdown date and construction costs related to the rehabilitation works performed
by the Group and other local component costs and cost overruns paid by the Group. These are
amortized using the straight-line method over the life of the related concession.
In addition, the Parent Company and MWC recognize and measure revenue from rehabilitation
works in accordance with PAS 11, Construction Contracts, and PAS 18, Revenue, for the services
it performs. Recognition of revenue is by reference to the 'stage of completion method', also
known as the 'percentage of completion method' as provided under PAS 11. Contract revenue
and costs from rehabilitation works are recognized as "Revenue from rehabilitation works" and
"Cost of rehabilitation works" in the consolidated statement of income in the period in which the
work is performed.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is the fair value as at the date of acquisition.
Subsequently, intangible assets are measured at cost less accumulated amortization and
provision for impairment loss, if any. Internally generated intangible assets, excluding capitalized
development costs, are not capitalized and expenditure is reflected in the consolidated statement
of income in the year in which the expenditure is incurred.
The estimated useful life of intangible assets is assessed as either finite or indefinite.
The estimated useful lives of intangible assets with finite lives are assessed at the individual asset
level. Intangible assets with finite lives are amortized over their estimated useful lives on a
straight line basis. Periods and method of amortization for intangible assets with finite useful lives
are reviewed annually or earlier when an indicator of impairment exists.
The estimated useful lives of intangible assets follow:
Developed software
Customer relationships
Order backlog
Unpatented technology
Licenses
Technical service agreement
Technology and trade name
15 years
7 years
6 months
5 years
3 years
3 years
3-5 years
Changes in the expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset is accounted for by changing the amortization period or method, as
appropriate, and are treated as changes in accounting estimates. The amortization expense on
intangible assets with finite lives is recognized in the consolidated statement of income in the
expense category consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment
annually, either individually or at the CGU level. The assessment of indefinite useful life is
reviewed annually to determine whether the indefinite useful life continues to be supportable. If
not, the change in useful life from indefinite to finite is made on a prospective basis.
A gain or loss arising from derecognition of an intangible asset is measured as the difference
between the net disposal proceeds and the carrying amount of the intangible assets and is
recognized in the consolidated statement of income when the intangible asset is derecognized.
As of December 31, 2013, 2012 and January 1, 2012, intangible asset pertaining to leasehold
right is included under “Other noncurrent assets”.
Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are
recognized as an intangible asset when the Group can demonstrate:
· The technical feasibility of completing the intangible asset so that the asset will be available
for use or sale;
· Its intention to complete and its ability to use or sell the asset;
· How the asset will generate future economic benefits;
· The availability of resources to complete the asset;
· The ability to measure reliably the expenditure during development; and,
· The ability to use the intangible asset generated.
Following initial recognition of the development expenditure as an asset, the asset is carried at
cost less any accumulated amortization and accumulated impairment losses. Amortization of the
asset begins when development is complete and the asset is available for use. It is amortized over
the period of expected future benefit. During the period of development, the asset is tested for
impairment annually.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition
is measured as the aggregate of the consideration transferred, measured at acquisition date fair
value and the amount of any non-controlling interest in the acquiree. For each business
combination, the acquirer measures the non-controlling interest in the acquiree either at fair value
or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs are
expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, 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
and included under “Remeasurement gain/loss arising from business combination” in the
consolidated statement of income.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. Subsequent changes to the fair value of the contingent consideration which
is deemed to be an asset or liability will be recognized in accordance with PAS 39 either in profit
or loss or as a change to other comprehensive income. If the contingent consideration is
classified as equity, it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration
transferred and the amount recognized for non-controlling interest over the 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 difference is recognized in profit or loss as bargain purchase gain.
The Group reassess whether it has correctly identified all of the assets acquired and all of the
liabilities assumed and reviews the procedures used to measure amounts to be recognized at the
acquisition date if the reassessment still results in an excess of the fair value of net assets
acquired over the aggregate consideration transferred, then the gain is recognized in the profit or
loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment loss.
Goodwill is reviewed for impairment, annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired. For purposes of impairment
testing, goodwill acquired in a business combination is, from the acquisition date, allocated to
each of the Group’s cash-generating units (CGUs), or groups of CGUs, that are expected to
benefit from the synergies of the combination, irrespective of whether other assets or liabilities of
the Group are assigned to those units or groups of units.
Each unit or group of units to which the goodwill is allocated should:
·
·
represent the lowest level within the Group at which the goodwill is monitored for internal
management purposes; and
not be larger than an operating segment determined in accordance with PFRS 8, Operating
Segments.
Impairment is determined by assessing the recoverable amount of the CGU (or group of CGUs),
to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is
less than the carrying amount, an impairment loss is recognized. Where goodwill forms part of a
CGU (or 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 these
circumstances is measured based on the relative values of the operation disposed of and the
portion of the CGU retained. If the acquirer’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business combination, the acquirer shall
recognize immediately in the consolidated statement of income any excess remaining after
reassessment.
If the initial accounting for a business combination can be determined only provisionally by the end
of the period in which the combination is effected because either the fair values to be assigned to
the acquiree’s identifiable assets, liabilities or contingent liabilities or the cost of the combination
can be determined only provisionally, the acquirer shall account for the combination using those
provisional values. The acquirer shall recognize any adjustments to those provisional values as a
result of completing the initial accounting within twelve months of the acquisition date as follows:
(i) the carrying amount of the identifiable asset, liability or contingent liability that is recognized or
adjusted as a result of completing the initial accounting shall be calculated as if its fair value at the
acquisition date had been recognized from that date; (ii) goodwill or any gain recognized shall be
adjusted by an amount equal to the adjustment to the fair value at the acquisition date of the
identifiable asset, liability or contingent liability being recognized or adjusted; and (iii) comparative
information presented for the periods before the initial accounting for the combination is complete
shall be presented as if the initial accounting has been completed from the acquisition date.
Asset Acquisitions
If the assets acquired and liabilities assumed in an acquisition transaction do not constitute a
business, the transaction is accounted for as an asset acquisition. The Group identifies and
recognizes the individual identifiable assets acquired (including those assets that meet the
definition of, and recognition criteria for, intangible assets) and liabilities assumed. The acquisition
cost is allocated to the individual identifiable assets and liabilities on the basis of their relative fair
values at the date of purchase. Such a transaction or event does not give rise to goodwill. Where
the Group acquires a controlling interest in an entity that is not a business, but obtains less than
100% of the entity, after it has allocated the cost to the individual assets acquired, it notionally
grosses up those assets and recognizes the difference as non-controlling interests.
Impairment of Nonfinancial Assets
The Group assesses at each reporting date whether there is an indication that an asset may be
impaired. If any such indication exists, or when annual impairment testing for an asset is required,
the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount
is calculated as the higher of the asset’s or CGU’s fair value less costs to sell and its value in use
and is determined for an individual asset, unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets. Where the carrying amount of
an asset exceeds its recoverable amount, the asset is considered impaired and is written down to
its recoverable amount. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessment of the
time value of money and the risks specific to the asset. In determining fair value less cost to sell,
an appropriate valuation model is used. These calculations are corroborated by valuation
multiples or other fair value indicators. Impairment losses of continuing operations are recognized
in the consolidated statement of income in those expense categories consistent with the function
of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there
is any indication that previously recognized impairment losses may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized. If that
is the case, the carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been determined, net of
depreciation and amortization, had no impairment loss been recognized for the asset in prior
years. Such reversal is recognized in the consolidated statement of income unless the asset is
carried at revalued amount, in which case the reversal is treated as revaluation increase. After
such a reversal, the depreciation and amortization charge 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.
Investments in associates and joint ventures
After application of the equity method, the Group determines whether it is necessary to recognize
any additional impairment loss with respect to the Group’s net investment in the investee
company. The Group determines at each reporting date whether there is any objective evidence
that the investment in the investee company is impaired. If this is the case, the Group calculates
the amount of impairment as being the difference between the recoverable amount of the investee
company and the carrying cost and recognizes the amount as a reduction of the “Share of profit of
associates and joint ventures” account in the consolidated statement of income.
Impairment of goodwill
For assessing impairment of goodwill, a test for impairment is performed 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 CGUs) to which the
goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an
impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future
periods.
Fair Value Measurement
The Group measures financial instruments such as financial assets at FVPL, derivative
instruments and AFS financial assets at fair value at each reporting date. Also, fair values of
financial instruments measured at amortized cost and nonfinancial assets such as investment
properties are disclosed in Note 33 to the consolidated financial statements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:
·
·
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their
economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
·
·
·
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets and
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 asset or liability and the level of
the fair value hierarchy as explained above.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligations and a reliable estimate can be made of the amount of the
obligation.
Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. If the effect of the time value
of money is material, provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognized as interest expense. Provisions are reviewed
at each reporting date and adjusted to reflect the current best estimate.
Equity
Capital stock is measured at par value for all shares subscribed, issued and outstanding. When
the shares are sold at premium, the difference between the proceeds at the par value is credited
to “Additional paid-in capital” account. Direct costs incurred related to equity issuance are
chargeable to “Additional paid-in capital” account. If additional paid-in capital is not sufficient, the
excess is charged against retained earnings. When the Group issues more than one class of
stock, a separate account is maintained for each class of stock and the number of shares issued.
Subscriptions receivable pertains to the uncollected portion of the subscribed shares and is
presented as reduction from equity.
Retained earnings represent accumulated earnings of the Group less dividends declared.
Own equity instruments which are reacquired (treasury shares) are recognized at cost and
deducted from equity. No gain or loss is recognized in the consolidated statement of income on
the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference
between the carrying amount and the consideration, if reissued, is recognized in additional paid-in
capital. Voting rights related to treasury shares are nullified for the Group and no dividends are
allocated to them respectively. When the shares are retired, the capital stock account is reduced
by its par value and the excess of cost over par value upon retirement is debited to additional
paid-in capital when the shares were issued and to retained earnings for the remaining balance.
Revenue and Cost Recognition
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, regardless of when payment is being made.
Revenue is measured at the fair value of the consideration received or receivable, taking into
account contractually defined terms of payment and excluding taxes or duty. The following specific
recognition criteria must also be met before revenue is recognized:
For real estate sales, the Group assesses whether it is probable that the economic benefits will
flow to the Group when the sales prices are collectible. Collectibility of the sales price is
demonstrated by the buyer’s commitment to pay, which in turn is supported by substantial initial
and continuing investments that give the buyer a stake in the property sufficient that the risk of
loss through default motivates the buyer to honor its obligation to the seller. Collectibility is also
assessed by considering factors such as the credit standing of the buyer, age and location of the
property.
Revenue from sales of completed real estate projects is accounted for using the full accrual
method. In accordance with Philippine Interpretations Committee (PIC), Q&A 2006-01, the
percentage-of-completion method is used to recognize income from sales of projects where the
Group has material obligations under the sales contract to complete the project after the property
is sold, the equitable interest has been transferred to the buyer, construction is beyond preliminary
stage (i.e., engineering, design work, construction contracts execution, site clearance and
preparation, excavation and the building foundation are finished, and the costs incurred or to be
incurred can be measured reliably). Under this method, revenue is recognized as the related
obligations are fulfilled, measured principally on the basis of the estimated completion of a
physical proportion of the contract work.
Any excess of collections over the recognized receivables are included under “Other current
liabilities” in the liabilities section of the consolidated statement of financial position.
If any of the criteria under the full accrual or percentage-of-completion method is not met, the
deposit method is applied until all the conditions for recording a sale are met. Pending recognition
of sale, cash received from buyers are presented under the “Other current liabilities” account in
the liabilities section of the consolidated statement of financial position.
Cost of real estate sales is recognized consistent with the revenue recognition method applied.
Cost of subdivision land and condominium units sold before the completion of the development is
determined on the basis of the acquisition cost of the land plus its full development costs, which
include estimated costs for future development works, as determined by the Group’s in-house
technical staff.
The cost of real estate inventory recognized in profit or loss on disposal is determined with
reference to the specific costs incurred on the property allocated to saleable area based on
relative size and takes into account the percentage of completion used for revenue recognition
purposes.
Revenue from construction contracts are recognized using the percentage-of-completion method,
measured principally on the basis of the estimated physical completion of the contract work.
Contract costs include all direct materials and labor costs and those indirect costs related to
contract performance. Expected losses on contracts are recognized immediately when it is
probable that the total contract costs will exceed total contract revenue. Changes in contract
performance, contract conditions and estimated profitability, including those arising from contract
penalty provisions, and final contract settlements which may result in revisions to estimated costs
and gross margins are recognized in the year in which the changes are determined.
Rental income under noncancellable and cancellable leases on investment properties is
recognized in the consolidated statement of income on a straight-line basis over the lease term
and the terms of the lease, respectively, or based on a certain percentage of the gross revenue of
the tenants, as provided under the terms of the lease contract.
Rooms revenue from hotel and resort operations are recognized when services are rendered.
Revenue from banquets and other special events are recognized when the events take place.
Water and sewer revenue are recognized when the related water and sewerage services are
rendered. Water and sewerage are billed every month according to the bill cycles of the
customers. As a result of bill cycle cut-off, monthly service revenue earned but not yet billed at
end of the month are estimated and accrued. These estimates are based on historical
consumption of the customers. A certain percentage of the water revenue are recognized as
environmental charges as provided for in the concession agreement. Other customer related fees
such as reconnection and disconnection fees are recognized when these services have been
rendered.
Revenue from rehabilitation works is recognized and measured by the Group in accordance with
PAS 11 and PAS 18 for the service. This includes revenue from rehabilitation works which is
equivalent to the related cost for the rehabilitation works covered by the service concession
arrangements which is recognized as part of SCA.
When MWC Group provides construction or upgrade services, the consideration received or
receivable is recognized at its fair value. MWC Group accounts for revenue and costs relating to
operation services in accordance with PAS 18.
Revenue from sales of electronic products and vehicles and related parts and accessories are
recognized when the significant risks and rewards of ownership of the goods have passed to the
buyer and the amount of revenue can be measured reliably. Revenue is measured at the fair
value of the consideration received excluding discounts, returns, rebates and sales taxes.
Marketing fees, management fees from administrative and property management and revenue
from vehicle repairs are recognized when services are rendered.
Revenue from digitizing and document creation services are recognized when the service is
completed and electronically sent to the customer. Provision for discounts and other adjustments
are provided for in the same period the related sales are recorded.
Revenue from implementation of human resource outsourcing services arising from stand-alone
service contracts that require significant modification or automization of software is recognized
based on percentage-of-completion method.
Revenue from run and maintenance of human resource outsourcing services arising from a standalone post contract customer support or services is recognized on a straight-line basis over the life
of the contract.
Revenue from implementation and run and maintenance of finance and accounting outsourcing
services arising from multiple deliverable software arrangements is recognized on a straight-line
basis over the life of the contract.
Interest income is recognized as it accrues using the effective interest method.
Dividend income is recognized when the right to receive payment is established.
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 inception of the lease only if one of the following applies: (a) there is a
change in contractual terms, other than a renewal or extension of the arrangement; (b) a renewal
option is exercised or 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.
Where a reassessment is made, lease accounting shall commence or cease from the date when
the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the
date of renewal or extension period for scenario (b).
Group as lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the
consolidated asset are classified as operating leases. Fixed lease payments are recognized as an
expense in the consolidated statement of income on a straight-line basis while the variable rent is
recognized as an expense based on terms of the lease contract.
Finance leases, which transfer substantially all the risks and benefits incidental to ownership of the
leased item, are capitalized at the inception of the lease at the fair value of the leased property or,
if lower, at the present value of the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are charged directly against
income.
Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the
assets or the respective lease terms.
Group as lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of
the assets are classified as operating leases. Lease payments received are recognized as
income in the consolidated statement of income on a straight-line basis over the lease term. Initial
direct costs incurred in negotiating operating leases are added to the carrying amount of the
leased asset and recognized over the lease term on the same basis as the rental income.
Contingent rent is recognized as revenue in the period in which it is earned.
Commissions
Commissions paid to sales or marketing agents on the sale of pre-completed real estate units are
deferred when recovery is reasonably expected and are charged to expense in the period in which
the related revenue is recognized as earned. Accordingly, when the percentage-of-completion
method is used, commissions are likewise charged to expense in the period the related revenue is
recognized. Commission expense is included in the “Costs of sales” account in the consolidated
statement of income.
Expenses
Costs of rendering services and general and administrative expenses, except for lease
agreements, are recognized as expense as they are incurred.
Borrowing Costs
Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily
takes a substantial period of time to get ready for its intended use or sale are capitalized as part of
the cost of the respective assets (included in “Inventories”, “Investment properties”, “Property,
plant and equipment” and “Service concession assets” accounts in the consolidated statement of
financial position). All other borrowing costs are expensed in the period in which they occur.
Borrowing costs consist of interest and other costs that an entity incurs in connection with the
borrowing of funds.
The interest capitalized is calculated using the Group’s weighted average cost of borrowings after
adjusting for borrowings associated with specific developments. Where borrowings are
associated with specific developments, the amounts capitalized is the gross interest incurred on
those borrowings less any investment income arising on their temporary investment. Interest is
capitalized from the commencement of the development work until the date of practical
completion. The capitalization of borrowing costs is suspended if there are prolonged periods
when development activity is interrupted. If the carrying amount of the asset exceeds its
recoverable amount, an impairment loss is recorded.
Pension Cost
Defined benefit plan
The net defined benefit liability or asset is the aggregate of the present value of the defined benefit
obligation at the end of the reporting period reduced by the fair value of plan assets (if any),
adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling
is the present value of any economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is actuarially determined using the
projected unit credit method. This method reflects services rendered by employees up to the date
of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial
valuations are conducted with sufficient regularity, with the option to accelerate when significant
changes to underlying assumptions occur.
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.
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.
Pension liabilities are the aggregate of the present value of the defined benefit obligation at the
end of the balance sheet date reduced by the fair value of plan assets, adjusted for any effect of
limiting a net pension 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.
Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not
available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of
plan assets is based on market price information. When no market price is available, the fair
value of plan assets is estimated by discounting expected future cash flows using a discount rate
that reflects both the risk associated with the plan assets and the maturity or expected disposal
date of those assets (or, if they have no maturity, the expected period until the settlement of the
related obligations). If the fair value of the plan assets is higher than the present value of the
defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the
present value of economic benefits available in the form of refunds from the plan or reductions in
future contributions to the plan.
Defined contribution plans
Certain foreign subsidiaries participate in their respective country’s pension schemes which are
considered as defined contribution plans. A defined contribution plan is a pension plan under
which the subsidiary pays fixed contributions. These subsidiaries have no legal or constructive
obligations to pay further contributions if the fund does not hold sufficient assets to pay all the
benefits relating to employee service in the current and prior periods. The required contributions
to the national pension schemes are recognized as pension cost as accrued.
Termination benefit
Termination benefits are employee benefits provided in exchange for the termination of an
employee’s employment as a result of either an entity’s decision to terminate an employee’s
employment before the normal retirement date or an employee’s decision to accept an offer of
benefits in exchange for the termination of employment.
A liability and expense for a termination benefit is recognized at the earlier of when the entity can
no longer withdraw the offer of those benefits and when the entity recognizes related restructuring
costs. Initial recognition and subsequent changes to termination benefits are measured in
accordance with the nature of the employee benefit, as either post-employment benefits, shortterm employee benefits, or other long-term employee benefits.
Employee leave entitlement
Employee entitlements to annual leave are recognized as a liability when they are accrued to the
employees. The undiscounted liability for leave expected to be settled wholly before twelve
months after the end of the annual reporting period is recognized for services rendered by
employees up to the end of the reporting period.
Income Tax
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantively enacted as of reporting date.
Current tax relating to items recognized directly in equity is recognized in equity and not in profit or
loss. The Group periodically evaluates positions taken in the tax returns with respect to situations
in which applicable tax regulations are subject to interpretation and establishes provisions where
appropriate.
Deferred tax
Deferred income tax is provided, using the liability method, on all temporary differences, with
certain exceptions, at the reporting date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred tax assets are recognized for all deductible temporary differences,
carryforward benefit of unused tax credits from excess of minimum corporate income tax (MCIT)
over the regular corporate income tax and unused net operating loss carryover (NOLCO), to the
extent that it is probable that taxable income will be available against which the deductible
temporary differences and carryforward benefits of MCIT and NOLCO can be utilized.
Deferred tax liabilities are not provided on nontaxable temporary differences associated with
investments in domestic subsidiaries, associates and interests in joint ventures. With respect to
investments in foreign subsidiaries, associates and interests in joint ventures, deferred tax
liabilities are recognized except where 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 tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all as
part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at
each reporting date and are recognized to the extent that it has become probable that future
taxable income will allow all as part of the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rate that is expected to apply to the
period when the asset is realized or the liability is settled, based on tax rates and tax laws that
have been enacted or substantively enacted as at the end of the reporting period. Movements in
the deferred income tax assets and liabilities arising from changes in tax rates are charged or
credited to income for the period.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
For periods where the income tax holiday (ITH) is in effect, no deferred taxes are recognized in
the consolidated financial statements as the ITH status of the subsidiary neither results in a
deductible temporary difference or temporary taxable difference. However, for temporary
differences that are expected to reverse beyond the ITH, deferred taxes are recognized.
Foreign Currency Transactions
The functional and presentation currency of Ayala Corporation and its subsidiaries (except for
AYCF, ACIFL, PFIL, BHL, AIVPL and IMI), is the Philippine Peso (P
= ). Each entity in the Group
determines its own functional currency and items included in the financial statements of each
entity are measured using that functional currency. Transactions in foreign currencies are initially
recorded in 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 reporting date. All differences are taken to the consolidated statement of
income with the exception of differences on foreign currency borrowings that provide a hedge
against a net investment in a foreign entity. These are recognized in the consolidated statement
of comprehensive income until the disposal of the net investment, at which time they are
recognized in the consolidated statement of income. Tax charges and credits attributable to
exchange differences on those borrowings are also dealt with in equity. Nonmonetary items that
are measured in terms of historical cost in a foreign currency are translated using the exchange
rate as at the date of initial transaction. Nonmonetary items measured at fair value in a foreign
currency are translated using the exchange rate at the date when the fair value was determined.
The functional currency of AYCF, ACIFL, PFIL, BHL, AIVPL and IMI is the US Dollar (US$). As of
the reporting date, the assets and liabilities of these subsidiaries are translated into the
presentation currency of the Group at the rate of exchange ruling at the reporting date and their
statement of income accounts are translated at the weighted average exchange rates for the year.
The exchange differences arising on the translation are recognized in the consolidated statement
of comprehensive income and reported as a separate component of equity as “Cumulative
Translation Adjustment”. On disposal of a foreign entity, the deferred cumulative amount
recognized in the consolidated statement of comprehensive income relating to that particular
foreign operation shall be recognized in the consolidated statement of income.
Exchange differences arising from elimination of intragroup balances and intragroup transactions
are recognized in profit or loss. As an exception, if the exchange differences arise from intragroup
balances that, in substance, forms part of an entity’s net investment in a foreign operation, the
exchange differences are not to be recognized in profit or loss, but are recognized in OCI and
accumulated in a separate component of equity until the disposal of the foreign operation.
On disposal of a foreign entity, the deferred cumulative amount recognized in the consolidated
statement of comprehensive income relating to that particular foreign operation shall be
recognized in profit or loss.
The Group’s share in the associates’ translation adjustments are likewise included under the
“Cumulative translation adjustments” account in the consolidated statement of comprehensive
income.
MWC
As approved by the MWSS Board of Trustees (BOT) under Amendment No. 1 of the Concession
Agreement, the following will be recovered through billings to customers:
a. Restatement of foreign currency-denominated loans;
b. Excess of actual Concession Fee payment over the amounts of Concession Fees translated
using the base exchange rate assumed in the business plan approved every rate rebasing
exercise. The current base exchange rate is P
= 44.0:US$1.0 based on the last rate rebasing
exercise effective on January 1, 2008;
c. Excess of actual interest payment translated at exchange spot rate on settlement date over
the amount of interest translated at drawdown rate; and
d. Excess of actual payment of other financing charges relating to foreign currency-denominated
loans translated at exchange spot rate on settlement date over the amount of other financing
charges translated at drawdown rate.
In view of the automatic reimbursement mechanism, MWC recognizes deferred foreign currency
differential adjustment (FCDA) (included as part of “Other noncurrent assets” in the consolidated
statement of financial position) for both the realized and unrealized foreign exchange gains and
losses. Other water revenue-FCDA is credited (debited) upon recovery (refund) of realized foreign
exchange losses (gains). The write-off or reversal of the deferred FCDA pertaining to concession
fees will be made upon determination of the rebased foreign exchange rate, which is assumed in
the business plan approved by MWSS-RO during the latest Rate Rebasing exercise, unless
indication of impairment of the deferred FCDA would be evident at an earlier date.
Share-based Payments
The Group has equity-settled, share-based compensation plans with its employees.
PFRS 2 Options
For options granted after November 7, 2002 that have not vested on or before January 1, 2005,
the cost of equity-settled transactions with employees is measured by reference to the fair value at
the date on which they are granted. In valuing equity-settled transactions, vesting conditions,
including performance conditions, other than market conditions (conditions linked to share prices),
shall not be taken into account when estimating the fair value of the shares or share options at the
measurement date. Instead, vesting conditions are taken into account in estimating the number of
equity instruments that will ultimately vest. Fair value is determined by using the Black-Scholes
model, further details of which are provided in Note 28 to the consolidated financial statements.
The cost of equity-settled transactions is recognized, together with a corresponding increase in
equity, over the period in which the performance conditions are fulfilled, ending on the date on
which the relevant employees become fully entitled to the awards (‘vesting date’). The cumulative
expense recognized for equity-settled transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the Group’s best estimate of the
number of equity instruments that will ultimately vest. The income or expense for a period
represents the movement in cumulative expense recognized as of the beginning and end of that
period.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting
is conditional upon a market condition, which are treated as vesting irrespective of whether or not
the market condition is satisfied, provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is
recognized as if the terms had not been modified. In addition, an expense is recognized for any
increase in the value of the transaction as a result of the modification, as measured at the date of
modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of
cancellation, and any expense not yet recognized for the award is recognized immediately.
However, if a new award is substituted for the cancelled award, and designated as a replacement
award on the date that it is granted, the cancelled and new awards are treated as if they were a
modification of the original award, as described in the previous paragraph.
Pre-PFRS 2 Options
For options granted before November 7, 2002 that have vested before January 1, 2005, the
intrinsic value of stock options determined as of grant date is recognized as expense over the
vesting period.
The dilutive effect of outstanding options is reflected as additional share dilution in the
computation of diluted earnings per share (see Note 26).
Employee share purchase plans
The Company and some of its subsidiaries have employee share purchase plans (ESOWN) which
allow the grantees to purchase the Company’s and its respective subsidiaries’ shares at a
discounted price. The Group recognizes stock compensation expense over the holding period.
The Group treats its ESOWN plan as option exercisable within a given period. These are
accounted for similar to the PFRS 2 options. Dividends paid on the awards that have vested are
deducted from equity and those paid on awards that are unvested are charged to profit or loss.
For the unsubscribed shares where the employees still have the option to subscribe in the future,
these are accounted for as options.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income attributable to common equity
holders by the weighted average number of common shares issued and outstanding during the
year. Diluted EPS is computed by dividing net income attributable to common equity holders by
the weighted average number of common shares issued and outstanding during the year plus the
weighted average number of common shares that would be issued on conversion of all the dilutive
potential common shares. Calculation of diluted EPS considers the potential ordinary shares of
subsidiaries, associates and joint ventures that have dilutive effect on the basic EPS of the
Company. The calculation of diluted EPS does not assume conversion, exercise or other issue of
potential common shares that would have an antidilutive effect on earnings per share. Basic and
diluted EPS are adjusted to give retroactive effect to any stock dividends declared during the
period.
Assets Held in Trust
Assets which are owned by MWSS, POL, TIEZA and CDC but are operated by the MWC Group
under the concession agreements are not reflected in the consolidated statement of financial
position but are considered as Assets Held in Trust (see Note 39).
Operating Segments
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 operating
segments is presented in Note 29 to the consolidated financial statements.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These 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 when
an inflow of economic benefits is probable.
Events after the Reporting Period
Post year-end events that provide additional information about the Group’s position at the
reporting date (adjusting events) are reflected in the consolidated financial statements. Post yearend events that are not adjusting events are disclosed in the consolidated financial statements
when material.
4. Significant Accounting Judgments and Estimates
The preparation of the accompanying consolidated financial statements in conformity with PFRS
requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. The estimates and assumptions used
in the accompanying consolidated financial statements are based upon management’s evaluation
of relevant facts and circumstances as of the date of the consolidated financial statements. Actual
results could differ from such estimates.
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:
Investment in Subsidiaries
The Group determined that it has control over its subsidiaries (see Note 2) by considering, among
others, its power over 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. The following
were also considered:
· The contractual arrangement with the other vote holders of the investee
·
·
Rights arising from other contractual agreements
The Group’s voting rights and potential voting rights
Consolidation of entities in which the Group holds only 50% or less than majority of voting rights
ALI Group determined that it controls certain entities even tough it owns 50% or less than majority
of the voting rights. The factors considered include, among others, the size of its block of voting
shares, the relative size and dispersion of holdings of other shareholders, and contractual
agreements to direct the relevant activities of the entities.
Investment in Associates
The Group determined that it exercises significant influence over its associates (see Note 12) by
considering, among others, its ownership interest (holding 20% or more of the voting power of the
investee), board representation and participation on board sub-committees, and other contractual
terms.
Classification of joint arrangements
The Group’s investments in joint ventures (see Note 12) are structured in separate incorporated
entities. Even though the Group holds various percentage of ownership interest on these
arrangements, their respective joint arrangement agreements requires unanimous consent from all
parties to the agreement for the relevant activities identified. The Group and the parties to the
agreement only have rights to the net assets of the joint venture through the terms of the
contractual arrangements.
Service concession arrangement
In applying Philippine Interpretation IFRIC 12, Service Concession Arrangements, the Group has
made a judgment that its concession agreements qualify under the Intangible Asset and Financial
Asset model. The accounting policy on the Group’s SCA under the Intangible Asset and Financial
model is discussed in Note 3.
Operating lease commitments - Group as lessor
The Group has entered into commercial property leases on its investment property portfolio. The
Group has determined that it retains all significant risks and rewards of ownership of these
properties as the Group considered among others the length of the lease term as compared with
the estimated useful life of the assets.
A number of the Group’s operating lease contracts are accounted for as noncancellable operating
leases and the rest are cancellable. In determining whether a lease contract is cancellable or not,
the Group considers among others, the significance of the penalty, including the economic
consequence to the lessee.
Operating lease commitments - Group as lessee
The Group has entered into contracts with various parties to develop commercial or retail
properties. The Group has determined that all significant risks and rewards of ownership of these
properties are retained by the lessor.
Finance lease commitments - Group as lessee
Certain subsidiaries have entered into finance lease agreements related to office equipment,
machineries and production equipment. They have determined, based on the evaluation of the
terms and conditions of the arrangement, that they bear substantially all the risks and rewards
incidental to ownership of the said machineries and equipment and so account for the contracts as
finance leases.
Classification of property as investment property or real estate inventories
The Group determines whether a property is classified as investment property or real estate
inventory as follows:
·
·
Investment property comprises land and buildings (principally offices, commercial and retail
property) which are not occupied substantially for use by, or in the operations of, the Group,
nor for sale in the ordinary course of business, but are held primarily to earn rental income and
capital appreciation.
Real estate inventory comprises property that is held for sale in the ordinary course of
business. Principally, this is residential, commercial and industrial property that the Group
develops and intends to sell before or on completion of construction.
Distinction between investment properties and owner-occupied properties
The Group determines whether a property qualifies as investment property. In making its
judgment, the Group considers whether the property is not occupied substantially for use by, or in
operations of the Group, not for sale in the ordinary course of business, but are held primarily to
earn rental income and capital appreciation. Owner-occupied properties generate cash flows that
are attributable not only to property but also to the other assets used in the production or supply
process.
Some properties comprise a portion that is held to earn rentals or for capital appreciation and
another portion that is held for use in the production or supply of goods or services or for
administrative purposes. If these portions cannot be sold separately as of reporting date, the
property is accounted for as investment property only if an insignificant portion is held for use in
the production or supply of goods or services or for administrative purposes. Judgment is applied
in determining whether ancillary services are so significant that a property does not qualify as
investment property. The Group considers each property separately in making its judgment.
Distinction between real estate inventories and land and improvements
The Group determines whether a property will be classified as real estate inventories or land and
improvements. In making this judgment, the Group considers whether the property will be sold in
the normal operating cycle (Real estate inventories) or whether it will be retained as part of the
Group’s strategic landbanking activities for development or sale in the medium or long-term (Land
and improvements).
Property acquisitions and business combinations
The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group
considers whether the acquisition represents the acquisition of a business. The Group accounts
for an acquisition as a business combination where an integrated set of activities is acquired in
addition to the property. More specifically, consideration is made of the extent to which significant
processes are acquired and, in particular, the extent of ancillary services provided by
the subsidiary (e.g., maintenance, cleaning, security, bookkeeping, hotel services, etc.). The
significance of any process is judged with reference to the guidance in PAS 40 on ancillary
services.
When the acquisition of subsidiaries does not represent a business, it is accounted for as an
acquisition of a group of assets and liabilities. The cost of the acquisition is allocated to the assets
and liabilities acquired based upon their relative fair values, and no goodwill or deferred tax is
recognized.
Collectibility of the sales price
For real estate sales, in determining whether the sales prices are collectible, the Group considers
that initial and continuing investments by the buyer of about 10% would demonstrate the buyer’s
commitment to pay.
Recognition of implementation revenue using straight-line and percentage-of-completion method
The Group determines the appropriate revenue recognition policy for implementation revenue
from software arrangements. In making its judgment, the Group considers whether the
implementation revenue is rendered under a stand-alone service contract, which is being
recognized based on the percentage of work that is being recognized using percentage-ofcompletion over the life of the contract or a multiple deliverable software arrangement that is
tightly linked and inseparable from other service contracts.
Impairment of AFS equity investments
The Group treats AFS equity investments as impaired when there has been a significant or
prolonged decline in the fair value below its cost or where other objective evidence of impairment
exists. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. The Group
treats ‘significant’ generally as 20% or more and ‘prolonged’ as greater than 6 months for quoted
equity securities. In addition, the Group evaluates other factors, including normal volatility in share
price for quoted equities and the future cash flows and the discount factors for unquoted equities.
Financial assets not quoted in an active market
The Group classifies financial assets by evaluating, among others, whether the asset is quoted or
not in an active market. Included in the evaluation on whether a financial asset is quoted in an
active market is the determination on whether quoted prices are readily and regularly available,
and whether those prices represent actual and regularly occurring market transactions on an
arm’s length basis.
Contingencies
The Group is currently involved in various legal proceedings. The estimate of the probable costs
for the resolution of these claims has been developed in consultation with outside counsel
handling the defense in these matters and is based upon an analysis of potential results. The
Group currently does not believe that these proceedings will have a material effect on the Group’s
financial position (see Note 38).
Management’s Use of Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the
reporting date that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed below.
Revenue and cost recognition
The Group’s revenue recognition policies require management to make use of estimates and
assumptions that may affect the reported amounts of revenue and costs. The Group’s revenue
from real estate, pipeworks, construction, management contracts and human resource
outsourcing services are recognized based on the percentage-of-completion measured principally
on the basis of the estimated completion of a physical proportion of the contract work, and by
reference to the actual costs incurred to date over the estimated total costs of the project.
Estimating allowance for impairment losses
The Group maintains allowance for doubtful accounts based on the results of the individual and
collective assessment under PAS 39. Under the individual assessment, the Group is required to
obtain the present value of estimated cash flows using the receivable’s original effective interest
rate. Impairment loss is determined as the difference between the receivable’s carrying balance
and the computed present value. Factors considered in individual assessment are payment
history, past due status and term. The collective assessment would require the Group to group its
receivables based on the credit risk characteristics (customer type, payment history, past-due
status and term) of the customers. Impairment loss is then determined based on historical loss
experience of the receivables grouped per credit risk profile. Historical loss experience is adjusted
on the basis of current observable data to reflect the effects of current conditions that did not affect
the period on which the historical loss experience is based and to remove the effects of conditions
in the historical period that do not exist currently. The methodology and assumptions used for the
individual and collective assessments are based on management’s judgment and estimate.
Therefore, the amount and timing of recorded expense for any period would differ depending on
the judgments and estimates made for the year.
As of December 31, 2013, 2012 and January 1, 2012, allowance for impairment losses amounted
to P
= 1.8 billion, P
= 1.5 billion and P
= 1.2 billion, respectively. Accounts and notes receivable, net of
allowance for doubtful accounts, amounted to P
= 74.6 billion, P
= 60.4 billion and P
= 41.4 billion as of
December 31, 2013, 2012 and January 1, 2012, respectively (see Note 7).
Evaluation of net realizable value of inventories and land and improvements
Inventories and land and improvements are valued at the lower of cost and NRV. This requires
the Group to make an estimate of the inventories’ and land and improvements’ estimated selling
price in the ordinary course of business, cost of completion and costs necessary to make a sale to
determine the NRV. For real estate inventories and land and improvements, the Group adjusts
the cost of its real estate inventories and land and improvements to net realizable value based on
its assessment of the recoverability of the real estate inventories and land and improvements. In
determining the recoverability of the inventories and land and improvements, management
considers whether those inventories and land and improvements are damaged or if their selling
prices have declined. Likewise, management also considers whether the estimated costs of
completion or the estimated costs to be incurred to make the sale have increased.
In the event that NRV is lower than the cost, the decline is recognized as an expense. The
amount and timing of recorded expenses for any period would differ if different judgments were
made or different estimates were utilized.
Inventories carried at cost amounted to P
= 47.3 billion, P
= 30.9 billion and P
= 26.9 billion as of
December 31, 2013, 2012 and January 1, 2012 respectively. Inventories carried at NRV
amounted to P
= 2.9 billion, P
= 2.4 billion and P
= 1.9 billion as of December 31, 2013, 2012 and
January 1, 2012 respectively (see Note 8).
Evaluation of impairment of nonfinancial assets
The Group reviews investments in associates and joint ventures, investment properties, property,
plant and equipment, service concession assets and intangible assets for impairment of value.
Impairment for goodwill is assessed at least annually. This includes considering certain
indications of impairment such as significant changes in asset usage, significant decline in assets’
market value, obsolescence or physical damage of an asset, significant underperformance relative
to expected historical or projected future operating results and significant negative industry or
economic trends.
The Group estimates the recoverable amount as the higher of the fair value less costs to sell and
value in use. For investments in associates and joint ventures, fair value less costs to sell pertain
to quoted prices (listed equities) and to fair values determined using discounted cash flows or
other valuation technique such as multiples. In determining the present value of estimated future
cash flows expected to be generated from the continued use of the assets, the Group is required
to make estimates and assumptions that may affect investments in associates and joint ventures,
investment properties, property, plant and equipment, service concession assets and intangible
assets.
For goodwill, this requires an estimation of the recoverable amount which is the fair value less
costs to sell or value in use of the cash-generating units to which the goodwill is allocated.
Estimating a value in use amount requires management to make an estimate of the expected
future cash flows for the cash generating unit and also to choose a suitable discount rate in order
to calculate the present value of cash flows.
Investments in associates and joint ventures, investment properties, property, plant and
equipment, service concession assets and intangible assets amounted to P
= 286.8 billion,
P
= 253.7 billion and P
= 203.0 billion as of December 31, 2013, 2012 and January 1, 2012,
respectively (see Notes 12, 13, 14, 15 and 16).
Estimating useful lives of investment properties, property, plant and equipment, and intangible
assets
The Group estimated the useful lives of its investment properties, property, plant and equipment
and intangible assets with finite useful lives based on the period over which the assets are
expected to be available for use. The estimated useful lives of investment properties, property,
plant and equipment and intangible assets are reviewed at least annually and are updated if
expectations differ from previous estimates due to physical wear and tear and technical or
commercial obsolescence on the use of these assets. It is possible that future results of
operations could be materially affected by changes in these estimates brought about by changes
in factors mentioned above. A reduction in the estimated useful lives would increase depreciation
and amortization expense and decrease noncurrent assets.
Investment properties, property, plant and equipment, and intangible assets with finite useful lives
amounted to P
= 89.6 billion, P
= 76.0 billion and P
= 58.3 billion as of December 31, 2013, 2012 and
January 1, 2012, respectively (see Notes 13, 14, 15 and 16).
Deferred FCDA
Under the concession agreements entered into by the MWC Group, MWC and Boracay Island
Water Company (BIWC) are entitled to recover (refund) foreign exchange losses (gains) arising
from concession loans and any concessionaire loans. MWC and BIWC recognized deferred
FCDA (included as part of “Other noncurrent assets” or “Other noncurrent liabilities” in the
consolidated statement of financial position) for both realized and unrealized foreign exchange
gains and losses. Deferred FCDA is set up as an asset for the realized and unrealized exchange
losses since this is a resource controlled by MWC and BIWC as a result of past events and from
which future economic benefits are expected to flow to MWC and BIWC. Realized and unrealized
foreign exchange gains, on the other hand, which will be refunded to the customers, are presented
as liability. As of December 31, 2013, MWC and BIWC’s deferred FCDA classified under “Other
noncurrent assets” amounted to P
= 55.4 million (see Note 17). As of December 31, 2012, MWC
and BIWC’s deferred FCDA included in “Other noncurrent liabilities” amounted to P
= 544.44 million
(see Note 21).
Deferred tax assets
The Group reviews the carrying amounts of deferred income taxes at each reporting date and
reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable
income will be available to allow all or part of the deferred tax assets to be utilized. However,
there is no assurance that the Group will generate sufficient taxable income to allow all or part of
deferred tax assets to be utilized. The Group looks at its projected performance in assessing the
sufficiency of future taxable income.
As of December 31, 2013, 2012 and January 1, 2012, the Group has net deferred tax assets
amounting to P
= 6.5 billion, P
= 4.5 billion and P
= 3.4 billion, respectively, and net deferred tax liabilities
amounting to P
= 6.3 billion, P
= 6.3 billion and P
= 6.1 billion, respectively (see Note 25).
Recognition and measurement of taxes
The Group has exposure to taxes in numerous jurisdictions. Significant judgment is involved in
determining the group-wide provision for taxes including value-added tax, consumption tax and
customs duty. There are certain transactions and computations for which the ultimate tax
determination is uncertain during the ordinary course of business. The Group recognizes liabilities
for expected tax issues based on estimates of whether additional taxes are due. Where the final
tax outcome of these matters is different from the amounts that were initially recognized, such
differences will impact the profit and loss in the period in which such determination is made.
The carrying amount of the Group’s income taxes payable as of December 31, 2013, 2012 and
January 1, 2012 amounted to P
= 1.7 billion, P
= 1.5 billion and P
= 483.3 million, respectively.
Share-based payments
The expected life of the options is based on the expected exercise behavior of the stock option
holders and is not necessarily indicative of the exercise patterns that may occur. The volatility is
based on the average historical price volatility which may be different from the expected volatility
of the shares of stock of the Group.
Total expense arising from share-based payments recognized by the Group amounted to
P
= 483.5 million, P
= 500.6 million and P
= 447.6 million in 2013, 2012 and 2011, respectively
(see Note 28).
Defined benefit plans (pension benefits)
The cost of defined benefit pension plans and other post employment medical benefits as well as
the present value of the pension obligation are determined using actuarial valuations. The
actuarial valuation involves making various assumptions. These include the determination of the
discount rates, future salary increases, mortality rates and future pension increases. Due to the
complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit
obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed at
each reporting date. The net benefit liability as at December 31, 2013, 2012 and January 1, 2012
amounted to P
= 1.9 billion, P
= 1.6 billion and P
= 1.0 billion, respectively. Further details are provided in
Note 27.
In determining the appropriate discount rate, management considers the interest rates of
government bonds that are denominated in the currency in which the benefits will be paid, with
extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country and is
modified accordingly with estimates of mortality improvements. Future salary increases and
pension increases are based on expected future inflation rates for the specific country.
Further details about the assumptions used are provided in Note 27.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated
statement of financial position or disclosed in the notes to the consolidated financial statements
cannot be derived from active markets, they are determined using internal valuation techniques
using generally accepted market valuation models. The inputs to these models are taken from
observable markets where possible, but where this is not feasible, estimates are used in
establishing fair values. These estimates may include considerations of liquidity, volatility, and
correlation. Certain financial assets and liabilities were initially recorded at fair values by using the
discounted cash flow methodology. See Note 33 for the related balances.
Fair value of put and call options
The acquisition of PSi on October 6, 2010 gave rise to a long equity call option and written equity
put option for IMI. The call and put options were valued using the binomial option pricing model.
This valuation technique considers the probability of the value of PSi’s shares price determined
based on a five-year discounted cash flow model to move up or down depending on the volatility,
risk free rate and exercise price. As of December 31, 2013 and 2012 and January 1, 2012, the call
option has a zero value and positive value of US$2.86 million (P
= 117.3 million) and US$2.74 million
(P
= 119.9 million), respectively, while the put option has zero value.
5. Cash and Cash Equivalents
This account consists of the following:
2013
Cash on hand and in banks
(Note 31)
Cash equivalents (Note 31)
P
= 22,728,761
42,926,288
P
= 65,655,049
December 31
2012
(In Thousands)
January 1
2012
P
= 18,431,524
61,854,831
P
= 80,286,355
P
= 8,136,819
48,159,684
P
= 56,296,503
Cash in banks earns interest at the prevailing bank deposit rates. Cash equivalents are shortterm, highly liquid investments that are made for varying periods of up to three months depending
on the immediate cash requirements of the Group and earn interest at the prevailing short-term
rates.
6. Short-term Investments
Short-term investments pertain to money market placements made for varying periods of more
than three months but less than one year and earn interest at the respective short-term investment
rates. The ranges of interest rates of the short-term investments follow:
PHP
USD
December 31
2013
2012
3.0% to 5.0%
2.2% to 4.6%
–
–
January 1
2012
1.3% to 5.0%
0.2% to 2.0%
7. Accounts and Notes Receivable
This account consists of the following:
Trade:
Real estate
Electronics manufacturing
Water distribution and
wastewater services
Automotive
Information technology and
BPO
International and others
Advances to other companies
Advances to contractors and
suppliers
Related parties (Note 31)
Dividend receivable (Note 31)
Investment in bonds classified as
loans and receivables
(Forward)
2013
December 31
2012
(In Thousands)
January 1
2012
P
= 39,832,997
7,286,792
P
= 30,815,940
6,051,898
P
= 19,553,267
5,628,560
1,645,476
985,390
1,707,290
968,156
1,086,389
534,975
194,584
3,618
10,912,046
163,335
6,507
7,178,807
117,305
2,493
5,250,615
8,837,924
3,145,472
1,412,577
9,873,307
2,588,857
36,636
3,550,498
2,527,580
815,220
1,000,000
1,000,000
200,000
December 31
2012
(In Thousands)
P
= 544,374
P
= 572,878
2013
Receivable from BWC
Receivable from officers and
employees (Note 31)
Others (Note 31)
Less allowance for doubtful
accounts
Less noncurrent portion
January 1
2012
P
= 599,342
507,042
92,093
76,400,385
580,621
432,312
61,976,544
758,357
2,033,373
42,657,974
1,776,400
74,623,985
18,282,941
P
= 56,341,044
1,545,929
60,430,615
17,880,961
P
= 42,549,654
1,221,212
41,436,762
8,551,382
P
= 32,885,380
The classes of trade receivables of the Group follow:
Real estate
Real estate receivables are receivables relating to residential development which pertain to
receivables from the sale of high-end; upper middle-income and affordable residential lots and
units, economic housing development and leisure community developments; construction
contracts which pertain to receivables from third party construction projects; shopping centers
which pertain to lease receivables of retail space; corporate business which pertain to lease
receivables of office and factory buildings and receivables from the sale of office buildings and
industrial lots; and management fees which pertain to facility management fees receivable.
The sales contracts receivable, included under residential development, are collectible in monthly
installments over a period of one (1) to ten (10) years and bear annual interest rates ranging from
2.15% to 18.00% computed on the diminishing balance of the principal. Titles to real estate
properties are not transferred to the buyers until full payment has been made.
Receivables from construction contracts, shopping centers and management fee are due within 30
days upon billing. Corporate business receivables are collectible on a monthly or quarterly basis
depending on the terms of the lease.
Electronics manufacturing
Pertains to receivables arising from manufacturing and other related services for electronic
products and components and billings to customers for production and test equipment and all
other charges agreed with the customers in carrying out business operations. These are
collectible within 30- to 60- days from invoice date.
As of December 31, 2013 and 2012, IMI Bulgaria, a subsidiary of IMI, has pledged receivables
with UniCredit Bulbank and BNP Paribas as follows (see Note 21) (amounts in thousands):
UniCredit Bulbank
BNP Paribas
In U.S. Dollar
2013
2012
$7,010
$10,060
–
430
$7,010
$10,490
In Philippine Peso*
2013
2012
P
= 311,209
P
= 412,963
–
17,652
P
= 311,209
P
= 430,615
*Translated using the exchange rate at the reporting date (US$1:P
= 44.395 in 2013, US$1:P
= 41.05 in 2012)
Water distribution and wastewater services
Water distribution and wastewater services receivables arise from water and sewer services
rendered to residential, commercial, semi-business and industrial customers of MWC Group and
are collectible within 30 days from bill generation.
Automotive
Automotive receivables are receivables relating to sale of passenger cars and commercial
vehicles and are collectible within 30- to 90- days from date of sale.
Information technology and BPO
Information technology and BPO receivables arise from venture capital for technology businesses;
provision of value-added content for wireless services, online business-to-business and businessto-consumer services; electronic commerce; technology infrastructure sales and technology
services; and onshore- and offshore-BPO services and are normally collected within 30- to 60days of invoice date.
International and others
International and other receivables arose from investments in overseas property companies and
projects, charter services, agri-business and others and are generally on 30- to 60- day terms.
The nature of the Group’s other receivables follows:
Advances to other companies
Advances to other companies mainly pertain to ALI’s advances to third party joint venture
partners. These are non-interest bearing and are due and demandable. This also includes MWCI’s
receivable from SAWACO which pertains to the unpaid portion of services rendered by MWC in
relation to its management contract with SAWACO. These are offset against the management
billings made by MWC.
Advances to contractors and suppliers
Advances to contractors and suppliers are recouped every progress billing payment date
depending on the percentage of accomplishment.
Receivables from officers and employees
Receivable from officers and employees pertain to housing, car, salary and other loans granted to
the Group’s officers and employees which are collectible through salary deduction. These are
interest bearing ranging from 6.0% to 13.5% per annum and have various maturity dates ranging
from 2014 to 2026.
Investment in bonds classified as loans and receivables
Investment in bonds classified as loans and receivables pertain to ALI’s investments in various
notes and bonds as follows:
·
·
·
·
P
= 200 million investment in 7.25% unsecured subordinated notes of Land Bank of the
Philippines (LBP) due 2019, callable with step-up interest in 2014.
P
= 100 million investment in 5.88% unsecured subordinated notes of Land Bank of the
Philippines due 2022, callable in 2017.
P
= 200 million investment in 5.75% unsecured subordinated notes of Development Bank of the
Philippines due 2022, callable in 2017.
P
= 500 million investment in 5.75% collateralized bonds of First Metro Investment Corp. due
2019, callable in 2017.
Others
Other receivables include accrued interest receivable and other nontrade receivables which are
non-interest bearing and are due and demandable.
Other receivables also include IMI’s insurance claim amounting to US$1.2 million (P
= 52.3 million
and P
= 48.4 million as of December 31, 2013 and 2012, respectively) for damages to equipment
and inventories caused by a fire incident in IMI’s plant in Cebu, Philippines in May 2009.
Movements in the allowance for doubtful accounts follow (in thousands):
2013
At January 1
Provisions during the year (Note 23)
Write-offs
Reversals
At December 31
Individually impaired
Collectively impaired
Total
Gross amount of loans and receivables individually
determined to be impaired
Real Estate
and Hotels
P
= 324,197
235,596
(51,028)
(1,258)
P
= 507,507
203,828
303,679
P
= 507,507
P
= 203,828
Electronics
P
= 100,949
(5,364)
–
812
P
= 96,397
96,397
–
P
= 96,397
P
= 96,397
Water Distribution
and Wastewater
Services
P
= 493,646
47,073
–
–
P
= 540,719
33,829
506,890
P
= 540,719
P
= 33,829
Automotive
P
= 23,542
–
–
–
P
= 23,542
1,688
21,854
P
= 23,542
Information
Technology and
BPO Services
P
= 9,963
2,150
–
(12,113)
P
=–
–
–
P
=–
P
= 1,688
P
=–
International
and Others
P
=–
–
–
–
P
=–
–
–
P
=–
P
=–
Others
P
= 593,632
406,639
–
(392,036)
P
= 608,235
271,896
336,339
P
= 608,235
Total
P
= 1,545,929
686,094
(51,028)
(404,595)
P
= 1,776,400
607,638
1,168,762
P
= 1,776,400
P
= 271,896
P
= 607,638
Others
P
= 317,458
572,991
(18,007)
(278,810)
P
= 593,632
P
= 115,885
477,747
P
= 593,632
Total
P
= 1,221,212
719,398
(27,266)
(367,415)
P
= 1,545,929
P
= 482,436
1,063,493
P
= 1,545,929
P
= 115,885
P
= 482,436
Others
P
= 363,549
154,258
(109,147)
(91,202)
P
= 317,458
P
= 177,192
140,266
P
= 317,458
Total
P
= 1,222,524
346,315
(132,601)
(215,026)
P
= 1,221,212
P
= 595,459
625,753
P
= 1,221,212
P
= 177,192
P
= 595,459
2012
At January 1
Provisions during the year (Note 23)
Write-offs
Reversals
At December 31
Individually impaired
Collectively impaired
Total
Gross amount of loans and receivables individually
determined to be impaired
Real Estate
and Hotels
P
= 326,600
52,621
(8,212)
(46,812)
P
= 324,197
P
= 204,781
119,416
P
= 324,197
Electronics
P
= 92,797
14,666
–
(6,514)
P
= 100,949
P
= 100,949
–
P
= 100,949
P
= 204,781
P
= 100,949
Water Distribution
and Wastewater
Services
P
= 419,268
75,425
(1,047)
–
P
= 493,646
P
= 59,133
434,513
P
= 493,646
P
= 59,133
Automotive
P
= 36,003
–
–
(12,461)
P
= 23,542
P
= 1,688
21,854
P
= 23,542
Information
Technology and
BPO Services
P
= 29,019
3,695
–
(22,751)
P
= 9,963
P
=–
9,963
P
= 9,963
P
= 1,688
P
=–
International
and Others
P
= 67
–
–
(67)
P
=–
P
=–
–
P
=–
P
=–
2011
At January 1
Provisions during the year (Note 23)
Write-offs
Reversals
At December 31
Individually impaired
Collectively impaired
Total
Gross amount of loans and receivables individually
determined to be impaired
Real Estate
and Hotels
P
= 307,355
27,812
(4,348)
(4,219)
P
= 326,600
P
= 221,260
105,340
P
= 326,600
P
= 221,260
Electronics
P
= 28,183
83,763
(590)
(18,559)
P
= 92,797
P
= 92,797
–
P
= 92,797
P
= 92,797
Water Distribution
and Wastewater
Services
P
= 479,524
53,729
(18,516)
(95,469)
P
= 419,268
P
= 42,992
376,276
P
= 419,268
P
= 42,992
Automotive
P
= 36,516
1,513
–
(2,026)
P
= 36,003
P
= 36,003
–
P
= 36,003
P
= 36,003
Information
Technology and
BPO Services
P
= 7,330
25,240
–
(3,551)
P
= 29,019
P
= 25,148
3,871
P
= 29,019
P
= 25,148
International
and Others
P
= 67
–
–
–
P
= 67
P
= 67
–
P
= 67
P
= 67
As of December 31, 2013, 2012 and January 1, 2012, certain real estate receivables and
receivables from officers and employees with a nominal amount of P
= 46.7 billion, P
= 34.5 billion and
P
= 21.4 billion, respectively, were recorded initially at fair value. The fair value of the receivables
was obtained by discounting future cash flows using the applicable rates of similar types of
instruments.
Movements in the unamortized discount of the Group’s receivables as of December 31, 2013,
2012 and January 1, 2012 follow:
December 31
2012
(In Thousands)
P
= 2,524,764
P
= 2,763,006
3,575,225
1,549,954
(1,712,182)
(1,341,167)
–
(447,029)
P
= 4,387,807
P
= 2,524,764
2013
Balance at beginning of the year
Additions during the year
Accretion for the year
Acceleration of accretion
Balance at end of the year
January 1
2012
P
= 1,289,479
2,397,937
(924,410)
–
P
= 2,763,006
In 2013, the Company sold to BPI Family Savings Bank (BPI Family Bank) its notes receivable
from officers and employees amounting to P
= 74.6 million.
In 2012, ALI sold real estate receivables on a without recourse basis to BPI Family Bank and
RCBC Savings amounting to P
= 3.0 billion and P
= 1.4 billion, respectively. These were sold for a total
average discount rate of 6.0% or P
= 2.6 billion to BPI Family Bank and P
= 1.2 billion to RCBC
Savings. The total discounting cost on these receivables amounted to P
= 498.0 million recognized
under “Interest and other financing charges” in the consolidated statements of income
(see Note 23).
In 2011, the Company and ALI sold to Bank of the Philippine Islands (BPI) its loans receivable
from officers and employees and real estate receivables without recourse amounting to
P
= 452.5 million and P
= 322.8 million, respectively. The discount on these receivables amounting to
P
= 37.3 million has been included under “Interest and other financing charges” in the consolidated
statement of income (see Note 23).
Also in 2011, ALI entered into an agreement with BPI for the sale of interest bearing loans
receivables from employees without recourse amounting to P
= 306.0 million with 12% interest rate
which resulted to no gain or loss.
On April 29, 2011, LIL granted promissory notes to its two IQ Backoffice officers. The notes have
an aggregate amount of US$0.66 million (P
= 28.9 million) which bear interests at four percent (4%)
per annum and will mature on April 29, 2016. On the same date, the parties to the notes
simultaneously entered into a Pledge Agreement where the officers (Pledgor), who are also
shareholders of LIL (Pledgee), pledge their entire 3.9 million shares on LIL as collateral for the
notes they have availed.
8. Inventories
This account consists of the following:
December 31
2013
2012
(In Thousands)
At cost:
Condominium, residential and
commercial units
Subdivision land for sale
Vehicles
Finished goods
Work-in-process
Materials, supplies and others
At NRV:
Subdivision land for sale
Finished goods
Work-in-process
Parts and accessories
Materials, supplies and others
January 1
2012
P
= 26,920,259
16,854,931
1,171,478
354,134
432,008
1,544,821
47,277,631
P
= 18,511,527
9,375,051
740,668
216,896
144,757
1,915,057
30,903,956
P
= 13,392,325
10,574,566
472,230
273,178
277,452
1,880,354
26,870,105
524,158
316,576
176,749
168,451
1,714,921
2,900,855
P
= 50,178,486
524,158
243,502
305,001
149,885
1,142,526
2,365,072
P
= 33,269,028
524,158
191,481
82,227
140,461
988,744
1,927,071
P
= 28,797,176
A summary of the movement of real estate inventories is set out below.
2013
Opening balances at January 1
Land cost transferred from land and
improvements
Construction/development costs incurred
Disposals (recognized as cost of sales)
Transfers from / to investment properties and
other assets
Other adjustments/reclassifications
Exchange differences
Condominium,
Subdivision residential and
land
commercial
for sale
units
(In Thousands)
P
= 9,899,209
P
= 18,511,527
Total
P
= 28,410,736
7,454,628
10,551,863
(10,498,850)
7,271,578
25,087,265
(23,938,638)
14,726,206
35,639,128
(34,437,488)
(26,138)
(1,623)
–
P
= 17,379,089
9,831
–
(21,304)
P
= 26,920,259
(16,307)
(1,623)
(21,304)
P
= 44,299,348
2012
Opening balances at January 1
Land acquired during the year
Land cost transferred from land and
improvements
Construction/development costs incurred
Disposals (recognized as cost of sales)
Write-down of inventories
Transfers from investment properties
Other adjustments/reclassifications
Exchange differences
Subdivision Condominium,
land residential and
for sale commercial units
(In Thousands)
P
= 11,098,724
P
= 13,392,325
228,291
176,519
1,194,843
3,675,348
(5,659,877)
–
76,726
(714,846)
–
P
= 9,899,209
–
24,966,445
(20,445,723)
(250,607)
25,252
768,459
(121,143)
P
= 18,511,527
Total
P
= 24,491,049
404,810
1,194,843
28,641,793
(26,105,600)
(250,607)
101,978
53,613
(121,143)
P
= 28,410,736
2011
Opening balances at January 1
Land acquired during the year
Land cost transferred from land and
improvements
Construction/development costs incurred
Disposals (recognized as cost of sales)
Write-down of inventories
Transfers to investment properties
Other adjustments/reclassifications
Subdivision Condominium,
land residential and
for sale commercial units
(In Thousands)
P
= 8,703,073
P
= 7,397,575
164,569
–
927,756
5,289,050
(3,939,515)
(87,081)
(55,366)
96,238
P
= 11,098,724
445,261
15,910,200
(10,408,714)
(19,503)
–
67,506
P
= 13,392,325
Total
P
= 16,100,648
164,569
1,373,017
21,199,250
(14,348,229)
(106,584)
(55,366)
163,744
P
= 24,491,049
Inventories recognized as cost of sales amounted to P
= 66.5 billion, P
= 55.3 billion and P
= 44.1 billion in
2013, 2012 and 2011, respectively, and were included under “Costs of sales” in the consolidated
statement of income.
The Group recorded provision for impairment losses on inventories amounting to P
= 105.7 million,
P
= 150.4 million and P
= 142.7 million in 2013, 2012 and 2011, respectively. The provision is included
under “Other charges” in the consolidated statement of income (see Note 23).
The Group recognized gain from sale of scrapped packaging supplies amounting to
US$0.92 million (P
= 39.0 million), loss amounting to US$1.82 million (P
= 72.8 million) and a gain of
US$0.70 million (P
= 30.1 million) in 2013, 2012 and 2011, respectively. These gains and losses are
included under “Other income” in the consolidated statement of income (see Note 23).
As of December 31, 2013 and 2012, IMI BG’s pledged inventories with UniCredit Bulbank and
BNP Paribas amounted to €8.0 million (P
= 486.5 million) and €8.3 million (P
= 506 million),
respectively. Further details are as follows (see Note 20) (amounts in thousands):
In Euro
UniCredit Bulbank
BNP Paribas
2013
€8,000
–
€8,000
2012
€8,000
320
€8,320
In U.S. Dollar
2013
2012
$11,039
$10,600
–
430
$11,039
$11,030
9. Other Current Assets
This account consists of the following:
Financial assets at FVPL
Prepaid expenses
Deposits in escrow
Input VAT
Creditable withholding tax
Derivative assets (Note 32)
Concession financial receivable
Others
December 31
2013
2012
(In Thousands)
P
= 17,916,513
P
= 4,532,323
7,708,414
5,088,553
6,743,298
5,317,448
3,660,057
5,024,280
2,068,934
1,793,961
456,768
184,276
77,459
–
562,577
710,993
P
= 39,194,020
P
= 22,651,834
January 1
2012
P
= 1,470,829
3,183,087
147,529
1,897,899
2,279,769
122,704
–
283,270
P
= 9,385,087
Financial Assets at FVPL
TRG Investments
Financial assets at FVPL includes the Group’s investment in The Rohatyn Group (TRG) Allocation
LLC and TRG Management LP (collectively TRG investments), which have a combined fair value
of US$36.2 million and US$33.4 million as of December 31, 2013 and 2012, respectively.
These investments are accounted for at FVPL. There is no change in management’s intention to
hold the investments for trading purpose. It was concluded in the past that there was no
appropriate valuation method to value these unquoted investments and reference to equity
transactions by external party would be the best approximation to fair value. Unrealized gains
recognized on this investment amounted to nil in 2013 and 2012 and US$3.0 million
(P
= 132.2 million) in 2011 (see Note 23).
On March 7, 2011, the Group entered into a Contribution and Exchange Agreement with TRG
for the exchange of ownership interests in ARCH Capital and ARCH Capital Asian Partners G.P.
(a Cayman Islands company) which resulted to a gain amounting to US$9.4 million
(P
= 407.1 million). The gain on the exchange is recorded as part of “Other income” in the
consolidated statement of income (see Note 23). The exchange of ownership interest with a cash
consideration of US$13.3 million resulted in TRG acquiring BHI’s 33% and ALI’s 17% interest in
ARCH Capital and increase in ownership interest in the TRG Investments to 10%.
In the absence of equity transaction at reporting date, the Group uses the last transaction price as
the fair value as of reporting date.
In 2013, the Group made additional investment inTRG amounting to US$2.8 million representing
capital call for the year.
In December 2012, the Group amended its partnership agreement for the TRG investments to
include a clause on how much the Group will receive (Distributable Amount) in connection with a
liquidation of the Partnership or a sale or other disposition of all or substantially all of the assets of
the Partnership that leads to a liquidation of the Partnership of a Sale of Business. The
Distributable Amount available to the Group will vary as follows:
a. if Distributable Amount is less than US$150 million, the Group and the other strategic partner
would be entitled to receive 2 times the original equity interest, and after that, the remaining
would be divided on a pro-rata basis among the remaining equity interest holders;
b. if the Distributable Amount is between US$150 million and US$334 million, then the first
US$66.8 million would be divided between the Group and the other strategic partner on a prorata basis and after that, the rest would be divided among all the remaining equity interest
holders; and,
c. if the Distributable Amount is above US$334 million, then the Distributable Amount should be
divided among all the equity interest holders, including the Group and the other strategic
partner on a pro-rata basis.
As of December 31, 2013 and 2012, the Group’s remaining capital commitment with the TRG
Investments amounted to US$7.3 million and US$10.0 million, respectively.
UITF investments
The Group started investing in the BPI Short Term Fund (the Fund) in July 2013. The Fund, which
is structured as a money market UITF, aims to generate liquidity and stable income by investing in
a diversified portfolio of primarily short-term fixed income instruments. It has no minimum holding
period and the Bangko Sentral ng Pilipinas (BSP) Special Deposit Account accounted for close to
70% of the Fund. As of December 31, 2013, the fair value of the Group’s total investment in the
Fund amounted to P
= 12.8 billion.
ARCH Fund
As of December 31, 2012, investment securities include the Group’s investment in ARCH Fund
which was previously classified as an investment in associate accounted for under equity method
of accounting by virtue of the Group’s interest in the general partner. The reclassification was due
to an exchange consummated in 2011, wherein the Group gave up their interest in the general
partner. The investment in ARCH Fund is no longer an equity investment but a monetary interest
in the fund. Net changes in fair value of financial assets at FVPL is included under “Other income”
in the consolidated statement of income (see Note 23).
In 2007, the private equity fund, called ARCH Capital Asian Partners, L.P. (the Fund) was
established. The Fund achieved its final closing, resulting in a total investor commitment of
US$330.0 million in 2007. On various dates in 2013 and 2012, the Fund made capital calls where
the Group’s share amounted to US$0.1 million as of December 31, 2013 and 2012.
As of December 31, 2013 and 2012, the Group’s remaining capital commitment with the Fund
amounted to US$9.0 million and US$9.1 million, respectively.
In 2011, the Company, through one of its subsidiaries, committed to invest US$50.0 million in
ARCH Capital’s second real estate fund, ARCH Capital-TRG Asian Partners, L.P., which had its
first closing on June 30, 2011. As of December 31, 2013 and 2012, the Company had contributed
US$21.7 million (P
= 890.8 million) into the fund.
Prepaid expenses
Prepaid expenses mainly include prepayments for commissions, marketing fees and promotion,
taxes and licenses, rentals and insurance.
Deposits in escrow
Deposits in escrow include the proceeds from the sale of real estate of an ALI subsidiary. Under
its temporary license to sell, all payments, inclusive of down payments, reservation, and monthly
amortization, among others, made by the buyer within the selling period shall be deposited in an
escrow account.
The deposits in escrow account also include cash deposit of Summerhill E-Office, Inc. (Buyer)
amounting to P
= 1,175.2 million with an Escrow Agent on August 15, 2012 in relation to the Buyer’s
purchase of parcels of land from a third party with an aggregate area of approximately 47,952
square meters located in Pasig City. The amount and document will be released only upon
presentation of the Certificate Authorizing Registration duly issued by the Bureau of Internal
Revenue authorizing the transfer of the Parcels from the Seller to the Buyer. The amount will be
net of capital gains tax on the sale but will include accrued interests in the escrow account.
On October 18, 2012, MWC entered into a share purchase agreement (SPA) with Suez
Environment to acquire 51% of PT PAM Lyonnaise Jaya (PALYJA), the water concessionaire for
the West Zone of Jakarta, Indonesia. The payment for the shares is subject to the fulfillment of
certain conditions precedent. To secure the fulfillment of these conditions, a deposit of 15% of the
purchase price was required and held by an escrow agent amounting to P
= 482.7 million.
In 2013, MWC failed to obtain written consent from City council and Perusahaan Daerah Air
Minum Daerah Khusus Ibukota Jakarta (“PAM Jaya”), the water concessionaire for the East Zone
of Jakarta, Indonesia, for the controlling stake in PALYJA. Accordingly, the deposit in escrow was
returned to MWC in August 2013.
Input VAT
Input VAT is applied against output VAT. The remaining balance is recoverable in future periods.
Creditable withholding tax
The Group will be able to apply the creditable withholding taxes against income tax payable.
Derivative assets
This account consists of:
Conversion option
Call option
Currency forwards
December 31
2013
2012
(In Thousands)
P
= 456,768
P
= 66,996
–
117,280
–
–
P
= 456,768
P
= 184,276
January 1
2012
P
=–
119,939
2,765
P
= 122,704
Concession financial receivable
On December 13, 2013, CMWD received a Notice of Award for the bulk supply of water to the
Metropolitan Cebu Water District (MCWD). In relation to this, CMWD and MCWD signed a 20year Bulk Water Supply Contract for the supply of 18 million liters per day of water for the first year
and 35 million liters per day of water for years 2 up to 20. Initial delivery of water is expected to
occur after six months from the signing of the Bulk Water Supply Contract.
Concession financial receivable is accounted for in accordance with IFRIC 12, arising from the
bulk water contract between CMWD and MCWD whereby potable and treated water shall be
delivered by CMWD at an aggregate volume of 18,000 cubic meters per day for the first year and
35,000 cubic meters per day for the succeeding years up to 20 years in the amount of P
= 24.59 per
cubic meter or for the total amount of P
= 161.6 million, to be injected directly to the pre-determined
delivery/drop-off points which should be provided with metering devices to accurately monitor the
volume delivered.
10. Investments in Bonds and Other Securities
This account consists of investments in:
December 31
2013
2012
(In Thousands)
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Unquoted debt investments
P
= 1,241,869
1,439,637
2,681,506
103,301
–
P
= 2,784,807
P
= 1,790,043
1,117,965
2,908,008
99,501
236,411
P
= 3,243,920
January 1
2012
P
= 923,563
1,508,373
2,431,936
874,161
439,071
P
= 3,745,168
Quoted Equity Investments
Quoted equity instruments consist mainly of investments in listed equity securities and golf club
shares. It also includes the following quoted equity investments:
Ho Chi Minh City Infrastructure Investment Joint Stock Co. (CII)
CII is a leading player in the infrastructure sector in Vietnam with a solid track record in sourcing,
implementing and operating infrastructure assets. CII has a portfolio of strategic infrastructure
assets, including water treatment plants and toll roads serving Ho Chi Minh City and surrounding
areas. CII previously held a stake in Thu Duc Water B.O.O. Corporation (TDW), a water treatment
company which is now 49%-owned by MWC (see Note 12). CII was established in December
2001 and is listed in the Ho Chi Minh Stock Exchange.
The carrying amount of the investment in CII amounted to US$10.3 million (P
= 459.2 million) and
US$12.7 million (P
= 522.6 million) as of December 31, 2013 and 2012, respectively. In 2013, the
Group recognized a provision for probable impairment loss amounting to US$5.4 million
(P
= 228.58 million), including the unrealized loss on this investment amounting to US$3.3 million as
of December 31, 2012, due to the prolonged decline in the value of CII’s share price (see Note
23).
Asia Standard International (ASI)
In 2012, BHL disposed its quoted AFS equity investment in shares of stocks of ASI, a property
development and investment company publicly listed in the Hong Kong Stock Exchange. This
quoted equity investment was disposed for a consideration of US$1.5 million (P
= 61.6 million) with a
gain of US$0.8 million (P
= 33.8 million) recognized in profit or loss.
Unquoted Equity Investments
Unquoted equity investments include unlisted preferred shares in public utility companies which
the Group will continue to carry as part of the infrastructure that it provides for its real estate
development projects, water utilities projects, and to its other operations. It also includes the
following unquoted equity investments:
TRG Global Opportunity Fund (GOF) and TRG Special Opportunity Fund (SOF)
The GOF is a multi-strategy hedge fund which invests primarily in emerging markets securities.
The SOF focuses on less liquid assets in emerging markets (Latin America, Asia, Emerging
Europe, Middle East and Africa) such as distressed debt, NPLs, corporate high yield, mid and
small cap stocks, real estate (debt and equity) and private equity. In 2013, the Group received a
return of capital from SOF amounting to US$4.1 million.
On February 29, 2012, the Group received US$2.2 million from the partial redemption of its GOF
investment. On March 28, 2012, the proceeds arising from the GOF redemption was reinvested in
the TRG-Merrill Lynch Investment Solutions Global Emerging Markets (“GEM”) UCITS. The GEMUCITS is a fund managed by TRG using the same strategy as GOF and distributed by Merrill
Lynch in Europe. The Group subsequently opted to have its investment in the GEM-UCITS
redeemed. The Group received US$2.05 million at end of October 2012.
Red River Holdings
The Red River Holdings is a fund that seeks to achieve a balanced and diversified portfolio of
Vietnamese companies. In 2010, a final capital call was made amounting to US$1.9 million
bringing the total investment in Red River Holdings to US$10.0 million. The carrying amount of
the investment in Red River Holdings amounted to US$10.4 million (P
= 460.4 million) and
US$9.7 million (P
= 296.9 million) as of December 31, 2013 and 2012, respectively.
The Group recorded a provision for impairment loss included under “Other charges” in the
consolidated statement of income amounting to P
= 61.1 million in 2012 and P
= 157.3 million in 2011.
The impairment is due to prolonged decline in net asset value of Red River Holdings
(see Note 23).
Victoria 1522 Investments, LP (Victoria)
In 2010, AIVPL invested US$0.5 million out of US$1.0 million commitment to invest in
Preferred C units of Victoria. Victoria is an investment management firm exclusively focused on
the emerging markets of Asia, Latin America, Europe, Middle East and Africa. In 2012 and 2011,
capital calls amounting to US$0.1 million and US$0.3 million, respectively, were made, bringing
the total investments in Victoria to US$0.9 million as of December 31, 2013 and 2012.
Quoted Debt Investments
Quoted debt investments consist mainly of government securities such as retail treasury bonds.
These bonds earn interest ranging from 6.25% to 8.25% in 2013, 2012 and 2011 with maturity
dates up to 5 years.
In 2012, ALI and MWC sold P
= 224.2 million and P
= 597.1 million worth of treasury bonds and quoted
debt investments, recognizing gain on disposals amounting to P
= 7.3 million and loss on disposals
amounting to P
= 13.1 million, respectively.
The net unrealized gain (loss) on AFS financial assets as reflected in the equity section is broken
down as follows:
December 31
2013
2012
(In Thousands)
Net unrealized gain (loss) on AFS
financial assets of the Company and
its consolidated subsidiaries
Share in the net unrealized gain on AFS
financial assets of associates and
joint ventures
(P
= 421,595)
699,443
P
= 277,848
January 1
2012
P
= 469,519
P
= 697,823
1,329,445
P
= 1,798,964
1,027,571
P
= 1,725,394
The rollforward of unrealized gain (loss) on AFS financial assets of the Company and its
consolidated subsidiaries is as follows:
At January 1
Changes in fair value recognized
in equity
Recognized in profit and loss
At December 31
December 31
2013
2012
(In Thousands)
P
= 469,519
P
= 697,823
(873,047)
(18,067)
(P
= 421,595)
2,725,063
(2,953,367)
P
= 469,519
January 1
2012
P
= 676,094
(135,585)
157,314
P
= 697,823
11. Land and Improvements
The rollforward analysis of this account follows:
December 31
2013
2012
(In Thousands)
Cost
At January 1
Additions
Transfers*
Disposals
At December 31
Allowance for decline in value
At January 1 and December 31
January 1
2012
P
= 49,728,125
29,446,957
(16,190,155)
–
62,984,927
P
= 19,041,040
31,882,873
(1,194,843)
(945)
49,728,125
P
= 16,943,823
3,959,279
(1,846,886)
(15,176)
19,041,040
(510,125)
P
= 62,474,802
(510,125)
P
= 49,218,000
(510,125)
P
= 18,530,915
*Transfers pertain to land to be developed for sale and included under “Real estate inventories” account.
In 2012, ALI won the public bidding for the purchase of the 74-hectare Food Terminal, Inc. (FTI)
property in Taguig. ALI’s bid was P
= 24.3 billion. The bid was conducted in accordance with the
Asset Specific Bidding Rules dated July 4, 2012 and in accordance with the provisions of
Executive Order No. 323.
In October 2012, ALI entered into a Purchase Agreement wherein the Seller (FTI) agrees to sell,
convey, assign and transfer and deliver to the buyer, and the buyer agrees to purchase and
acquire from the seller, all of the seller’s rights and interests in the property. The property is
designed to be a mixed-use development.
On August 27, 2009, ALI and the National Housing Authority (NHA) signed a Joint Venture
Agreement to develop the 29.1-hectare North Triangle Property in Quezon City as a priming
project of the government and the private sector. The joint venture represents the conclusion of a
public bidding process conducted by the NHA which began last October 3, 2008.
ALI’s proposal, which has been approved and declared by the NHA as compliant with the Terms
of Reference of the public bidding and the National Economic Development Authority (NEDA)
Joint Venture Guidelines, features the development of a new Central Business District (CBD) in
Quezon City. The CBD will be developed as the Philippines’ first transit-oriented mixed-use
central business district that will be a new nexus of commercial activity. The proposal also aims to
benefit the NHA in achieving its mandate of providing housing for informal settlers and
transforming a non-performing asset in a model for urban renewal. The development will also
generate jobs and revenues both for the local and national governments.
ALI's vision for the property is consistent with the mandate of the Urban Triangle Development
(TriDev) Commission to rationalize and speed up the development of the East and North Triangles
of Quezon City into well-planned, integrated and environmentally balanced, mixed-use
communities. The joint venture also conforms to NHA's vision of a private sector-led and
managed model for the development of the property, similar to the development experience in Fort
Bonifacio.
The total project cost is estimated at P
= 22.0 billion, inclusive of future development costs and the
current value of the property, which ALI and the NHA will contribute as their respective equity
share in the joint venture. The development of Phase 1 commenced in the second quarter of
2012.
12. Investments in Associates and Joint Ventures
This account consists of the following:
December 31
2013
2012
(In Thousands)
P
= 98,667,066
P
= 88,628,821
24,403,130
14,872,952
(3,266,110)
(562,876)
P
= 119,804,086 P
= 102,938,897
Acquisition cost
Accumulated equity in earnings
Other comprehensive income (loss)
January 1
2012
P
= 60,666,599
13,622,014
496,006
P
= 74,784,619
Details of the Group’s investments in associates and joint ventures and the related percentages of
ownership are shown below:
Percentage of Ownership
December 31
January 1
Domestic:
Bank of the Philippine Islands (BPI)
Ayala DBS Holdings, Inc. (ADHI)*
Globe Telecom, Inc. (Globe)*
Emerging City Holdings, Inc. (ECHI)*
South Luzon Thermal Energy Corp.
(SLTEC)
Philippine Wind Holdings Corporation
(PWHC)*
Berkshires Holdings, Inc. (BHI)*
Bonifacio Land Corporation (BLC)
Asiacom Philippines, Inc. (Asiacom)*
(Forward)
Carrying Amounts
December 31
January 1
2013
2012
2012
2013
P
= 52,635
29,072
15,371
3,993
2012
(In Millions)
P
= 50,323
15,552
16,869
3,964
32.6
73.8
30.4
50.0
32.6
53.5
30.5
50.0
23.9
45.5
30.5
50.0
50.0
50.0
75.0
50.0
10.0
60.0
–
50.0
10.0
60.0
2012
P
= 26,573
10,743
17,353
3,682
50.0
3,070
1,931
1,489
–
50.0
10.1
60.0
2,180
1,955
1,395
1,097
–
1,699
1,279
1,075
–
1,578
1,161
994
Percentage of Ownership
December 31
January 1
Rize-Ayalaland (Kingsway) GP Inc.
(Rize-Ayalaland)
Northwind Power Development Corp.*
(Note 24)
Mercado General Hospital, Inc. (MGHI)
SIAL Specialty Retailers, Inc.*
SIAL CVS Retailers, Inc.*
Foreign:
Stream Global Services, Inc. (Stream)
(U.S. Company)
Thu Duc Water B.O.O. Corporation (TDW)
(incorporated in Vietnam)
Kenh Dong Water Supply Joint Stock
Company (KDW) (incorporated in
Vietnam)
Integreon, Inc. (Integreon) (British Virgin
Islands Company)*
Saigon Water Infrastructure Joint Stock
Company (Saigon Water) (incorporated
in Vietnam)
VinaPhil Technical Infrastructure
Investment Joint Stock Company
(VinaPhil) (incorporated in Vietnam)*
Tianjin Eco-City Ayala Land Development
Co., Ltd. (incorporated in China)
Others
Carrying Amounts
December 31
January 1
2013
2012
2012
2013
2012
2012
49.0
–
–
P
= 501
P
=–
P
=–
50.0
33.0
50.0
50.0
50.0
–
50.0
50.0
50.0
–
–
–
466
360
209
162
433
–
54
84
458
–
–
–
28.9
28.9
26.8
3,329
2,537
2,978
49.0
49.0
49.0
2,200
1,930
1,788
47.4
47.4
–
1,863
1,715
–
58.7
58.7
56.2
1,449
1,776
1,515
31.5
–
–
645
–
–
49.0
49.0
–
590
875
–
40.0
Various
40.0
Various
40.0
Various
543
48
123,133
694
149
102,939
729
3,744
74,785
(3,329)
P
= 119,804
–
P
= 102,939
–
P
= 74,785
Reclassification to noncurrent asset held
for sale
* Joint ventures
Unless otherwise indicated, the principal place of business and country of incorporation of the
Group’s investments in associates and joint ventures is in the Philippines.
Except as discussed in subsequent notes, the voting rights held by the Group in its investments in
associates and joint ventures are in proportion to its ownership interest.
Financial information on significant associates (amounts in millions, except earnings per share
figures) follows:
BPI
Total resources
Total liabilities
Net interest income and other income
Total expenses
Net income
Other comprehensive income
Total comprehensive income
Net income attributable to:
Equity holders of the bank
Non-controlling interests
Earnings per share:
Basic
Diluted
Dividends received from BPI
December 31
2012
2013 (As restated)
P
= 1,195,364
P
= 985,241
1,089,557
887,119
52,498
47,385
33,504
30,883
18,994
16,502
(4,638)
1,594
14,356
18,096
18,811
183
5.19
5.19
1,954
16,352
150
4.60
4.60
2,062
January 1
2012
(As restated)
P
= 843,565
755,249
41,757
28,668
13,089
840
13,929
12,899
190
3.63
3.63
1,395
TDW
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
Dividends received from TDW
2013
P
= 104,451
2,712,849
352,739
800,602
655,427
441,449
87,749
2012
P
= 90,985
2,327,618
280,549
865,496
537,121
335,714
–
The conversion rates used was P
= 0.0021 and P
= 0.0020 to VND1 as of December 31, 2013 and 2012, respectively.
KDW
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
2013
P
= 126,091
2,383,454
522,501
1,115,527
150,829
161,880
2012
P
= 150,115
1,576,809
158,033
859,813
153,436
89,259
The conversion rate used was P
= 0.0021 and P
= 0.0020 to VND1 as of December 31, 2013 and 2012, respectively.
BLC
December 31
2012
(In Thousands)
23,612,217
8,706,725
21,013,477
23,289,999
4,895,150
2,587,605
3,693,719
5,224,859
8,067,041
7,154,345
(5,511,372)
(6,353,297)
2,555,669
801,048
2013
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Cost and expenses
Net income (continuing operations)
January 1,
2012
12,494,845
23,031,456
2,019,519
5,519,109
4,064,943
(2,893,927)
1,171,016
Financial information on significant joint ventures (amounts in millions, except earnings per share
figures) follows:
December 31
Globe
Current assets, including cash and cash
equivalents amounting to P
= 7.4 billion
in 2013, P
= 6.8 billion in 2012 and
P
= 5.2 billion in 2011
Noncurrent assets
Current liabilities including financial liabilities*
amounting to P
= 15.2 billion in 2013,
P
= 15.4 billion in 2012 and P
= 15.2 billion in
2011
Noncurrent liabilities, including financial
liabilities* amounting to P
= 62.5 billion in
2013, P
= 54.2 billion in 2012 and
P
= 39.8 billion in 2011
Revenue
(Forward)
2013
2012
(As restated)
January 1
2012
(As restated)
P
= 35,631
123,448
P
= 34,028
113,760
P
= 23,564
106,501
54,989
45,826
38,986
62,450
95,141
56,487
86,446
43,494
81,518
Interest income
Costs and expenses
Depreciation and amortization
Interest expense
Provision for income tax
Net income
Other comprehensive income
Total comprehensive income
Earnings per share:
Basic
Diluted
Dividends received from Globe
December 31
2013
P
= 688
27,477
2,911
1,905
4,960
213
4,747
37.25
37.22
2,701
2012
P
= 580
January 1
2012
P
= 297
23,583
2,363
2,906
6,845
122
6,723
18,941
2,510
4,254
9,805
316
9,489
51.45
51.38
2,620
73.81
73.57
2,499
*excluding trade and other payables and provisions
In addition to the interest in associates and joint ventures discussed above, the Group also
has interest in a number of individually immaterial associates and joint ventures. Below is a
summary of certain financial information concerning these immaterial associates and joint
ventures:
2013
Carrying amount
Equity in net earnings
Share in other comprehensive income
17,268.0
(181.1)
828.9
2012
(In Millions)
15,271.0
(418.3)
(125.7)
2011
17,167.0
(238.7)
318.7
As of December 31, 2013 and 2012 and January 1, 2012, the Group had total commitments
relating to the Group’s interests in its associates and joint ventures amounting to P
= 3,787.5 million
and P
= 2,259.0 million and P
= 1,246.8 million, respectively (see Note 37).
As of December 31, 2013 and 2012 and January 1, 2012, the Group has no contingent liabilities
incurred in relation to its investments in associates and joint ventures.
On certain investments in associates and joint ventures, the Group entered into shareholders’
agreements with fellow shareholders. Such shareholders’ agreements include, among others,
restriction as to declaration and payment of dividend, incurrence of debt and transactions with
related parties.
The following significant transactions affected the Group’s investments in associates and joint
ventures:
Investment in BPI
On November 6, 2013, the BOD of BPI approved the offering for subscription of up to 370 million
common shares of BPI by way of a stock rights offering to eligible registered holders of common
shares as of January 16, 2014 at the entitlement ratio of 1 rights share for every 9.602 existing
common shares held by such eligible shareholders. The stock rights offer started on
January 20, 2014 and ended on January 30, 2014 (see Note 41).
In October 2012, the Company entered into an agreement with DBS Bank, Ltd. (DBS) to acquire
8.69%, equivalent to 309.3 million of the outstanding common shares held by DBS in BPI for a
total consideration of P
= 21.6 billion. As of December 31, 2013 and 2012, outstanding payable to
DBS in relation to the transaction amounted to P
= 3.6 billion and P
= 10.8 billion, respectively.
The fair value of BPI shares held by the Group amounted to P
= 92.3 billion, P
= 102.0 billion and
P
= 42.8 billion as of December 31, 2013, 2012 and January 2012, respectively.
As of December 31, 2013, 2012 and January 1, 2012, the notional goodwill resulting from the
difference between the share in the net assets in BPI and its carrying value amounted to
P
= 18.6 billion, P
= 18.9 billion and P
= 5.8 billion, respectively.
Investment in Globe
The Company also holds 60% of Asiacom, which owns 158.5 million Globe preferred shares and
460.0 million AC preferred shares as of December 31, 2013. The Company does not exercise
control over Asiacom since it is a joint venture with SingTel.
The fair value of the Globe shares held by the Group amounted to P
= 65.5 billion and P
= 44.0 billion
as of December 31, 2013 and 2012, respectively.
As of December 31, 2013, 2012 and January 1, 2012, the notional goodwill resulting from the
difference of the share in the net assets in Globe and its carrying value amounted to
P
= 2.7 billion, P
= 2.9 billion and P
= 2.9 billion, respectively.
Investment in ADHI
In December 2013, DBS divested its 46.5% remaining ownership interest in ADHI of which the
Company acquired 20.3%. Arran Investment Pte. Ltd. (GICSI), an entity managed and controlled
by GIC Special Investments Pte. Ltd. acquired the remaining interest of 26.2% and replaced DBS
as the new joint venture partner of the Company in ADHI. The total consideration paid by the
Company for the additional 37.6 million ADHI Class B common shares amounted to P
= 13.2 billion
(see Note 18).
In October 2012, the Company purchased 15.0 million ADHI Class B common shares
representing 1.7% indirect ownership in BPI for a total consideration of P
= 3.98 billion (see Note 18).
As of December 31, 2013, 2012 and January 1, 2012, ADHI owns 757.8 million common shares of
BPI. ADHI’s direct ownership in BPI is equal to 21.3% as of December 31, 2013, 2012 and
January 1, 2012.
The fair value of BPI shares held by ADHI amounted to P
= 64.4 billion, P
= 71.2 billion and
P
= 41.8 billion as of December 31, 2013, 2012 and January 1, 2012, respectively. The Group and
GICSI, as joint venture partners, agreed to vote its BPI shares based on the common position
reached jointly by them as shareholders.
Investment in ECHI and BHI
On April 17, 2003, the following transactions were consummated pursuant to the terms and
conditions of the Assignment Agreement (Agreement), dated February 8, 2003, among ALI,
Evergreen Holdings, Inc. (EHI), Greenfield Development Corporation and Larouge,
B.V. (Larouge), as amended, and the Agreement, dated November 23, 2002, among ALI, EHI
and Metro Pacific Investment Corporation (MPIC) as amended:
(a) The assignment to ALI and EHI of the rights and obligations of Larouge under the loan
agreement between Larouge and MPIC, pursuant to which, Larouge extended MPIC a loan in
the principal amount of US$90.0 million, together with all the rights, title and interests of
Larouge in the pledge constituted on 50.38% of the outstanding shares in BLC. The
consideration paid by ALI and EHI for such assignment was approximately US$90 million,
subject in part to foreign exchange adjustment.
(b) The assignment to ALI and EHI (acting in this instance through the joint venture corporation,
Columbus Holdings, Inc. (Columbus)) of the controlling interest in BLC representing 50.38% of
BLC’s outstanding capital stock. This assignment was effected by MPIC under a dacion en
pago arrangement, and included an assignment of payables of BLC in the principal amount of
P
= 655.0 million together with its underlying security in the form of shares in Fort Bonifacio
Development Corporation (FBDC) representing 5.55% of its outstanding capital stock.
The Agreement, as amended, also provides for the constitution of a pledge over 5% of BLC’s
unencumbered shares as security for contingent liabilities and breach of representation and
warranties. The pledge lien over the 5% BLC shares shall continue to subsist until the third
anniversary of the closing date.
ALI and EHI jointly hold the 50.38% equity interest in BLC through ECHI and BHI. ALI and EHI
assigned the notes receivable from MPIC to ECHI and BHI, which acquired the shares of stock of
Columbus. Columbus directly owns the 50.38% interest in BLC. BLC owns 55% interest in
FBDC, the primary developer of certain areas in Fort Bonifacio Global City for residential,
commercial and business development.
Columbus accounted for the acquisition of the 50.38% interest in BLC using the purchase method,
resulting in a negative goodwill of P
= 1.4 billion.
Subsequent to this, ALI and EHI acquired additional shares of BLC through a combination of direct
acquisition and through its associates at varying dates as follows:
On July 31, 2008, the Group acquired, through ALI, Regent and Columbus, additional 4,360,178
shares of BLC from FBDC amounting to P
= 689.0 million, equivalent to 7.66% ownership in BLC. In
January and October 2009, a total of 2,295,207 BLC shares were acquired from Development
Bank of the Philippines and MPIC, pertaining to the pledged shares, through Columbus amounting
to P
= 362.6 million. This resulted in an increase in the Group’s effective interest in BLC to 45.05%
as of December 31, 2009.
In 2011, BLC redeemed its 3,485,050 preferred shares with an aggregate redemption price of
P
= 500.0 million.
ALI’s 5.32% direct investment in BLC and 4.78% through Regent are accounted for using the
equity method because ALI has significant influence over BLC.
Investment in SLTEC
On June 29, 2011, ACEHI entered into a 50-50 joint venture with Trans-Asia Oil and Energy
Development Corporation to incorporate SLTEC which will undertake the construction and
operation of a 135-megawatt power plant in Calaca, Batangas. The power plant will employ the
environment-friendly Circulating Fluidized Bed boiler technology and is expected to start
commercial operations by mid-2014.
In various dates in 2013 and 2012, the Group infused additional capital to SLTEC by way of
deposits for further stock subscriptions, which were subsequently converted into shares of stock,
amounting to P
= 1,184.0 million and P
= 458.0 million, respectively.
Investment in Stream
On August 14, 2009, a Share Exchange Agreement (the Agreement) was entered into by Stream,
EGS, EGS Dutchco B.V. (EGS Dutchco), and NewBridge to combine in a stock-for-stock
exchange. Under the Agreement:
·
·
·
NewBridge shall contribute all its rights with respect to the US$35.8 million advances from
EGS. These advances were originally borrowed by EGS from AYC Holdings. AYC Holdings
assigned the advances to NewBridge;
NewBridge shall transfer to Stream all the shares of EGS that it owns including shares that
would result from the conversion of the US$35.8 million advances; and
Stream shall issue and deliver to NewBridge an aggregate of 20,192,068 common shares with
US$0.001 par value per share provided that at the election of Stream, Stream may pay an
aggregate of US$5,994 in cash for an aggregate of 1,131 shares (at US$5.3 per share) of
Stream Common Stock otherwise issuable to NewBridge.
On October 1, 2009 (the Closing Date), NewBridge received a total of 20,190,937 shares of
Stream’s capital stock representing 25.5% interest in Stream and cash amounting toUS$5,994 in
lieu of 1,131 shares. As a result of the transaction, NewBridge:
·
·
·
derecognized its Investment in and Loan receivable from EGS amounting to US$61.5 million
and US$35.8 million, respectively;
recognized an Investment in Stream amounting to US$107.0 million; and,
recognized a gain from the transaction amounting to US$8.8 million.
After the Closing Date, Newbridge acquired additional 320,146 common shares of Stream at a
total cost of US$1.9 million.
On October 5, 2009, the 5,880.0 million shares of non-voting common stock were converted into
voting common stock.
In March 2010, NewBridge exercised its warrants in exchange for 13,187 additional shares in
Stream at US$6.0 per share at a total cost of US$0.08 million.
In 2010, the Group recorded an adjustment for the excess of the carrying value over the fair value
of its investment in Stream amounting to P
= 365.6 million. The adjustment was recorded mainly due
to the decline in the quoted share price of Stream. The recoverable amount of the investment in
Stream is based on its quoted share price as of December 31, 2010. The adjustment is netted
against the share of profit of associates and joint ventures in the consolidated statement of
income.
On April 27, 2012, Stream's three majority shareholders namely Ares Management LLC (ARES),
Providence Equity Partners, Inc. (PEP) and the Company (through AIVPL and LIL) completed a
short-form merger in which they purchased all the remaining common stock outstanding of
Stream. On the same date, Stream delisted its shares from the New York Stock Exchange and as
such no longer has publicly traded equity.
On January 7, 2014, ARES, PEP and LiveIt Investments Ltd.entered into an agreement with
Convergys Corporation to sell their 100% combined interest in Stream. Accordingly, the carrying
amount of investment in Stream amounting to P
= 3.4 billion as of December 31, 2013 is shown as
Noncurrent Asset Held for Sale in the consolidated statement of financial position.
Investment in Integreon
On February 16, 2010, Actis LLP, an emerging markets private equity specialist, invested
US$50.0 million to acquire a 37.68% stake in Integreon, a subsidiary of LIL. The transaction
resulted in the Group losing control over Integreon. Integreon became a joint venture by LIL and
Actis although LIL owns 56.36% of Integreon.
Thu Duc Water B.O.O. Corporation
On October 12, 2011, Thu Duc Water Holdings Pte. Ltd. (TDWH) (a subsidiary of MWC) and CII
entered into a share sale and purchase agreement whereby CII will sell to TDWH its 49% interest
(2,450,000 common shares) in TDW. On December 8, 2011, TDWH completed the acquisition of
CII’s interest in the common shares of TDW after which TDWH obtained significant influence in
TDW.
The acquisition cost of the investment amounted to P
= 1.80 billion (VND858 billion). Included within
investment in associate account is a notional goodwill amounting to P
= 1.21 billion arising from the
acquisition of shares of stocks in TDW by the Group.
In 2012, TDWH finalized its purchase price allocation which resulted in a final notional goodwill
amounting to P
= 1.41 billion.
The share of the Group in the net income of TDW in 2013 and 2012 amounted to P
= 216.3 million
P
= 164.5 million, respectively.
Kenh Dong Water Supply Joint Stock Company
On May 17, 2012, MWC, through its subsidiary Kenh Dong Water Holding Pte. Ltd. (KDWH),
entered into a Share Purchase Agreement with CII for the purchase of 47.35% of CII’s interest in
Kenh Dong Water Supply Joint Stock Company (KDW). The payment for the shares will be done
in two tranches, with additional contingent considerations subject to the fulfillment of certain
conditions precedent for a total purchase price of P
= 1.7 billion.
As of December 31, 2012, consideration paid by MWC for its investment in KDW amounted to
P
= 1.6 billion (VND785.2 billion). Contingent consideration included in the purchase price allocation
amounted to P
= 89.0 million (VND44.5 billion). The share purchase transaction was completed on
July 20, 2012 warranting KDWH to obtain significant influence in KDW.
In 2013, KDW finalized its purchase price allocation which resulted in a final notional goodwill
amounting to P
= 1.4 billion. The Group also received P
= 62.90 million from KDWH as indemnification
for the damages resulting from the delay in operations.
The share of the Group in the net income of KDW in 2013 and 2012 amounted to P
= 76.5 million
and P
= 44.1 million, respectively.
Saigon Water Infrastructure Joint Stock Company
On October 8, 2013, MWC thru its subsidiary Manila Water South Asia Holdings Pte. Ltd
(MWSAH) entered into a Share Purchase Agreement with Saigon Water to acquire a 31.47%
interest in Saigon Water Infrastructure Joint Stock Company. The acquisition cost of the
investment amounted to P
= 627.9 million (VND310.5 billion). The share purchase transaction was
completed on October 8, 2013 warranting MWSAH to have significant influence in Saigon Water.
Included within investment in associate account, is a notional goodwill amounting to
P
= 288.8 million arising from the acquisition of shares of stocks in Saigon Water by the MWC group
as of December 31, 2013.
The share of the Group in the consolidated net income of Saigon Water for the period October to
December 31, 2013 amounted to P
= 1.0 million.
Investment in Tianjin Eco-City Ayala Land Development Co., Ltd.
Regent Wise, a wholly-owned subsidiary of ALI, signed an Equity Joint Venture Agreement with
Sino-Singapore Tianjin Eco-City Investment and Development Co., Ltd for the development of a
9.78 hectare residential project in China. The project will be located in Tianjin Eco-City, a 3,000
hectare collaboration between the Chinese and Singaporean governments which will showcase
future direction of urban planning and sustainable development.
Investment in VinaPhil
CII and the Group have entered into an agreement to jointly invest in VinaPhil Technical
Infrastructure Investment JSC (“VinaPhil”), a corporation established under Vietnam law to invest
in infrastructure projects in Vietnam. VinaPhil will be initially 49%-owned by the Group with the
remainder owned by CII and other Vietnamese investors. VinaPhil will have an initial charter
capital of VND 900 billion (approximately US$43 million).
In 2013, VinaPhil proportionately redeemed 30% of the outstanding shares issued to each
shareholders wherein the Group’s share amounted to VND 132.3 billiion (US$6.35 million). The
redemption of the shares did not alter the ownership structure of VinaPhil.
Investment in PWHC
On July 12, 2013, ACEHI signed an Investment Framework Agreement and Shareholders’
Agreement with UPC Philippines Wind Holdco I B.V., a wholly-owned company of UPC
Renewable Partners and the Philippine Investment Alliance for Infrastructure fund, comprised of
the Government Service Insurance System, Langoer Investments Holding B.V. and Macquarie
Infrastructure Holdings (Philippines) Pte. Limited, to develop wind power projects in Ilocos Norte
through Northern Luzon UPC Asia Corporation (NLUPC) as their joint venture company. An initial
equity investment has been agreed for the first 81MW project with an investment value of
approximately US$220 million with ACEHI funding 64% of equity, PINAI 32% and UPC 4%.
The 81MW wind power project received a declaration of commerciality on June 17, 2013 from the
Department of Energy. Accordingly, NLUPC has signed the Turbine Supply, Installation and
Service Availability Agreements with Siemens Wind Power A/S and Siemens Inc. and has issued
the Notice to Proceed.
As of December 31, 2013, ACEHI’s total capital commitment pertaining to investments in PWHC
amounted to P
= 2.5 billion.
Investment in Rize-Ayalaland
Rize-Ayalaland (Kingsway) GP, Inc. was incorporated on January 25, 2013 under the laws of
British Columbia, Canada. ALI’s effective ownership is 49% through its Vancouver-based
subsidiary, AyalaLand Real Estate Investments Inc.
Investment in MGHI
In July 2013, ALI entered into an agreement with the Mercado Family to acquire Whiteknight
Holdings, Inc. (WHI), a 33% equity stockholder of MGHI. Its acquisition of WHI will allow ALI to
build a strategic partnership with the Mercado Group and support MGHI’s future growth. This
partnership also enhances the potential of ALI’s development of mixed-use communities by
offering the critical component of medical services to complement the residential, shopping
centers, office and hotel developments therein.
Interest in Limited Partnerships of Ayala International North America (AINA)
Other investments include AINA’s interest in various Limited Partnerships. These investments are
all incorporated in the United States of America (USA) and are mainly involved in developing
properties in different states in the USA. Although the interest of AINA in certain limited
partnerships exceeds 50%, these limited partnerships are accounted for under the equity method
of accounting because AINA does not have control over the financial and operating policies of
these partnerships. As of December 31, 2012, AINA’s interest in limited partnership pertain to its
investment in PRP Investors-Fontana, LLC (PRP Investors).
The Group’s accumulated equity in net losses of the Limited Partnerships exceeded the cost of its
investment amounting to US$6.1 million (P
= 249.7 million) in 2012. Accordingly, the excess is
recorded as a liability under accounts payable and accrued expenses as of December 31, 2012
(see Note 18). In December 2013, AINA purchased the interest of the managing member in PRP
Investors thereby enabling AINA to obtain control of PRP Investors (see Note 24).
13. Investment Properties
The movements in investment properties follow:
2013
Land
Cost
Balance at beginning of the year
Additions
Transfers
Disposals
Balance at end of the year
(Forward)
P
= 5,968,510
3,246,941
1,605,130
(45,110)
10,775,471
ConstructionBuilding
in-Progress
(In Thousands)
P
= 53,452,688
3,247,461
7,142,251
(251,306)
63,591,094
P
= 6,045,271
5,591,625
(7,502,509)
(16,249)
4,118,138
Total
P
= 65,466,469
12,086,027
1,244,872
(312,665)
78,484,703
Land
Accumulated depreciation and
amortization and impairment loss
Balance at beginning of the year
Depreciation and amortization (Note 23)
Transfers
Disposals
Balance at end of the year
Net book value
P
= 26,616
–
–
–
26,616
P
= 10,748,855
ConstructionBuilding
in-Progress
(In Thousands)
P
= 12,990,921
2,490,412
415
(180,884)
15,300,864
P
= 48,290,230
P
=–
–
–
–
–
P
= 4,118,138
Total
P
= 13,017,537
2,490,412
415
(180,884)
15,327,480
P
= 63,157,223
2012
Land
Cost
Balance at beginning of the year
Additions
Transfers
Disposals
Balance at end of the year
Accumulated depreciation and
amortization and impairment loss
Balance at beginning of the year
Depreciation and amortization (Note 23)
Disposals
Impairment losses (Note 23)
Balance at end of the year
Net book value
ConstructionBuilding
in-Progress
(In Thousands)
Total
P
= 5,776,239
308,371
(116,100)
–
5,968,510
P
= 44,917,283
2,474,719
6,067,748
(7,062)
53,452,688
P
= 4,370,736
6,449,698
(4,775,163)
–
6,045,271
P
= 55,064,258
9,232,788
1,176,485
(7,062)
65,466,469
26,616
–
–
–
26,616
P
= 5,941,894
11,492,337
1,484,493
(5,409)
19,500
12,990,921
P
= 40,461,767
–
–
–
–
–
P
= 6,045,271
11,518,953
1,484,493
(5,409)
19,500
13,017,537
P
= 52,448,932
2011
Land
Cost
Balance at beginning of the year
Additions
Transfers
Disposals
Balance at end of the year
Accumulated depreciation and
amortization and impairment loss
Balance at beginning of the year
Depreciation and amortization (Note 23)
Disposals
Balance at end of the year
Net book value
ConstructionBuilding
in-Progress
(In Thousands)
Total
P
= 5,565,820
1,341,296
(1,130,877)
–
5,776,239
P
= 37,180,976
5,044,324
2,697,643
(5,660)
44,917,283
P
= 3,326,938
4,042,250
(2,998,446)
(6)
4,370,736
P
= 46,073,734
10,427,870
(1,431,680)
(5,666)
55,064,258
26,616
–
–
26,616
P
= 5,749,623
9,531,417
1,964,764
(3,844)
11,492,337
P
= 33,424,946
–
–
–
–
P
= 4,370,736
9,558,033
1,964,764
(3,844)
11,518,953
P
= 43,545,305
Certain parcels of land are leased to several individuals and corporations. Some of the lease
contracts provide, among others, that within a certain period from the expiration of the contracts,
the lessee will have to demolish and remove all improvements (such as buildings) introduced or
built within the leased properties. Otherwise, the lessor will cause the demolition and removal
thereof and charge the cost to the lessee unless the lessor occupies and appropriates the same
for its own use and benefit.
On March 5, 2011, Alveo Land Corporation, a subsidiary of ALI, acquired a landholding entity, by
way of acquisition of 70% shares of stock of Solinea (formerly Bigfoot Palms, Inc.). Solinea is
involved in developing properties located in Cebu Business Park. The value of the investment
property arising from the acquisition amounted to P
= 417.3 million.
The aggregate fair value of the Group’s investment properties amounted to P
= 232.9 billion in 2013,
P
= 228.9 billion in 2012 and P
= 211.7 billion in 2011. The fair values of the investment properties
were determined based on valuations performed by independent professional qualified appraisers.
The fair value of the investment properties was arrived using the Market Data Approach and Cost
Approach for land and building, respectively.
In Market Data Approach, the value of the land is based on sales and listing 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.
Cost Approach is a comparative approach to the value of the building and improvements or
another asset that considers as a substitute for the purchase of a given property, the possibility of
constructing another property that is a replica of, or equivalent to, the original or one that could
furnish equal utility with no undue cost resulting from delay. It is based on the reproduction cost
(new) of the subject property or asset, less total (accrued) depreciation, plus the value of the land
to which an estimate of entrepreneurial incentive or developer’s profit/loss is commonly added.
The Company has determined that the highest and best use of the land and buildings leased to
related parties is its current use. The Company owns certain parcels of idle land which is intended
to be sold or developed in the future. The highest and best use of these parcels of land has been
determined to be for commercial and agricultural land utilization.
As of December 31, 2012 and January 1, 2012, total commitments for investment properties
amounted to P
= 16.3 billion and P
= 10.0 billion, respectively.
Interest capitalized amounted to P
= 113.5 million, P
= 189.9 million and P
= 144.0 million and in 2013,
2012 and 2011, respectively.
Consolidated rental income from investment properties amounted to P
= 13.3 billion in 2013,
P
= 13.2 billion in 2012 and P
= 11.6 billion in 2011. Consolidated direct operating expenses arising
from the investment properties amounted to P
= 4.1 billion in 2013, P
= 3.2 billion and P
= 3.3 billion in
2011, respectively.
Depreciation and amortization expense pertaining to investment properties amounted to
P
= 2.5 billion, P
= 1.5 billion and P
= 2.0 billion in 2013, 2012 and 2011, respectively (see Note 23).
In 2012, the Group provided for allowance for impairment loss amounting to P
= 19.5 million. The
impairment loss is included under “Other charges” account in the consolidated statement of
income (see Note 23).
14. Property, Plant and Equipment
The movements in property, plant and equipment follow:
2013
Land,
Buildings and
Improvements
(Note 19)
Cost
At January 1
Additions
Disposals
Transfers
Exchange differences
At December 31
Accumulated depreciation
and amortization and
impairment loss
At January 1
Depreciation and amortization
for the year (Note 23)
Impairment Loss (Note 23)
Disposals
Transfers
Exchange differences
At December 31
Net book value
Machinery
and
Equipment
Hotel
Property and
Equipment
(Note 19)
Furniture,
Fixtures and
Equipment
(In Thousands)
Transportation
Equipment
Constructionin-Progress
P
= 390,274
289,385
(126)
–
4,249
683,782
Total
P
= 9,942,458
1,517,370
(280,091)
(1,566,473)
(11,652)
9,601,612
P
= 10,673,309
2,130,395
(1,274,259)
565,811
56,592
12,151,848
P
= 12,379,164
1,316,792
(38)
–
–
13,695,918
P
= 5,083,954
875,276
(140,821)
36,422
18,957
5,873,788
P
= 2,126,377
709,532
(113,045)
3,642
1,371
2,727,877
P
= 40,595,536
6,838,750
(1,808,380)
(960,598)
69,517
44,734,825
3,484,905
6,398,522
2,367,590
4,010,374
1,331,695
–
17,593,086
350,877
–
(266,192)
(49)
3,534
3,573,075
P
= 6,028,537
1,315,165
222
(1,232,804)
15
22,683
6,503,803
P
= 5,648,045
381,968
–
(38)
–
–
2,749,520
P
= 10,946,398
644,088
–
(140,821)
375
22,659
4,536,675
P
= 1,337,113
268,581
–
(113,045)
–
1,052
1,488,283
P
= 1,239,594
–
–
–
–
–
–
P
= 683,782
2,960,679
222
(1,752,900)
341
49,928
18,851,356
P
= 25,883,469
Land,
Buildings and
Improvements
(Note 19)
Machinery
and
Equipment
Hotel
Property and
Equipment
(Note 19)
P
= 8,473,169
1,698,424
P
= 9,359,936
2,108,337
–
(15,372)
3,207
(216,970)
9,942,458
2012
Cost
At January 1
Additions
Additions through business
combination (Note 24)
Disposals
Transfers
Exchange differences
At December 31
Accumulated depreciation
and amortization and
impairment loss
At January 1
Depreciation and amortization
for the year (Note 23)
Impairment Loss (Note 23)
Disposals
Transfers
Exchange differences
At December 31
Net book value
Furniture,
Fixtures and
Equipment
(In Thousands)
Transportation
Equipment
Constructionin-Progress
Total
P
= 5,126,514
1,835,824
P
= 4,737,658
484,311
P
= 2,067,963
221,098
P
= 81,919
420,135
P
= 29,847,159
6,768,129
–
(564,028)
175,603
(406,539)
10,673,309
5,421,000
(4,174)
–
–
12,379,164
–
(104,080)
12,709
(46,644)
5,083,954
–
(156,964)
–
(5,720)
2,126,377
–
–
(104,678)
(7,102)
390,274
5,421,000
(844,618)
86,841
(682,975)
40,595,536
3,209,418
5,826,389
2,180,400
3,417,662
1,160,880
–
15,794,749
426,139
–
(14,203)
–
(136,449)
3,484,905
P
= 6,457,553
1,266,676
11,073
(427,604)
(1,665)
(276,347)
6,398,522
P
= 4,274,787
191,365
–
(4,175)
–
–
2,367,590
P
= 10,011,574
704,055
502
(74,264)
1,665
(39,246)
4,010,374
P
= 1,073,580
305,567
–
(131,219)
–
(3,533)
1,331,695
P
= 794,682
–
–
–
–
–
–
P
= 390,274
2,893,802
11,575
(651,465)
–
(455,575)
17,593,086
P
= 23,002,450
Land,
Buildings and
Improvements
(Note 19)
Machinery
and
Equipment
Hotel
Property and
Equipment
(Note 19)
Furniture,
Fixtures and
Equipment
(In Thousands)
Transportation
Equipment
Constructionin-Progress
Total
P
= 7,229,400
755,042
P
= 8,576,352
1,035,227
P
= 4,094,610
1,200,744
P
= 4,159,803
512,482
P
= 2,103,820
205,964
P
= 21,743
42,405
P
= 26,185,728
3,751,864
806,914
(21,507)
(223,907)
(72,773)
8,473,169
792,054
(938,574)
3,664
(108,787)
9,359,936
–
(9,172)
(159,668)
–
5,126,514
26,932
(89,174)
145,120
(17,505)
4,737,658
16,271
(256,958)
–
(1,134)
2,067,963
34,169
–
(10,858)
(5,540)
81,919
1,676,340
(1,315,385)
(245,649)
(205,739)
29,847,159
2,853,876
5,345,559
1,990,997
2,884,630
1,037,138
–
14,112,200
386,545
(19,568)
(13,493)
2,058
3,209,418
P
= 5,263,751
1,208,240
(722,382)
1,699
(6,727)
5,826,389
P
= 3,533,547
199,477
(10,074)
–
–
2,180,400
P
= 2,946,114
599,086
(71,739)
8,779
(3,094)
3,417,662
P
= 1,319,996
299,656
(176,168)
–
254
1,160,880
P
= 907,083
–
–
–
–
–
P
= 81,919
2,693,004
(999,931)
(3,015)
(7,509)
15,794,749
P
= 14,052,410
2011
Cost
At January 1
Additions
Additions through business
combination (Note 24)
Disposals
Transfers
Exchange differences
At December 31
Accumulated depreciation
and amortization and
impairment loss
At January 1
Depreciation and amortization
for the year (Note 23)
Disposals
Transfers
Exchange differences
At December 31
Net book value
Consolidated depreciation and amortization expense on property, plant and equipment amounted
to P
= 3.0 billion in 2013, P
= 2.9 billion in 2012 and P
= 2.7 billion in 2011 (see Note 23).
The carrying values of IMI’s equipment under finance lease amounted to US$5.25 million
(P
= 233.07 million), US$2.05 million (P
= 84.15 million), and US$2.2 million (P
= 97.3 million) as of
December 31, 2013, 2012 and January 1, 2012, respectively (see Note 30).
The cost of fully depreciated property, plant and equipment amounted to P
= 8.8 billion, P
= 8.1 billion
and P
= 5.0 billion as of December 31, 2013, 2012 and January 1, 2012, respectively.
In 2012, IMI recognized an impairment loss of US$0.23 million (P
= 9.71 million), representing
carrying amount of production assets, included under “Cost of Sales” account in the consolidated
statement of income. In 2011, AIVPL recognized impairment loss of US$0.05 million included
under “Other Charges” account in the consolidated statement of income.
15. Service Concession Assets and Obligations
Service Concession Assets
The movements in this account follow:
December 31
2013
2012
(In Thousands)
Cost
At January 1
Additions during the year
Transfers
Additions through business combination
(Note 24)
At December 31
Accumulated amortization
At January 1
Amortization (Note 23)
At December 31
Net book value
January 1
2012
P
= 86,728,953
5,457,889
35,897
P
= 79,023,430
7,705,523
–
P
= 69,526,353
8,419,716
–
–
92,222,739
–
86,728,953
1,077,361
79,023,430
15,433,554
3,034,778
18,468,332
P
= 73,754,407
12,776,238
2,657,316
15,433,554
P
= 71,295,399
10,428,584
2,347,654
12,776,238
P
= 66,247,192
SCA consists of the present value of total estimated concession fee payments, including
regulatory costs and local component costs, pursuant to the Group’s concession agreements and
the revenue from rehabilitation works which is equivalent to the related cost for the rehabilitation
works covered by the service concession arrangements.
Total interest and other borrowing costs capitalized as part of SCA amounted to P
= 299.48 million
and P
= 343.92 million in 2013 and 2012, respectively. The capitalization rates used ranged from
4.16% to 7.06% in 2013 and 4.89% to 7.23% in 2012.
Transfers pertain to the acquisition of the water reticulation system of Laguna Technopark, Inc.
(LTI), a subsidiary of ALI, by LAWC on December 23, 2013.
In March 2010, MWC entered into a MOA with MWSS for the repayment of the Export-Import
Bank of China loan which resulted in additional SCA and SCO amounting to P
= 215.17 million and
P
= 1,085.50 million in 2013 and 2012, respectively.
The Company has a concession agreement with the DPWH while the MWC Group has
concession agreements with MWSS, POL, TIEZA and CDC. These concession agreements set
forth the rights and obligations of the Parent Company and MWC Group throughout the
concession period (see Note 35).
Service Concession Obligation
POL Concession Fees
Under Laguna AAA Water Corporation’s (LAWC) concession agreement with POL, LAWC is
required to pay concession fees to POL computed as a percentage of water sales as follows:
Operational Period
Years 1 to 5
Years 6 to 10
Years 11 to 25
Percentage of Water Sales
4%
3%
2%
Advance payment to POL was made for the said concession fees and 70% of the annual
concession fees is applied against the said advances. The remaining thirty percent (30%) of the
annual concession fees is expensed in the period they are incurred.
BIWC Concession Fees
The aggregate concession fee pursuant to the Agreement is equal to the sum of the following:
a. Servicing the aggregate peso equivalent of all liabilities of Boracay Water Sewerage System
(BWSS) as of commencement date;
b. 5% of the monthly gross revenue of the Concessionaire, inclusive of all applicable taxes which
are for the account of the Concessionaire.
c.
Payment of annual operating budget of the TIEZA Regulatory Office starting 2010. For 2010
and 2011, the amount shall not exceed P
= 15.0 million. For the year 2012 and beyond, the
Concessionaire shall pay not more than P
= 20.0 million, subject to annual consumer price index
(CPI) adjustments.
In addition, advance payment of P
= 60.0 million was provided to TIEZA which shall be offset against
the annual concession fees pertaining to the 5% annual gross revenue of Boracay Island Water
Company, Inc. (BIWC), within a period of 10 years from the signing of the concession agreement
or until fully paid. Any amount payable after application of the advance payment will be expensed
in the period this is incurred.
CDC Concession Fees
The aggregate concession fee pursuant to the Agreement is equal to the sum of the following:
a. Annual franchise fee of P1.5 million;
b. Semi-annual rental fees of P2.8 million for leased facilities from CDC.
MWSS Concession Fees
The aggregate concession fees of MWC pursuant to the Agreement are equal to the sum of the
following:
a. 10% of the aggregate peso equivalent due under any MWSS loan which has been disbursed
prior to the Commencement Date, including MWSS loans for existing projects and the Umiray
Angat Transbasin Project (UATP), on the prescribed payment date;
b. 10% of the aggregate peso equivalent due under any MWSS loan designated for the UATP
which has not been disbursed prior to the Commencement Date, on the prescribed payment
date;
c. 10% of the local component costs and cost overruns related to the UATP;
d. 100% of the aggregate peso equivalent due under MWSS loans designated for existing
projects, which have not been disbursed prior to the Commencement Date and have been
either awarded to third party bidders or elected by the MWC for continuation; and
e. 100% of the local component costs and cost overruns related to existing projects; and
f. MWC’s share in the repayment of MWSS loan for the financing of the Project.
The schedule of undiscounted future concession fee payments follows:
In Original Currency
Foreign Currency
Denominated
Peso Loans/
Loans
Project Local
Total Peso
(Translated to
Support
US Dollars)
Year
Equivalent*
2014
$9,537,211
P
= 395,714,907
P
= 819,119,411
2015
6,514,545
395,714,907
684,928,124
2016
8,866,507
395,714,907
789,343,474
2017
7,055,308
395,714,907
708,935,321
2018
7,262,061
395,714,907
718,114,122
2019 onwards
51,869,296
7,518,583,229
9,821,320,614
$91,104,928
P
= 9,497,157,764 P
= 13,541,761,066
*Peso equivalent is translated using the closing rate as of December 31, 2013 amounting to P
= 44.40 to US$1.
Estimated concession fee payments on future concession projects, excluding MWC’s share in
current operating budget, related to the Extension is still not determinable. It is only determinable
upon loan drawdown of MWSS and actual construction of the related concession projects.
16. Intangible Assets
The movements in intangible assets follow:
2013
Cost
At January 1
Additions through business combination
(Note 24)
Additions during the year
Exchange differences
At December 31
Accumulated amortization and
impairment loss
At January 1
Amortization (Note 23)
Impairment (Note 23)
Exchange differences
At December 31
Net book value
Technical
Service
Agreement
Trademarks
Project
Development
Cost
Total
P
= 295,999
P
= 84,733
P
= 8,405
P
= 89,978
P
= 6,970,288
–
34,986
28,507
240,607
–
–
–
295,999
–
–
–
84,733
–
49,922
8,277
66,604
–
90,975
–
180,953
31,830
175,883
153,920
7,331,921
11,886
38,591
–
16,669
67,146
253,772
–
–
–
253,772
84,733
–
–
–
84,733
3,061
34,732
–
4,159
41,952
19,486
–
–
–
19,486
2,949,257
151,359
31,830
23,629
3,156,075
P
= 173,461
P
= 42,227
P
=–
P
= 24,652
P
= 161,467
P
= 4,175,846
Technical
Service
Agreement
Trademarks
Project
Development
Cost
Total
P
= 84,733
P
= 8,768
P
= 78,863
P
= 7,170,668
Goodwill
Customer
Relationships
Order
Backlog
Unpatented
Technology
Developed
Software
Licenses
(In Thousands)
P
= 5,103,080
P
= 1,202,746
P
= 4,128
P
= 4,105
P
= 177,114
31,830
–
108,169
5,243,079
–
–
8,967
1,211,713
–
–
–
4,128
–
–
–
4,105
1,657,719
–
31,830
–
1,689,549
910,367
78,036
–
2,801
991,204
4,128
–
–
–
4,128
4,105
–
–
–
4,105
P
= 3,553,530
P
= 220,509
P
=–
P
=–
2012
Cost
At January 1
Additions through business combination
(Note 24)
Additions during the year
Exchange differences
At December 31
Accumulated amortization and
impairment loss
At January 1
Amortization (Note 23)
Exchange differences
At December 31
Net book value
Goodwill
Customer
Relationships
Order
Backlog
Unpatented
Technology
P
= 5,275,134
P
= 1,263,398
P
= 4,128
P
= 4,384
Developed
Software
Licenses
(In Thousands)
P
= 177,114
–
–
(172,054)
5,103,080
–
–
(60,652)
1,202,746
–
–
–
4,128
–
–
(279)
4,105
–
–
–
177,114
1,689,466
–
(31,747)
1,657,719
P
= 3,445,361
871,922
77,616
(39,171)
910,367
P
= 292,379
4,128
–
–
4,128
P
=–
4,384
–
(279)
4,105
P
=–
11,886
–
–
11,886
P
= 165,228
P
= 274,146
–
29,473
(7,620)
295,999
–
–
–
84,733
182,352
61,750
9,670
253,772
P
= 42,227
84,733
–
–
84,733
P
=–
–
–
(363)
8,405
1,349
1,712
–
3,061
P
= 5,344
–
12,065
(950)
89,978
8,285
11,201
–
19,486
P
= 70,492
–
41,538
(241,918)
6,970,288
2,858,505
152,279
(61,527)
2,949,257
P
= 4,021,031
2011
Cost
At January 1
Additions through business combination
(Note 24)
Additions during the year
Exchange differences
At December 31
Accumulated amortization and
impairment loss
At January 1
Amortization (Note 23)
Impairment loss (Note 23)
Exchange differences
At December 31
Net book value
Technical
Service
Agreement
P
= 212,093
172,912
–
4,202
177,114
–
11,791
–
95
11,886
P
= 165,228
Goodwill
Customer
Relationships
Order
Backlog
Unpatented
Technology
P
= 4,484,283
P
= 846,365
P
= 4,128
P
= 4,384
P
=–
782,072
–
8,779
5,275,134
402,674
–
14,359
1,263,398
–
–
–
4,128
–
–
–
4,384
1,549,855
–
139,170
441
1,689,466
P
= 3,585,668
835,618
35,913
–
391
871,922
P
= 391,476
4,128
–
–
–
4,128
P
=–
4,384
–
–
–
4,384
P
=–
Trademarks
Project
Development
Cost
Total
P
= 84,733
P
=–
P
=–
P
= 5,635,986
19,323
41,805
925
274,146
–
–
–
84,733
8,560
–
208
8,768
33,602
44,445
816
78,863
1,419,143
86,250
29,289
7,170,668
99,340
82,694
–
318
182,352
P
= 91,794
28,723
56,010
–
–
84,733
P
=–
–
1,335
–
14
1,349
P
= 7,419
–
8,191
–
94
8,285
P
= 70,578
2,522,048
195,934
139,170
1,353
2,858,505
P
= 4,312,163
Developed
Software
Licenses
(In Thousands)
Goodwill mainly comprises the excess of the acquisition cost over the fair value of the identifiable
assets and liabilities of companies acquired by the Group.
Impairment testing of goodwill for the Group
IMI Group
Goodwill acquired through business combinations have been allocated to five individual CGUs of
IMI for impairment testing as follows (amounts in thousands):
2013
Speedy Tech Electronics, Ltd.
(STEL)
PSi
IMI USA
IMI CZ
IMI Philippines
2012
In US$
In Php*
In US$
In Php*
US$45,128
7,479
657
650
441
US$54,355
P
= 2,003,458
332,030
29,168
28,857
19,578
P
= 2,413,091
US$45,128
7,479
657
650
441
US$54,355
P
= 1,852,505
307,012
26,954
26,699
18,110
P
= 2,231,280
*Translated using the closing exchange rate at the statement of financial position date (US$1:P
= 44.40 in 2013,
US$1:P
= 41.05 in 2012).
STEL Group, PSi and IMI USA and IMI CZ
The recoverable amounts of these CGUs have been based on value in use calculations using
cash flow projections from financial budgets approved by management covering a five-year
period. The pre-tax discount rates applied to cash flow are as follows:
STEL Group
Psi
IMI USA
IMI CZ
2013
13.07%
14.11%
13.69%
12.73%
2012
11.85%
13.47%
11.41%
12.40%
Cash flows beyond the five-year period are extrapolated using a steady growth rate of 1%, which
does not exceed the compound annual growth rate for the global EMS industry.
Key assumptions used in value in use calculations
The calculations of value in use for the CGUs are most sensitive to the following assumptions:
·
·
·
Budgeted gross margins - Gross margins are based on the mix of business model
arrangements with the customers.
Revenue - Revenue forecasts are management’s best estimates considering factors such as
index growth to market, customer projections and economic factors.
Pre-tax discount rates - Discount rates represent the current market assessment of the risks
specific to each CGU, taking into consideration the time value of money and individual risks of
the underlying assets that have not been incorporated in the cash flow estimates. This is also
the benchmark used by management to assess operating performance. The discount rate
calculation is based on the specific circumstances of the Group and its operating segments
and is derived from its weighted average cost of capital.
No impairment loss was assessed for STEL Group, IMI USA and IMI CZ in 2013, 2012 and 2011.
For PSi, the assessment resulted in an impairment loss of US$2.7 million (P
= 118.6 million) in 2011
included in “Other charges” in the consolidated statement of income (see Note 23). The
comparison of the recoverable amount and the carrying amount resulted in no impairment for the
years 2013 and 2012.
Sensitivity to changes in assumptions
With regard to the assessment of value in use of STEL Group, PSi, IMI USA, and IMI CZ,
management believes that no reasonably possible change in any of the above key assumptions
would cause the carrying value of the units to exceed their recoverable amount.
IMI Philippines
This pertains to the goodwill arising from the purchase of M. Hansson Consulting, Inc. (MHCI) in
2006. MHCI was subsequently merged to IMI Philippines as testing and development department.
The recoverable amount was based on the market price of the Parent Company’s shares at
valuation date less estimated costs to sell. The comparison of the recoverable amount and the
carrying amount resulted to no impairment loss in 2013, 2012 and 2011.
MWC and Philwater
Goodwill from the acquisition of MWC and Philwater amounted to P
= 393.8 million. The recoverable
amount in 2013 and 2012 was based on the market price of MWC shares at valuation date less
estimated cost to sell. The comparison of the recoverable amount and the carrying amount
resulted in no impairment.
CWC
This pertains to the goodwill arising from the purchase of CWC in 2011. MWC’s impairment tests
for goodwill are based on value in use and fair value less cost to sell calculations. The value in
use calculations in 2012 used a discounted cash flow model. The cash flows are derived from the
budget for the next five years and assumes a steady growth rate. The recoverable amount is
most sensitive to discount rate used for the discounted cash flow model as well as expected future
cash inflows and the growth rate used for extrapolation purposes.
The carrying value of goodwill amounted to P
= 130.3 million as of December 31, 2013 and 2012.
No impairment loss was recognized as a result of the impairment testing performed.
ACEHI Group
Goodwill acquired through business combinations have been allocated to two individual CGUs of
ACEHI for impairment testing as follows:
Wind Power
Hydro Power
December 31
2013
2012
(In Thousands)
P
= 411,031
P
= 411,031
55,424
55,424
P
= 466,455
P
= 466,455
January 1
2012
P
= 411,031
55,424
P
= 466,455
Wind Power Companies
The recoverable amount of the Wind Power CGU is based on value in use calculations using cash
flow projections from financial budgets approved by ACEHI management covering the period the
CGU is expected to be operational. The pre-tax discount rates applied to cash flow projections for
the Wind Power CGU is 10% which is based on weighted average cost of capital of comparable
entities. The value in use computation is most sensitive to the discount rate and growth rate
applied to the cash flow projections.
ACEHI management believes that no reasonably possible change in any of the key assumptions
would cause the carrying value of the Wind Power CGU to exceed its recoverable amount.
No impairment loss was assessed for the Wind Power CGU in 2013 and 2012.
Hydro Power Companies
The recoverable amount of Hydro Power CGU is based on fair value less cost to sell calculations
using cash flow projections from financial budgets approved by ACEHI management covering the
period the Hydro Power CGU is expected to be operational. The pre-tax discount rates applied to
cash flow projections for the Hydro Power CGU is 12% which is based on weighted average cost
of capital of comparable entities. The value in use computation is most sensitive to the discount
rate and growth rate applied to the cash flow projections.
ACEHI management believes that no reasonably possible change in any of the key assumptions
would cause the carrying value of the units to exceed their recoverable amount.
No impairment loss was assessed for the Hydro Power CGU in 2013 and 2012.
Customer relationships
Customer relationships pertain to STEL Group’s and IMI BG’s noncontractual and contractual
agreements, respectively, with certain customers which lay out the principal terms upon which the
parties agree to undertake business. Customer relationship of STEL amounting to
US$12.90 million is fully amortized as of December 31, 2013 and 2012.
Unpatented technology
Unpatented technology pertains to products which are technologically feasible. IMI Group’s
patents were applied for the following technologies, both of which are unique, difficult to design
around and which meet the separability criteria:
· Self bias double-ended switching circuit; and
· A zero power consumption switch circuit to simplify the energy star solution for external power
adapter.
Developed software
Developed software pertains to IQ BackOffice's (IQB) internally developed web-based process
management tool that is used jointly with customers to manage transactions in real-time. The
developed software augments IQB's existing accounting system and automates traditionally
paper-based processes (e.g.,electronic/paper receipt, electronic routing, approvals. etc.).
Licenses
These pertain to the IMI’s acquisitions of computer applications and modules. EPIQ
subsidiaries also have computer software with carrying value of US$0.52 million (P
= 23.1 million),
US$0.56 million (P
= 23.4 million) and US$3.55 million (P
= 155.5 million) as of December 31, 2013,
2012 and January 1, 2012, respectively.
17. Pension and Other Noncurrent Assets
This account consists of the following:
Deposits
Concession financial receivable (Note 9)
Deferred charges
Leasehold rights
Deferred FCDA
Pension assets (Note 27)
Others
December 31
2013
2012
(In Thousands)
P
= 6,611,799
P
= 2,609,687
603,905
–
271,048
366,909
106,819
113,496
55,407
–
9,156
–
358,344
163,700
P
= 8,016,478
P
= 3,253,792
January 1,
2012
P
= 1,662,224
–
243,446
120,172
742,588
–
159,491
P
= 2,927,921
Deposits
Deposits include escrow deposits and security deposits on land leases, electric and water meter
deposits.
MWC Group
MWC Group’s deposits include payments for the guarantee deposits in Manila Electric Company
(MERALCO) for the electric connection, its related deferred charges, deposits to Department of
Environment and Natural Resources (DENR), deposits for land acquisitions and right of way and
water banking rights. CMWD entered into a 30-year Right of Way Agreement with certain
individuals for an easement of right of way of a portion of their lands wherein the pipelines and
other appurtenances between the weir and water treatment plant of CMWD will pass through. For
the water banking rights, the National Water Resources Board (NWRB) approved the assignment
of Water Permit No. 16241 from Central Equity Ventures Inc. (now Stateland Inc.) to MW
Consortium. The NWRB likewise approved the change of the purpose of Water Permit No. 16241
from Domestic to Municipal. It is the intention of MW Consortium to allow CMWD to use the said
water permit for its project.
ACEHI
In 2012, ACEHI deposited in an escrow account potential earn-out amounting to P
= 167.7 million in
relation to the Achieved Capacity Factor Adjustment. Payment of which is dependent on the final
resolution of the Arbitration Committee and the final FiT rate to be awarded to NorthWind in 2013
(see Note 39). Interest income earned on the escrow account amounted to P
= 1.8 million and
P
= 1.1 million in 2013 and 2012, respectively.
Deferred charges
Deferred charges mainly consist of deposits made for implementation of marketing strategies for
acquisition and development of real estate projects.
Leasehold rights
Leasehold rights pertain to the right to use an island property which expires on
December 31, 2029. The cost amounted to P
= 127.4 million and accumulated amortization expense
as of December 31, 2013, 2012 and January 1, 2012 amounted to P
= 20.6 million, P
= 13.9 million and
P
= 7.2 million, respectively. Amortization expense amounted to P
= 6.7 million in 2013, 2012 and 2011.
Deferred FCDA
Deferred FCDA refers to the unrecovered amounts from/or amounts for refund to customers of
MWC for realized gains (losses) from loan payments of foreign loans. This is the difference
between the drawdown or rebased rate versus the closing rate at payment date. This account
also covers the unrealized gains (losses) from loan valuations, accrual of interest and accretion of
transaction and related costs.
18. Accounts Payable and Accrued Expenses
This account consists of the following:
December 31
2012
(In Thousands)
P
= 63,198,549
P
= 49,879,159
2013
Accounts payable
Accrued expenses
Project costs
Personnel costs
Professional and management fees
Rental and utilities
(Forward)
11,983,222
2,694,816
1,801,971
2,330,388
12,070,336
1,614,684
1,047,084
1,593,981
January 1,
2012
P
= 29,755,662
7,539,717
1,290,373
256,351
777,405
2013
Advertising and promotions
Repairs and maintenance
Various operating expenses
Dividends payable
Retentions payable
Interest payable (Note 31)
Related parties (Note 31)
Taxes payable
Share in excess losses of an associate
(Note 12)
P
= 1,115,532
1,516,026
3,230,745
2,093,323
1,192,251
2,272,458
4,107,009
6,067,957
–
P
= 103,604,247
December 31
2012
(In Thousands)
P
= 560,726
288,725
948,672
1,798,399
2,262,833
1,679,195
2,097,312
5,810,264
249,680
P
= 81,901,050
January 1,
2012
P
= 165,159
405,600
2,397,689
1,836,595
1,258,923
1,142,642
1,226,606
3,007,458
–
P
= 51,060,180
Accounts payable and accrued expenses are non-interest bearing and are normally settled on
15- to 60-day terms. Other payables are non-interest bearing and are normally settled within one
year.
In 2013 and 2012, accounts payable includes non-interest bearing liability of the Company to DBS
Ltd. in relation to the acquisition of BPI common shares and ADHI Class B common shares
amounting to P
= 14.2 billion and P
= 12.8 billion, respectively (see Note 12).
Accrued expenses consist mainly of accruals already incurred but not yet billed for project costs,
personnel, rental and utilities, marketing costs, film share, professional fees, postal and
communication, supplies, repairs and maintenance, transportation and travel, subcontractual
costs, security, insurance, and representation.
Project costs represent accrual for direct costs associated with the commercial, residential and
industrial project development and construction like engineering, design works, contract cost of
labor and direct materials.
Accrued expenses also includes provisions on restructuring of operations by the IMI Group. In
2011, PSi and IMI Singapore announced a restructuring of operations due to unfavorable
economic and business situation. PSi made actual payout in September and November 2011
aggregating to US$1.1 million. Part of this payout amounting to US$0.6 million is not covered by
its retirement plan. This was recognized as provision in 2011. In addition, IMI Singapore
recognized provision amounting to US$0.3 million, which was paid in 2012. In 2012, PSi and IMI
Singapore recognized additional provision of US$1.2 million and US$0.7 million, respectively,
which were also paid during the year.
Taxes payable consists of net output VAT, withholding taxes, business taxes, and other statutory
payables, which are payable within one year.
19. Other Current Liabilities
This account consists of:
2013
Nontrade payables
Customers’ deposits
Installment payable
Derivative liability (Note 32)
P
= 5,614,201
5,362,355
11,667
3,470
P
= 10,991,693
December 31
2012
(In Thousands)
P
= 2,402,728
4,566,684
1,021
–
P
= 6,970,433
January 1,
2012
P
= 3,817,243
1,609,504
3,793
1,515
P
= 5,432,055
Nontrade payables and customers’ deposits mainly pertain to non-interest bearing real estaterelated payables to contractors, tenants’ deposits, construction bonds and various non-trade
suppliers which are due within one year. This account also includes finance lease payable and
miscellaneous non-interest bearing non-trade accounts of the Group due within one year.
Customers’ deposits consist of tenants’ deposits and construction bonds to be refunded by the
Group through the application of the amount thereof against the rent and service due.
Derivative liability pertains to AIVPL’s convertion option and IMI’s investments into various shortterm currency forwards that have one or more underlying and one or more notional amounts.
20. Short-term and Long-term Debt
Short-term debt consists of:
December 31
2013
2012
(In Thousands)
Philippine peso debt - with interest rates
ranging from 1.21% to 8.0% per
annum in 2013 and 2012, and 3.5%
to 8.0% per annum in 2011
Foreign currency debt - with interest
rates ranging from 1.05% to 3.0%
over 1 month EURIBOR in 2013,
1.05% to 8.0% in 2012 and 1.16% to
8.0% in 2011.
January 1,
2012
P
= 12,114,451
P
= 8,462,715
P
= 3,986,500
3,696,834
P
= 15,811,285
3,880,757
P
= 12,343,472
3,347,341
P
= 7,333,841
ALI Group
The short-term debt of P
= 12,407.1 million, P
= 9,779.1 million, P
= 5,306.8 million as of December 31,
2013, 2012 and January 1, 2012, respectively, represent unsecured peso-denominated bank
loans and dollar-denominated bank loans of ALI and its subsidiaries.
The ranges of annual interest rates of the short-term debt follow:
Philippine Peso
US Dollar
2013
1.2% to 5.2%
1.1% to 2.0%
2012
1.2% to 5.2%
1.1% to 2.0%
2011
3.5% to 5.0%
1.2% to 2.0%
AAHC Group
The Philippine peso debt of AAHC Group pertains to short-term loans with various banks
amounting to P
= 1.1 billion, P
= 442.9 million and P
= 144.5 million as of December 31, 2013, 2012 and
January 1, 2012, respectively. These loans are unsecured and bear interest rate of 3.00% to
4.25% per annum in 2013, 4.25% per annum in 2012 and 4.0% to 5.1% per annum in 2011.
AIVPL Group
The Philippine peso debt of AIVPL Group pertains to short-term loans with various banks
amounting to P
= 254.0 million, P
= 126.5 million and P
= 45.0 million as of December 31, 2013, 2012 and
January 1, 2012, respectively. These loans are unsecured and bear interest rates ranging from
7.0% to 8.0% in 2013 and 2012, and interest rate of 8.0% per annum in 2011.
BHL Group
BHL’s loans are unsecured dollar-denominated bank loans amounting to nil, US$4.8 million
(P
= 196.6 million) and US$4.5 million (P
= 197.3 million) as of December 31, 2013, 2012 and
January 1, 2012, respectively, and bear interest rate of 4.01% and 4.13% in and 2011,
respectively.
IMI Group
IMI Philippines
As of December 31, 2013 and 2012, IMI Philippines has short-term loans aggregating to
US$24.0 million (P
= 1,065.5 million) and US$22.0 million (P
= 903.1 million), respectively. The loans
have maturities ranging from 30-180 days and fixed interest rates ranging from 1.9% to 2.4% in
2013, 1.6% to 2.0% in 2012 and 1.2% to 2.3% in 2011.
PSi
PSi has short-term loans and trust receipts payable to a local bank amounting to US$9.4 million
(P
= 418.2 million) and US$9.1 million (P
= 373.6 million) as of December 31, 2013 and 2012,
respectively.
These loans fall under an unsecured Omnibus Line Credit Facility of US$10.0 million granted on
November 24, 2010. The credit facility includes 30 to 360 days Promissory Notes (maybe
denominated in USD or Philippine peso), Letter of Credit/Trust Receipt (LC/TR) Line, Export
Packing Credit Line, FX Forward Cover, and Foreign Bills Line and Domestic Bill Purchase Line,
subject to interest rates ranging from 2.16% to 2.57% in 2013, 2.21% to 2.71% in 2012 and 2.18%
to 2.80% in 2011.
As of December 31, 2013 and 2012, the outstanding trust receipts payable amounted to
US$0.2 million (P
= 9.8 million) and US$0.4 million (P
= 16.4 million), respectively.
The undrawn credit facility amounted to US$0.6 million (P
= 25.7 million) and US$0.9 million
(P
= 36.9 million) as of December 31, 2013 and 2012, respectively.
IMI BG
IMI BG has short-term loans from the following banks (in thousands):
UniCredit Bulbank
BNP Paribas
In US$
US$5,167
1,380
US$6,547
2013
In Php*
P
= 229,389
61,265
P
= 290,654
2012
In US$
US$9,275
425
US$9,700
In Php*
P
= 380,738
17,446
P
= 398,184
*Translated using the exchange rate at the reporting date (US$1:P
= 44.395 in 2013, US$1:P
= 41.05 in 2012)
The loans from UniCredit Bulbank and BNP Paribas are from existing revolving credit facilities with
terms of one year. The loans bear interest based on 1-month EURIBOR plus 3.00% and 3-month
EURIBOR plus 2.50%, respectively.
The credit facility with UniCredit Bulbank is subject to the following collaterals:
·
·
·
First ranking pledge on materials, ready made and unfinished production at balance sheet
value, minimum of €8.0 million;
First ranking pledge on receivables from a certain customer; and
Notary signed Soft Letter of Comfort from IMI Philippines.
As of December 31, 2013 and 2012 IMI BG’s pledged inventories and receivables with UniCredit
Bulbank amounted to €13.08 million (P
= 801.3 million) and €16.0 million (P
= 870.3 million),
respectively.
The credit facility with BNP Paribas is subject to the following collaterals:
·
·
First rank pledge on receivables from selected customers of IMI BG, subject to pre- financing
in the amount of 125% of the utilized portion of the facility but not more than €3,750.0 million;
and
First rank pledge on goods of IMI BG in the amount of 125% of the utilized portion of the
facility but not more than €3,750.0 million.
As of December 31, 2013 and 2012, IMI BG’s pledged inventories and receivables with BNP
Paribas amounted to nil and €0.6 million (P
= 35.3 million), respectively.
STEL
The loans of STEL are clean loans from various Singapore banks from existing revolving credit
facilities and bear interest rates of 2.30% to 2.39%, 3.36% to 3.55% and 3.35% to 3.45% in 2013,
2012 and 2011, respectively, and have maturities of 90 to 240 days from the date of issue with
renewal options.
IMI MX
IMI MX has a revolving credit line with Banamex amounting to US$2.2 million and
US$2.0 million as of December 31, 2013 and 2012, resepectively, with term not exceeding twelve
(12) months and bears interest on LIBOR plus 2%.
Long-term debt consists of:
December 31
2013
2012
(In Thousands)
The Company:
Bank loans - with interest rates ranging
from 0.7% to 3.8% p.a. in 2013, 0.9%
to 3.8% p.a. in 2012 and 1.7% to
3.8% in 2011 and varying maturity
dates up to 2020
Fixed Rate Corporate Notes (FXCNs) with
interest rates ranging from 6.7% to
8.4% per annum and varying maturity
dates up to 2016
Bonds due 2017
Bonds due 2019
Bonds due 2021
Bonds due 2027
Syndicated term loans
Subsidiaries:
Loans from banks and other institutions:
Foreign currency - with interest rates
ranging from 1.64% and 2.12%
over 3 months LIBOR to 3% in
2013, 0.75% over 90-day LIBOR to
13.5% in 2012 and 0.4% to 13.5%
in 2011 (Note 23)
Philippine peso - with interest rates
ranging from 1.06% to 12% in
2013, 0.5% to 9.48% in 2012 and
6.73% to 17% in 2011 (Note 23)
Bonds:
Due 2012
Due 2013
(Forward)
January 1,
2012
P
= 13,193,780
P
= 13,181,138
P
= 6,464,991
2,816,443
9,941,761
9,912,239
9,921,802
9,914,072
2,938,575
5,310,734
9,927,976
9,900,013
9,913,921
9,907,640
1,485,510
9,320,169
9,914,149
–
9,907,987
–
1,485,929
32,392,171
31,520,537
20,191,382
32,189,740
22,486,635
18,302,295
–
–
–
4,540,680
325,390
4,327,900
Due 2014
Due 2015
Due 2016
Due 2019
Due 2020
Due 2022
Due 2024
Due 2033
Floating Rate Corporate Notes
(FRCNs)
FXCNs
Less current portion
December 31
2013
2012
(In Thousands)
620,195
397,705
P
= 992,460
P
= 999,950
1,999,650
–
9,281,120
9,228,063
3,964,465
–
5,608,377
5,576,316
14,864,568
–
1,981,840
–
162,533,258
134,376,818
1,000,000
26,336,604
27,336,604
189,869,862
11,842,519
P
= 178,027,343
1,000,000
27,364,213
28,364,213
162,741,031
19,021,440
P
= 143,719,591
January 1,
2012
173,715
P
=–
–
–
–
–
–
–
80,413,907
1,000,000
22,520,583
23,520,583
103,934,490
7,804,893
P
= 96,129,597
Reconciliation of carrying amount against nominal amount follows:
Nominal amount
Unamortized discount
December 31
January 1,
2013
2012
2012
(In Thousands)
P
= 190,742,889
P
= 163,873,265
P
= 104,823,800
(873,027)
(1,132,234)
(889,310)
P
= 189,869,862
P
= 162,741,031
P
= 103,934,490
The Company
Generally, the Company’s long-term loans are unsecured. Due to certain regulatory constraints in
the local banking system regarding loans to directors, officers, stockholders and related interest,
some of the Company’s credit facilities with a local bank are secured by shares of stock of a
subsidiary with a fair value of P
= 9.8 billion, P
= 10.6 billion and P
= 6.2 billion as of December 31, 2013,
2012 and January 1, 2012, respectively, in accordance with Bangko Sentral ng Pilipinas (BSP)
regulations (see Note 7).
All credit facilities of the Company outside of this local bank are unsecured, and their respective
credit agreements provide for this exception. The Parent Company positions its deals across
various currencies, maturities and product types to provide utmost flexibility in its financing
transactions.
In June and October 2007, the Company issued P
= 3.5 billion FXCNs consisting of 5- and 7-year
notes to a local bank with fixed interest rates of 6.73% and 6.70% per annum, respectively. In
June 2011, the Parent Company prepaid in full the P
= 2.0 billion 5-year FXCN with a fixed interest
rate of 6.73% per annum.
In February 2008, the Company availed of a syndicated term loan amounting to P
= 1.5 billion which
bears fixed interest rate of 6.75% per annum and will mature in 2018.
In March 2009, the Company issued P
= 1.0 billion FXCNs consisting of 7-year note to a local
financial institution with fixed interest rate of 8.40% per annum. The loan was prepaid in full by the
Parent Company in December 2013.
In August 2009, the Company issued P
= 3.0 billion FXCNs consisting of a 5-year note to various
institutions with fixed interest rate of 7.45% per annum.
In April 2010, the Company issued 7.20% Fixed rate Putable Bonds with an aggregate principal of
P
= 10.0 billion to mature in 2017. On the twentieth (20th) Coupon Payment Date (the “Put Option
Date”), each Bondholder shall have the option (but not the obligation) to require the Company to
redeem the outstanding bonds. The Bonds have been rated “PRS Aaa” by the PhilRatings.
In May 2011, the Company issued 6.80% Fixed Rate Multiple Put Bonds with an aggregate
principal amount of P
= 10.0 billion to mature in 2021. On the fifth (5th) anniversary of the Issue
Date, Bondholders shall have the right, but not the obligation, to require the Company to redeem
up to 20% of all outstanding Bonds registered in such Bondholder’s name at such time (the “Five
Year Put Option”); and on the eighth (8th) anniversary of the Issue Date, Bondholders shall have
the right, but not the obligation, to require the Company to redeem up to 100% of all outstanding
Bonds registered in such Bondholder’s name at such time (the “Eight Year Put Option”). The
Bonds have been rated PRS Aaa by PhilRatings.
In May 2012, the Company issued 6.88% Fixed Rate Bonds with an aggregate principal amount of
P
= 10.0 billion to mature in May 2027. On the tenth (10th) anniversary from the Issue Date and every
year thereafter until the fourteenth (14th) anniversary from the Issue Date, the Issuer shall have the
right, but not the obligation, to redeem and pay the principal and all amounts due on the
outstanding bonds. The Bonds have been rated PRS Aaa by PhilRatings.
In November 2012, the Company issued 5.45% Fixed Rate Bonds with an aggregate principal
amount of P
= 10.0 billion to mature in November 2019. On the fourth (4th) anniversary from the
Issue date and every year thereafter until the sixth (6th) anniversary from the Issue Date, the
Issuer shall have the right, but not the obligation, to redeem and pay the principal and all amounts
due on the outstanding bonds. The Bonds have been rated PRS Aaa by PhilRatings.
In October and December 2012, the Company availed of a P
= 2.0 billion and P
= 5.0 billion loan from
various banks to mature in 2017 and 2019, respectively. The P
= 2.0 billion loan shall bear interest
rate per annum equal to the 3-month PDST-R2 plus a spread of seventy five basis points
(0.75%) per annum, or BSP overnight reverse repurchase (RRP) rate, whichever is higher. The
P
= 5.0 billion loan shall bear interest rate per annum equal to the 3-month PDST-R2 plus a spread
of seventy five basis points (0.75%) or the BSP overnight RRP rate plus spread of twenty five (25)
basis points, whichever is higher. The interest rate shall be set on the first drawdown date and
every three months thereafter.
In November and December 2013, the Company availed P
= 2.0 billion and P
= 5.0 billion loan from
various banks to mature in 2018 and 2020, respectively. The P
= 2.0 billion loans shall have interest
rate per annum equal to the 3-month PDST-R2 plus a spread of 100 basis points (1%) per annum,
or BSP overnight reverse repurchase (RRP) rate plus a spread of 25 basis points (0.25%),
whichever is higher. The P
= 5.0 billion loans shall have interest rate per annum equal to the
6-month PDST-R1 plus a spread of thirty basis points (0.30%) for the first six months and 3-month
PDST-R1 plus a spread of sixty basis points (0.60%) thereafter.
In 2013, the Company fully paid its maturing FXCNs from various banks with an aggregate
principal amount of P
= 3.5 billion.
Subsidiaries
Foreign Currency Debt
In August 2008, the Company, through a wholly-owned subsidiary, entered into a 5-year
syndicated term loan with a foreign bank, with the Company as guarantor, for US$50.0 million at a
rate of 52 points over the 1-, 3- or 6- month LIBOR at the Company’s option. As of
December 31, 2013 and 2012, the outstanding balance of the loan amounted to US$45.0 million
and US$50.0 million, respectively.
In October 2007, the Company, through a wholly-owned subsidiary, entered into a 5-year
syndicated loan for US$150.0 million at a rate of 71.4 basis points over the 1-, 3- or 6-month
LIBOR at the Company’s option.
IMI Group
IMI Philippines
In October 2011, IMI Philippines obtained a five-year term clean loan from a Philippine bank
amounting to US$40.0 million payable in a single balloon payment at the end of the loan term. IMI
Philippines may, at its option, prepay the loan in part or in full, together with the accrued interest
without penalty. Interest on the loan is payable quarterly and re-priced quarterly at the rate of
three-month LIBOR plus margin of 0.8%.
On February 29, 2012, IMI Philippines obtained a €5.0 million (P
= 306.3 million) five-year term clean
loan from a local bank payable in a single balloon payment at the end of the loan term. IMI
Philippines may, at its option, prepay the loan in part or in full, together with the accrued interest
without penalty, if made on an interest payment date, subject to certain conditions. Interest is
payable semi-annually at the rate of six-month LIBOR plus 1.50% spread per annum.
Cooperatief
Cooperatief’s long-term debt aggregating to €14.25 million ($20.40 million) as at July 29, 2011
relates primarily to the acquisition of EPIQ shares and receivables of EPIQ NV from IMI EU/MX
Subsidiaries. Based on the payment schedule in the SPA, this long-term debt will be settled from
2013 to 2018, subject to interest rate of 1.60% plus 1.50%.
IMI CZ
IMI CZ has a long-term debt from Citibank amounting to €0.59 million (P
= 35.9 million) that relates
to term loan facility for the purchase of its new Surface Mount Technology machine. The debt
bears interest of 1-month EURIBOR plus 2.7% and matures on July 31, 2019.
AIVPL Group
AIVPL’s long-term debt amounting to nil, US$0.2 million (P
= 6.2 million) and US$0.3 million
(P
= 12.3 million) in 2013, 2012 and 2011, respectively, pertains to borrowings of Affinity Express
India Private Limited (Affinity India) and Global Advertisement Services Pvt. Ltd. (GASPL).
As of December 31, 2013, 2012 and January 1, 2012, the long term loan represents the syndicate
term loan obtained by GASPL with interest of 15.25% p.a. with maturity in December 2014. The
loans were secured by hypothecation of computer equipment, machinery and equipment. Net
book value of property mortgaged in relation to loans amounted to nil, US$0.1 million
(P
= 4.1 million) and US$0.2 million (P
= 8.8 million) as of December 31, 2013, 2012 and
January 1, 2012, respectively (see Note 14). On July 19, 2013, GASPL settled the loans.
MWC Group
International Finance Corporation (IFC) Loan
On March 28, 2003, MWC entered into a loan agreement with IFC (the “First IFC Loan”) to
partially finance MWC’s investment program from 2002-2005 to expand water supply and
sanitation services, improvement on the existing facilities of the MWC, and concession fee
payments. The First IFC Loan will be made available in Japanese Yen (JPY) in the aggregate
principal amount of JPY3,591.6 million equivalent to US$30.0 million and shall be payable in 25
semi-annual installments, within 12 years starting on July 15, 2006. As of December 31, 2013,
and 2012, the carrying value of the loan amounted to JPY1,271.4 million and JPY1,549.1 million
respectively.
On May 31, 2004, MWC entered into a loan agreement with IFC (the “Second IFC Loan”)
comprising of regular loan in the amount of up to US$20.0 million and a standby loan in the
amount of up to US$10.0 million to finance the investment program from 2004 to 2007 to expand
water supply and sanitation services, improvement of existing facilities of MWC, and concession
fee payments. This loan was subsequently amended on November 22, 2006, when MWC
executed the Amended and Restated Loan Agreement for the restructuring of the Second IFC
Loan. The terms of the second loan were amended to a loan in the aggregate amount of up to
US$30.0 million, no part of which shall consist of a standby loan. On December 12, 2008, MWC
made a full drawdown on the said facility. As of December 31, 2013 and 2012, the outstanding
balance amounted to US$9.8 million and US$13.6 million, respectively.
On July 31, 2013, MWC, entered into a loan agreement with IFC (the “Fourth” Omnibus
Agreement) in the amount of up to US$100.00 million for financing the Projects in accordance with
the provisions of the Agreement. The loan has a term of 18 years, payable in semi-annual
installments after the grace period. As of December 31, 2013, no drawdown has been made from
the facility.
Land Bank of the Philippines (LBP) Loan
On October 20, 2005, MWC entered into a Subsidiary Loan Agreement with LBP Loan to finance
the improvement of the sewerage and sanitation conditions in the East Zone. The loan has a term
of 17 years, and was made available in Japanese Yen in the aggregate principal amount of
JPY6.6 billion payable via semi-annual installments after the 5-year grace period. MWC made its
last drawdown on October 26, 2012. The total drawn amount for the loan is JPY3.99 billion. As of
December 31, 2013 and 2012, outstanding balance of the LBP loan amounted to JPY2,862.1
million and JPY3,195.8 million, respectively.
European Investment Bank (EIB) Loan
On June 20, 2007, MWC entered into a Finance Contract (the “EIB Loan”) with EIB to partially
finance the capital expenditures of MWC from 2007 to 2010, as specified under Schedule 1 of the
Finance Contract. The loan, in the aggregate principal amount of €60 million, having a term of
10 years, is subject to the Relevant Interbank Rate plus a spread to be determined by EIB, and
may be drawn in either fixed-rate or floating-rate tranches. The loan has two tranches as
described below:
·
Sub-Credit A: In an amount of €40 million to be disbursed in US Dollars or Japanese yen
payable via semi-annual installments after the two and a half-year grace period. This loan
tranche is guaranteed against all commercial risks by a consortium of international commercial
banks composed of ING Bank, Development Bank of Singapore and Sumitomo-Mitsui
Banking Corporation under a Guaranty Facility Agreement; and
·
Sub-Credit B: In an amount of €20 million to be disbursed in US Dollars, European Euro or
Japanese Yen payable via semi-annual installments after the two and a half-year grace
period. This loan tranche is guaranteed against all commercial risks by ING Bank under a
Guaranty Facility Agreement.
On May 21, 2012, the Sub-Credit A Guarantee Facility Agreement was amended to extend the
effectivity of the guarantee. Two of the original guarantors, ING Bank and Sumitomo Mitsui
Banking Corporation, agreed to extend the guarantee by another five years towards the maturity
of the loan.
On September 25, 2012, MWC entered into a Subsidiary Loan Agreement with Land Bank of the
Philippines under the Metro Manila Wastewater Management Project (MWMP) with the World
Bank. The MWMP aims to improve wastewater services in Metro Manila through increased
wastewater collection and treatment. The loan has a term of twenty-five (25) years, and was
made available in US Dollars in the aggregated principal amount of US$137.5 million via semi
annual installments after the seven-year grace period. As of December 31, 2013, MWC has not
made any drawdown from the facility.
On July 30, 2013, the Sub-Credit B Guarantee Facility Agreement was amended to extend the
effectivity of the guarantee. The original guarantor, ING Bank, agreed to extend the guarantee by
another five years towards the maturity of the loan.
The carrying value of the EIB loan amounted to JPY2,433.6 million and US$13.0 million as of
December 31, 2013 and JPY3,115.2 million and US$16.8 million as of December 31, 2012.
NEXI Loan
On October 21, 2010, MWC entered into a term loan agreement (NEXI Loan) amounting to
US$150.0 million to partially finance capital expenditures within the East Zone. The loan has a
tenor of 10 years and is financed by a syndicate of four banks - ING N.V Tokyo, Mizuho Corporate
Bank, Ltd., The Bank of Tokyo-Mitsubishi UFJ Ltd. and Sumitomo Mitsui Banking Corporation and
is insured by Nippon Export and Investment Insurance. First, second and third drawdowns of the
loan amounted to US$84.0 million, US$30.0 million and US$36.0 million, respectively. The
carrying value of this loan as of December 31, 2013 and 2012 amounted to US$125.3 million and
US$142.4 million, respectively.
BHL Group
In 2010, BHL entered into a secured loan agreement with a foreign bank at variable interest of
3.5% spread over 90-day LIBOR with floor of 6.0% and a ceiling of 14.25% which will mature on
January 1, 2013. This loan is secured by certain inventories (see Note 8). As of December 31,
2013, 2012 and January 1, 2012, the outstanding balance of the loan amounted to US$0.8 million,
US$1.1 million and US$2.8 million, respectively.
ALI Group
In October 2012, ALI executed and fully withdrawn a US$58.5 million long-term facility. The loan
bears a floating interest rate based on a credit spread over the three-month US Dollar London
Interbank Offered Rate (LIBOR), repriceable quarterly. The loan will mature on the third month
succeeding the tenth anniversary of the initial drawdown date. In January 2014, ALI made a
partial prepayment of US$5.8 million on the loan.
Dollar-denominated of ALI subsidiaries bear floating interest rates at a credit spread over the
three-month US Dollar LIBOR, repriceable quarterly. The carrying value of the loan amounted to
P
= 5.0 billion, P
= 4.1 billion and P
= 0.3 billion as of December 31 2013, 2012 and January 1, 2012,
respectively.
Philippine Peso Debt
MWC Group
MWC
On August 22, 2006, MWC entered into a Credit Facility Agreement with five banks and four
financial institutions to finance the capital expenditures of MWC pursuant to the Concession
Agreement. This 7-year term loan with an aggregate principal amount of P
= 2.0 billion consists of
the following:
· Tranche 1: 7-year term loan amounting to P
= 1.5 billion (the Tranche 1 Loan). Such loan shall
be subject to a yearly amortization of P
= 10.0 million at the end of the 5th and 6th years, and
bullet repayment of the balance at the end of the 7th year; and
·
Tranche 2: 7-year term loan, with a Put Option at the end of the fifth (5th) year, amounting to
P
= 500.0 million (the Tranche 2 Loan). Such loan shall be subject to a bullet repayment at the
end of the 5th year if the lenders exercise their Put Option. If the Put Option is not exercised,
the loan will be subject to a yearly amortization of P
= 10.0 million at the end of the 5th and
6th years, and bullet repayment of the balance at the end of the 7th year.
On June 16, 2008, the MWC prepaid a portion of the P
= 2.0 billion loan from one financial institution
amounting to P
= 600.0 million. The loan was fully netted in 2013. As of December 31, 2012 the
carrying value of the loan amounted to P
= 1.4 billion.
On October 9, 2006, MWC entered into a Credit Facility Agreement with three banks and a
financial institution to finance the capital expenditures of MWC pursuant to the Concession
Agreement. This 7-year term loan with an aggregate principal amount of P
= 1.5 billion consists of
the following:
·
Tranche 1: 7-year term loan amounting to P
= 950.0 million (the Tranche 1 Loan). Such loan
shall be subject to a yearly amortization of one percent (1%) of the Tranche 1 Loan at the end
of the 5th and 6th years, and bullet repayment of the balance at the end of the 7th year; and
·
Tranche 2: 7-year term loan, with a Put Option at the end of the fifth (5th) year, amounting to
P
= 550.0 million (the Tranche 2 Loan). Such loan shall be subject to a bullet repayment at the
end of the 5th year if the lenders exercise their Put Option. If the Put Option is not exercised,
the loan will be subject to a yearly amortization of one percent (1%) of the Tranche 2 Loan at
the end of the 5th and 6th years, and bullet repayment of the balance at the end of the 7th
year.
On June 16, 2008, MWC prepaid a portion of the P
= 1.5 billion loan from a financial institution
amounting to P
= 400.0 million. The loan was settled in full in 2013. As of December 31, 2012, the
carrying value for this loan amounted to P
= 1.1 billion.
On October 22, 2008, MWC issued P
= 4.0 billion bonds having a term of five years from the issue
date with a fixed interest rate equivalent to 8.25% payable quarterly. Prior to maturity, MWC may
redeem in whole, and not in part only, the relevant outstanding bonds on the twelfth interest
payment date. The amount payable to the bondholders in respect of such redemptions shall be
calculated based on the principal amount of the bonds being redeemed, as the sum of 102% of
the principal amount and accrued interest on the bonds on the optional redemption date.
On April 8, 2011, MWC issued P
= 10.0 billion FXCNs. The notes were divided to P
= 5.0 billion
with an interest rate of 6.385% and have a term of five years and ten years for the remaining
P
= 5.0 billion from the issue date with a fixed interest rate equivalent to 8.25% payable quarterly.
Prior to maturity, MWC may repay the whole, and not in part only, the relevant outstanding bonds
on the seventh anniversary. The amount payable to the holders in respect of such redemptions
shall be calculated based on the principal amount of the bonds being redeemed, as the sum of
102% of the principal amount and accrued interest on the bonds on the optional redemption date.
The carrying value of the notes as of December 31, 2013 and 2012 amounted to P
= 9.86 billion and
P
= 9.89 billion, respectively.
On September 2, 2011, MWC’s BOD approved the early redemption of its P
= 4.0 billion bonds due
2013. The bonds were redeemed by payment in cash at a redemption price set at 102% of the
principal amount and accrued interest computed up to October 23, 2011 (“Optional Redemption
Date”) to bondholders as of October 19, 2011 (“Record Date”). As the Optional Redemption Date
falls on a non-business day, payment to each bondholder was made available on the next
business day, October 24, 2011. Upon payment, the listing of the bonds on the Philippine Dealing
and Exchange Corporation (PDEx) was terminated. The difference between the carrying value of
the bond and the payment amounted to P
= 6.2 million.
LAWC
On September 7, 2010, LAWC, entered into a loan agreement with two local banks for the
financing of its construction, operation, maintenance and expansion of facilities in its servicing
area. Pursuant to the loan agreement, the lenders have agreed to provide loans to LAWC up to
P
= 500.0 million, principal payments of which will be made in 30 consecutive equal quarterly
installments starting August 2013. First and second drawdowns from the loan were made in
November 2010 and July 2011 amounting to P
= 250.0 million each. The carrying value of this loan
amounted to P
= 462.1 million and P
= 496.4 million as of December 31, 2013 and 2012, respectively.
On April 29, 2013, LAWC entered into a loan agreement with Development Bank of the Philippines
(DBP) to partially finance the modernization and expansion of the water network system and water
supply facilities in Biñan, Sta. Rosa and Cabuyao, Laguna. Under the loan agreement, the lender
has agreed to provide loans to the borrowers through the Philippine Water Revolving Fund
(PWRF) in the aggregate principal amount of up to P
= 500.0 million bearing an effective interest rate
of 7.25%. First and second drawdowns were made in July and December 2013 amounting to
P
= 250.0 million each. The carrying value of this loan as of December 31, 2013 amounted to
P
= 496.3 million.
BIWC
On July 29, 2011, BIWC, entered into an omnibus loan and security agreement with the
Development Bank of the Philippines (DBP) and Security Bank Corporation (SBC) to finance the
construction, operation, maintenance and expansion of facilities for the fulfillment of certain
service targets for water supply and waste water services for the Service Area under the
Concession Agreement, as well as the operation and maintenance of the completed drainage
system. The loan shall not exceed the principal amount of P
= 500.0 million and is payable in twenty
(20) years inclusive of a three (3)-year grace period.
The loan shall be available in three sub-tranches, as follows:
· Sub-tranche 1A, the loan in the amount of P
= 250.0 million to be provided by DBP and funded
through Philippine Water Revolving Fund (PWRF);
· Sub-tranche 1B, the loan in the amount of P
= 125.0 million to be provided by SBC and funded
through PWRF; and
· Sub-tranche 1C, the loan in the amount of P
= 125.0 million to be provided by SBC and funded
through its internally-generated funds.
The first loan draw down made on August 25, 2011 amounted to P
= 150.0 million, second draw
down on August 25, 2012 amounted P
= 155.0 million and final draw down on August 23, 2013
amounted to P
= 195.0 million. The carrying value of the loan as of December 31, 2013 and 2012
amounted to P
= 494.5 million and P
= 302.5 million, respectively.
The Agreement provided BIWC the option to borrow additional loans from the lenders. On
November 14, 2012, BIWC entered into the second omnibus loan and security agreement with
DBP and SBC. The agreed aggregate principal of the loan amounted to P
= 500.0 million which is
available in three sub-tranches:
·
·
·
Sub-tranche 2A, the loan in the amount of P
= 250.0 million to be provided by DBP and funded
through Philippine Water Revolving Fund (PWRF)
Sub-tranche 2B, the loan in the amount of P
= 125.0 million to be provided by SBC and funded
through PWRF
Sub-tranche 2C, the loan in the amount of P
= 125.0 million to be provided by SBC and funded
through BIWC’s internally-generated funds.
On November 23, 2012, BIWC made its first loan drawdown amounting to P
= 75.0 million. The
carrying value of the loan as of December 31, 2013 and 2012 amounted to P
= 72.8 million and
P
= 74.4 million, respectively.
On August 16, 2013, MWC entered into a Credit Facility Agreement with a local bank having a
fixed nominal rate of 4.42% and with a term of 7 year from the issue date which is payable
annually. MWC may repay the whole and not a part only of the loan starting on the
3rd anniversary of the drawdown date of such loan or on any interest payment date thereafter.
The amount payable in respect to such prepayment shall be calculated as 102% of the principal
rd
amount being prepaid and accrued interest if such prepayment occurs on or after the 3
anniversary but before the 4th anniversary of the drawdown date. The amount payable in respect
to such prepayment shall be calculated as 101.5% of the principal amount being prepaid and
accrued interest if such prepayment occurs on or after the 4th anniversary but before the 5th
anniversary of the drawdown date. The amount payable in respect to such prepayment shall be
calculated as 101% of the principal amount being prepaid and accrued interest if such prepayment
occurs on or after the 5th anniversary but before the 6th anniversary of the drawdown date. The
amount payable in respect to such prepayment shall be calculated as 100.5% of the principal
amount being prepaid and accrued interest if such prepayment occurs on or after the 6th
anniversary but before the 7th anniversary of the drawdown date. The carrying value of the loan
as of December 31, 2013 amounted P
= 5.00 billion.
The carrying value of the loan as of December 31, 2013 amounted to P
= 5.0 billion.
On December 19, 2013, the CMWD entered into an omnibus loan and security agreement
(the Agreement) with DBP to partially finance the construction works in relation to its bulk water
supply project in Cebu, Philippines. The lender has agreed to extend a loan facility in the
aggregate principal amount of P
= 800.0 million or up to 70% of the total project cost whichever is
lower.
On December 20, 2013, CMWD made its first draw down amounting to P
= 541.1 million. The
carrying value of the loan as of December 31, 2013 amounted to P
= 537.1 million.
ALI Group
The Philippine Peso bank loans include ALI subsidiaries’ loans that will mature on various dates
up to 2020 with floating interest rates at 50 basis points to 100 basis points spread over
benchmark 91-day PDST-R1/R2 and fixed interest rates of 4.50% to 10.21% per annum. Certain
loans which are subject to floating interest rates are subject to floor floating interest rates at the
Overnight Reverse Repurchase Agreement Rate of the Bangko Sentral ng Pilipinas (BSP
Overnight Rate) or at the BSP Overnight Rate plus a spread of 20% to 75%. A term loan facility of
a subsidiary is secured by a Mortgage Trust Indenture over land and building with a total carrying
value of nil, P
= 690.0 million and P
= 701.5 million of December 31, 2013 and 2012 and
January 1, 2012, respectively. This term loan facility was subsequently refinanced in February
2013 on a clean basis.
Homestarter Bond due 2012
ALI launched a new issue of the Homestarter Bond in October 2009. The bond is to be issued
over a series of 36 issues, once every month which commenced on October 16, 2009, up to
P
= 14.0 million per series or up to an aggregate issue amount of P
= 504.0 million over a 3-year
period. The bond carries an interest rate of 5% p.a., payable at the final maturity date or upon the
bondholder’s exercise of the option to apply the bond to partial or full payment for a residential
property offered for sale by ALI or its affiliates. In the event of application of the bond to partial or
full payment for property, the bondholder shall be entitled to, in addition to interest, a notional
credit equivalent to 10% of the aggregate face value of the bond. The bonus credit is subject to a
maximum of 5% of the net selling price of the property selected. The bond is alternatively
redeemable at par plus accrued interest on the third anniversary of the initial issue date. From
maturity date, a total of P
= 410.8 million of bonds were redeemed. As of December 31, 2013 and
2012 and January 1, 2012, the carrying value of outstanding bonds amounted to nil, nil and
P
= 325.4 million,respectively.
Homestarter Bond due 2013
ALI launched another new issue of the Homestarter Bond in April 2010. The bond is to be issued
over a series of 36 issues, once every month which commenced on April 16, 2010, up to
P
= 28.0 million per series or up to an aggregate issue amount of P
= 1,008.0 million over a 3-year
period. The bond carries an interest rate of 5% p.a., payable at the final maturity date or upon the
bondholder’s exercise of the option to apply the bond to partial or full payment for a residential
property offered for sale by ALI or its affiliates. In the event of application of the bond to partial or
full payment for property, the bondholder shall be entitled to, in addition to interest, a notional
credit equivalent to 10% of the aggregate face value of the bond. The bonus credit is subject to a
maximum of 5% of the net selling price of the property selected by the bondholder except Ayala
Land Premier properties, or 4% of the net selling price of the Ayala Land Premier property
selected. The bond is alternatively redeemable at par plus accrued interest on the third
anniversary of the initial issue date. As of December 31, 2013, 2012 and January 1, 2012,
outstanding bonds amounted to nil, P
= 630.7 million and P
= 417.9 million, respectively.
5-Year Bonds due 2013
In 2008, ALI issued P
= 4.0 billion bonds due 2013 with fixed rate equivalent to 8.75% per annum.
The PhilRatings assigned a “PRS Aaa” rating on the bonds indicating that it has the smallest
degree of investment risk. Interest payments are protected by a large or by an exceptionally
stable margin and principal is assured. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally strong position of
such issues. PhilRatings maintained its rating of PRS AAA for the P
= 4.0 billion bonds in 2013,
2012 and 2011. On August 14, 2013, ALI completed the final redemption of its bond issue with
aggregate principal of P
= 4.0 billion.
Philippine Peso Homestarter Bond due 2014
In May 2011, ALI launched a new issue of the Homestarter Bond. The bond is to be issued over a
series of 36 issues, once every month which commenced on May 16, 2011, with an initial issue
amount of up to P
= 56.0 million or up to an aggregate issue amount of P
= 2.0 billion over a 3-year
period. The bond carries an interest rate of 5% per annum, payable at the final maturity date or
upon the bondholder’s exercise of the option to apply the bond to partial or full payment for a
residential property offered for sale by ALI or its affiliates. In the event of application of the bond
to partial or full payment for a property, the bondholder shall be entitled to, in addition to interest, a
notional credit equivalent to 10% of the aggregate face value of the bond. The bonus credit is also
subject to a maximum of 5% of the net selling price of the property selected. The bond is
alternatively redeemable at par plus accrued interest on the third anniversary of the initial issue
date. As of December 31, 2013, 2012 and January 1, 2012, outstanding bond issued amounted to
P
= 620.2 million, P
= 397.7 million and P
= 173.7 million, respectively.
Philippine Peso Homestarter Bond due 2015
In October 2012, ALI issued P
= 1,000.0 million bond due 2015 with fixed rate equivalent to 5.0%
p.a. The Credit Rating and Investors Services Philippines, Inc. (CRISP) assigned a AAA issuer
rating indicating that it has the smallest degree of investment risk for the bond. AAA is the highest
credit rating possible on CRISP’s rating scale for issuers. CRISP also assigned a stable credit
outlook for ALI’s issuer rating as CRISP continues to believe that ALI’s strong financial
performance will continue and roll out of its new development projects will sustain its leadership
position.
Philippine Peso Homestarter Bond due 2016
In May 2013, ALI issued the second tranche of the bonds registered with the SEC in 2012, at an
aggregate principal amount of P
= 2.0 billion. The bonds have a term of three (3) years from the
issue date, and will bear interest on its principal amount at a fixed rate of 4.00% p.a. Interest will
not be compounded and shall be payable on maturity date or on the date of effectivity of an Early
Downpayment Application, as may be applicable, less the amount of any applicable withholding
taxes.
Philippine Peso 7-Year and 10-year Bonds due 2019 and 2022
In April 2012, ALI issued a total of P
= 15.0 billion bonds, broken down into a P
= 9.4 billion bond due
2019 at a fixed rate equivalent to 5.625% p.a. and a P
= 5.7 billion bond due 2022 at a fixed rate
equivalent to 6.00% p.a. The PhilRatings assigned a PRS AAA rating on the bonds indicating that
it has the smallest degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is assured. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. PRS AAA is the highest credit rating possible on PhilRatings’
rating scales for long-term issuances.
Philippine Peso 5-,7- and 10-year FXCNs due in 2011, 2013 and 2016
In September 2006, ALI issued P
= 3.0 billion FXCNs consisting of 5-, 7- and 10-year notes issued to
various financial institutions and will mature on various dates up to 2016. The FXCNs bear fixed
interest rates ranging from 7.25% to 7.75% p.a. depending on the term of the notes. In January
2011, simultaneous to a new corporate note offering, ALI undertook a liability management
exercise by offering to prepay holders of the corporate notes issued in 2006 while inviting the
same institutions to participate in the new issuance. A number of investors holding up to
P
= 875.0 million of notes maturing in 2013 and 2016 accepted the offer to be prepaid. On
September 23, 2011, the 5-year and one (1) day FXCNs amounting to P
= 1.8 billion matured and
were fully paid by ALI. Subsequently in September 2013, the balance of the 7-year FXCNs
amounting to P
= 195.0 million matured and was fully repaid by the Company. As of December 31,
2013 and 2012 and January 1, 2012, outstanding balance amounted to P
= 100.0 million,
P
= 295.0 million and P
= 295.0 million, respectively.
Philippine Peso 5-, 7- and 10-year FXCN due 2014, 2016 and 2019
In January 2009, ALI issued an aggregate P
= 2.4 billion in 5-, 7- and 10-year notes to various
financial institutions and retail investors. The notes will mature on various dates up to 2019. The
FXCNs bear fixed interest rates ranging from 7.76% to 8.90%. P
= 220.0 million and P
= 830.0 million
notes due in 2014 and 2016, respectively, were prepaid on January 28, 2013.
Philippine Peso 7-year FRCN due 2016
In October 2009, ALI executed a P
= 1.0 billion committed FRCN facility with a local bank, of which
an initial P
= 10.0 million was drawn on October 12, 2009. The balance of P
= 990.0 million was
subsequently dr awn on November 18, 2011. The FRCN bears a floating interest rate based on
the 3-month PDST-R1 plus a spread of 0.96%, repriceable quarterly. The FRCNs will mature on
October 12, 2016, the seventh anniversary of the initial drawdown date.
Philippine Peso 5-, 10-, 15-Year FXCN due on 2016, 2021 and 2026
In January 2011, ALI issued P
= 10.0 billion FXCNs to various financial institutions and retail
investors. The notes will mature on various dates up to 2026. The FXCNs bear fixed interest
rates ranging from 5.62% to 7.50% p.a. depending on the term of the notes. P
= 1.95 billion note
due in 2016 was prepaid on January 19, 2013.
Philippine Peso 10-year FRCN due 2022
In December 2012, ALI executed a P
= 5.0 billion committed Corporate Note facility with a local
bank, of which an initial P
= 3.5 billion was drawn in 2012. The balance of P
= 1.5 billion was
subsequently drawn in January 2013. Notes currently bear a fixed interest rate of 4.50%. The
Corporate Notes will mature on the third month succeeding the tenth anniversary of the initial
drawdown date.
Philippine Peso 10-year and 6-month Bonds due 2024
In July 2013, ALI issued a total of P
= 15.0 billion bonds due 2024 at a fixed rate equivalent to 5.0%
p.a. CRISP assigned a "AAA" on the bonds indicating that it has a minimal credit risk owing to the
Company’s capacity to repay its debt obligations. AAA is the highest rating assigned by CRISP.
Philippine Peso 7-Year and 20-year Bonds due 2020 and 2033
In October 2013, ALI issued a total of 6.0 billion bonds, broken down into a 4.0 billion bond due
2020 at a fixed rate equivalent to 4.625% p.a. and a 2,000.0 million bond due 2033 at a fixed rate
equivalent to 6.00% p.a. CRISP assigned a "AAA" rating on the bonds indicating that it has a
minimal credit risk owing ALI’s capacity to repay its debt obligations. AAA is the highest rating
assigned by CRISP.
On July 17, 2008, MWC, together with all of its Lenders signed an Omnibus Amendment
Agreement and Intercreditor Agreement and these agreements became effective on
September 30, 2008.
Under the Omnibus Amendment Agreement, the lenders effectively released MWC from the
assignment of its present and future fixed assets, receivables and present and future bank
accounts, all the Project Documents (except for the Agreement, Technical Corrections Agreement
and the Department of Finance Undertaking Letter), all insurance policies where MWC is the
beneficiary and performance bonds posted in its favor by contractors or suppliers.
In consideration for the release of the assignment of the above-mentioned assets, MWC agreed
not to create, assume, incur, permit or suffer to exist, any mortgage, lien, pledge, security interest,
charge, encumbrance or other preferential arrangement of any kind, upon or with respect to any of
its properties or assets, whether now owned or hereafter acquired, or upon or with respect to any
right to receive income, subject only to some legal exceptions. The lenders shall continue to enjoy
their rights and privileges as Concessionaire Lenders (as defined under the Agreement), which
include the right to appoint a qualified replacement operator and the right to receive payments
and/or other consideration pursuant to the Agreement in case of a default of either MWC or
MWSS. Currently, all lenders of MWC (including the bondholders) are considered Concessionaire
Lenders and are on pari passu status with one another.
The loan agreements on long-term debt of the Company and certain subsidiaries provide for
certain restrictions and requirements with respect to, among others, payment of dividends,
incurrence of additional liabilities, investment and guaranties, mergers or consolidations or other
material changes in their ownership, corporate set-up or management, acquisition of treasury
stock, disposition and mortgage of assets and maintenance of financial ratios at certain levels.
These restrictions and requirements were complied with by the Group as of December 31, 2013,
2012 and January 1, 2012.
Total interest paid amounted to P
= 10.1 billion in 2013, P
= 8.4 billion in 2012 and P
= 5.1 billion in 2011.
Interest capitalized by subsidiaries amounted to P
= 580.2 million in 2013, P
= 533.8 million in 2012 and
P
= 279.0 million in 2011. The average capitalization rate is 4.16% to 7.06% in 2013, 2.06% to
7.23% in 2012 and 2.1% to 6.88% in 2011.
21. Other Noncurrent Liabilities
This account consists of the following:
2013
Deposits and deferred credits
Liability for purchased land
Retentions payable
Provisions (Note 37)
Estimated liability on property
development
Others
P
= 12,676,476
7,260,101
3,654,350
861,360
–
375,651
P
= 24,827,938
December 31
2012
(In Thousands)
P
= 13,592,280
–
2,193,895
745,711
5,705,012
737,994
P
= 22,974,892
January 1,
2012
P
= 7,337,058
–
2,355,782
739,626
28,680
820,854
P
= 11,282,000
Deposits and deferred credits
Deposits include rental deposits that serve as security for any damages to the leased property and
which will be refunded at the end of lease term.
Deposits are initially recorded at fair value, which was obtained by discounting future cash flows
using the applicable rates of similar types of instruments. The difference between the cash
received and its fair value is recorded as deferred credits.
Deferred credits also include prepayments received from customers before the completion of
delivery of goods or services.
Retentions payable
Retentions payable pertains to amount withheld from the contractors’ progress billings which will
be later released after the guarantee period, usually one year after the completion of the project.
The retention serves as a security from the contractor should there be defects in the project.
Estimated liability on property developments
Estimated liability on property development pertains to the estimated future development of the
sold portion of the real estate inventories.
Provisions
Provisions relate to pending unresolved claims and assessments. The information usually
required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on
the grounds that it can be expected to prejudice the outcome of these claims and assessments.
Others
Other liabilities mainly include nontrade payables (see Note 31). It also includes liabilities arising
from PSi’s Subcontracting Service Agreement (SSA) with a local customer. On June 28, 2010,
PSi and a local customer entered into a SSA for PSi to provide subcontracted services. In
consideration, the local customer shall pay PSi service fees as provided for in the SSA. The
subcontracted services shall be effective starting from July 15, 2010 and ending February 29,
2020, renewable upon mutual agreement by both parties.
In September 2009, PSi received non-interest bearing cash advances amounting to US$3.0
million from a foreign customer, an affiliate of the local customer. On July 15, 2010, the foreign
customer assigned all of its rights with respect to the cash advances, including payments thereof,
to the local customer. The local customer and PSi agree that the full cash advances amounting to
US$3.0 million will be applied to prepay and cover any, and all of the fees payable under Annex B
of the SSA for the facilities support services that will be rendered by PSi to the local customer.
Moreover, PSi shall return to the local customer, upon termination of the SSA, for any reason, the
cash advances less any amount applied to pay the fees as detailed in the SSA.
The current and noncurrent portion of the advances from the local customer follow (amounts in
thousands):
Total outstanding advances from the
local customers
Less: Current portion
Noncurrent portion
(In US$)
2013
(In Php)
(In US$)
2012
(In Php)
$2,030
288
$1,743
P
= 90,166
12,786
P
= 77,380
$2,304
273
$2,031
P
= 94,579
11,207
P
= 83,372
2011
(In US$)
(In Php)
$2,565
261
$2,304
P
= 112,450
11,442
P
= 101,008
*Translated using the closing exchange rate at the reporting date (US$1:P
= 44.395 in 2013, US$1:P
= 41.05 in 2012, US$1:P
= 43.84 in 2011 )
The current portion is included under “Accounts payable and accrued expenses”.
22. Equity
Information about the Company’s common and preferred shares follow:
Common shares
2013
2012
Authorized shares
Par value per share
Issued and subscribed
shares
Outstanding shares
At beginning of year
Issued shares on
exercise of share
options
Subscribed shares
Treasury stock
Reissuance
Acquisition/
Redemption
At end of year
Preferred A
shares Preferred B shares Preferred C shares
2013
2013
2013
2012
2012
2012
(In Thousands, except for par value figures)
12,000
58,000
40,000
12,000
58,000
40,000
P
= 100
P
= 100
P
= 100
P
= 100
P
= 100
P
= 100
900,000
P
= 50
900,000
P
= 50
599,438
598,873
–
12,000
20,000
58,000
–
593,689
577,257
12,000
12,000
–
–
550
15
568
864
–
–
–
–
–
–
5,184
15,000
–
–
–
599,438
–
593,689
–
12,000
(12,000)
–
Voting Preferred
shares
2013
2012
200,000
P
=1
200,000
P
=1
–
200,000
200,000
–
–
200,000
200,000
–
–
–
–
–
–
–
–
–
–
20,000
–
–
–
–
–
–
20,000
–
–
–
–
–
–
–
200,000
–
200,000
Common Shares
The common shares may be owned or subscribed by or transferred to any person, partnership,
association or corporation regardless of nationality, provided that at anytime at least 60% of the
outstanding capital stock shall be owned by citizens of the Philippines or by partnerships,
associations or corporations with 60% of the voting stock or voting power of which is owned and
controlled by citizens of the Philippines.
In July 2013, the SEC approved the amendments to the Parent Company’s Articles of
Incorporation for the exemption of 100 million common shares from the exercise of pre-emptive
rights of holders of common shares. These shares are allocated to support the financing activities
of the Company.
Preferred Shares
Preferred A shares
On November 11, 2008, the Company filed a primary offer in the Philippines of its Preferred A
shares at an offer price of P
= 500 per share to be listed and traded on the Philippine Stock
Exchange (PSE). The Preferred A shares are cumulative, nonvoting and redeemable at the
option of the Company under such terms that the BOD may approve at the time of the issuance of
shares and with a dividend rate of 8.88% per annum. The Preferred A shares may be redeemed
at the option of the Company starting on the fifth year.
On June 28, 2013, the BOD approved and authorized the exercise of call option on Preferred A
shares effective November 25, 2013 based on the dividend rate of 8.88% per annum. The
redemption of Preferred A shares is presented as part of treasury stock.
Preferred B shares
In July 2006, the Company filed a primary offer in the Philippines of its Preferred B shares at an
offer price of P
= 100 per share to be listed and traded in PSE. The Preferred B shares are
cumulative, nonvoting and redeemable at the option of the Company under such terms that the
BOD may approve at the time of the issuance of shares and with dividend rate of 9.4578% per
annum. The Preferred B shares may be redeemed at the option of the Company starting on the
fifth year from the date of issuance.
On March 14, 2011, the BOD approved and authorized the exercise of call option on Preferred B
shares effective July 21, 2011 based on the dividend rate of 9.5% per annum. The redemption of
Preferred B shares is presented as part of treasury stock.
In September 2013, the BOD approved and authorized the re-issuance and offering of the
Preferred B shares for an aggregate amount of P
= 10 billion. The Preferred B shares were offered
at a price of P
= 500 per share with a fixed quarterly dividend rate of 5.25% per annum.
Preferred C shares
Preferred C shares are cumulative, non-participating, non-voting and redeemable at the option of
the Parent Company under such terms that the BOD may approve at the time of the issuance of
the shares.
Voting Preferred shares
On March 15, 2010, the BOD approved the reclassification of 4.0 million unissued common shares
with a par value of P
= 50 per share into 200.0 million Voting Preferred shares with a par value of
P
= 1 per share and the amendment of the Company’s amended Articles of Incorporation to reflect
the reclassification of the unissued common shares into new Voting Preferred shares. On April
16, 2010, the Company’s stockholders ratified the reclassification.
On April 22, 2010, the SEC approved the amendments to the Company’s Articles of Incorporation
embodying the reclassification of the unissued common shares to new Voting Preferred shares.
The Voting Preferred shares are cumulative, voting and redeemable at the option of the Company
under such terms that the BOD may approve at the time of the issuance of shares and with a
dividend rate of 5.3% per annum. In 2013, the dividend rate was repriced to 1.875%.
Treasury shares
On September 10, 2007, the BOD approved the creation of a share buyback program involving
P
= 2.5 billion worth of common capital stock. On June 2, 2010, the BOD approved to increase the
share buyback program from P
= 2.5 billion to P
= 5.0 billion. In 2011, the Parent Company acquired
5.5 million common shares at a total cost of P
= 1.8 billion.
On July 17, 2012, the BOD approved the sale of 15.0 million treasury shares at a price of
P
= 430 per share. As of December 31, 2012, 15.0 million shares were sold at a total consideration
of P
= 6.5 billion. As of December 31, 2012, treasury stock arising from common shares amounted
to P
= 1.7 billion.
On May 29, 2013, the BOD approved the placement of the remaining 5.2 million treasury shares
at a price of P
= 647 per share. As of December 31, 2013, 5.2 million shares were sold at a total
consideration of P
= 3.3 billion.
Following these transactions, all common shares held in treasury by the Company have already
been reissued.
The details of the Company’s paid-in capital follow:
2013
At January 1, 2013
Exercise/ cancellation of
ESOP/ESOWN
Reclassification of ESOWN
shares
Reissuance of treasury
stocks
Redemption of preferred
shares
At December 31, 2013
Voting
Preferred
Stock
Preferred
Stock - A
Preferred
Stock - B
P
= 1,200,000
P
= 5,800,000
–
–
–
27,516
–
–
–
11,200
–
–
–
–
–
P
= 1,200,000
–
P
= 5,800,000
Common
Stock Subscribed
(In Thousands)
P
= 200,000 P
= 29,783,010
P
= 160,652
–
–
P
= 200,000 P
= 29,821,726
724
(11,200)
–
Additional
Paid-in Subscriptions
Capital Receivable
P
= 8,457,871
Total
Paid-in
Capital
(P
= 481,601) P
= 45,119,932
215,776
43,322
287,338
–
–
–
9,558,859
–
9,558,859
– (4,800,000)
P
= 150,176 P
= 13,432,506
– (4,800,000)
(P
= 438,279) P
= 50,166,129
2012
As of January 1, 2012
Exercise/Cancellation of
ESOP/ESOWN
Reissuance of Treasury
Stock
As of December 31, 2012
Preferred
Stock Voting
Preferred
Stock - A
Preferred
Stock – B
P
= 1,200,000
P
= 5,800,000
–
–
–
P
= 1,200,000
–
P
= 5,800,000
Preferred
Stock - A
Preferred
Stock – B
P
= 1,200,000
P
= 5,800,000
Common
Stock Subscribed
(In Thousands)
P
= 200,000 P
= 24,784,980
P
= 231,114
–
–
P
= 1,200,000
–
–
P
= 5,800,000
–
28,536
–
4,842,317
P
= 200,000 P
= 29,655,833
Common
Stock Subscribed
(In Thousands)
P
= 200,000 P
= 29,655,833
P
= 216,209
–
127,177
–
–
P
= 200,000 P
= 29,783,010
(55,557)
–
P
= 160,652
Additional
Paid-in Subscriptions
Capital Receivable
P
= 6,339,594
(P
= 578,816) P
= 42,832,820
647,000
1,471,277
P
= 8,457,871
Total
Paid-in
Capital
97,215
815,835
–
1,471,277
(P
= 481,601) P
= 45,119,932
2011
As of January 1, 2011
Exercise/Cancellation of
ESOP/ESOWN
Stock dividend
As of December 31, 2011
Preferred
Stock Voting
Additional
Paid-in Subscriptions
Capital Receivable
Total
Paid-in
Capital
P
= 6,243,384
(P
= 604,011)P
= 37,855,467
96,210
(14,905)
–
–
P
= 216,209 P
= 6,339,594
25,195
135,036
–
4,842,317
(P
= 578,816) P
= 42,832,820
The movements in the Company’s outstanding number of common shares follow:
2013
At January 1
Stock dividends
Exercise of ESOP/ESOWN
Reissuance (Acquisition) of Treasury
stock
At December 31
593,690
–
565
January 1
2012
December 31
2012
(In Thousands)
577,258
–
1,432
5,184
599,439
485,645
96,846
273
15,000
593,690
(5,506)
577,258
In accordance with SRC Rule 68, as Amended (2011), Annex 68-D, below is a summary of the
Company’s track record of registration of securities.
Common shares
Number of shares
registered
200,000,000*
Preferred A shares
12,000,000
Preferred B
shares****
Voting preferred
shares
20,000,000
200,000,000
Issue/offer price
P
= 1.00 par value**;
P
= 4.21 issue price
P
= 100 par value;
P
= 500 issue price
P
= 100 par value;
P
= 500 issue price
P
= 1 par value;
P
= 1 issue price
Date of approval
2013
Number of
holders of
securities as of
December 31
2012
Number of
holders of
securities as of
December 31
July 21, 1976
7,033
7,215
November 11, 2008
None***
54
October 31, 2013
3
–
March 15, 2010
994
980
*Initial number of registered shares only.
**Par value now is P
= 50.00
***The Preferred A shares were fully redeemed on November 25, 2013.
****The Preferred B shares were re-issued on November 15, 2013.
Retained Earnings
Retained earnings include the accumulated equity in undistributed net earnings of consolidated
subsidiaries, associates and joint ventures accounted for under the equity method amounting to
P
= 64,307.3 million, P
= 55,450.0 million and P
= 49,445.9 million as of December 31, 2013, 2012 and
January 1, 2012, respectively, which are not available for dividend declaration by the Company
until these are declared by the investee companies.
Retained earnings are further restricted for the payment of dividends to the extent of the cost of
the shares held in treasury.
In accordance with the SRC Rule 68, as Amended (2011), Annex 68-C, the Company’s retained
earnings available for dividend declaration as of December 31, 2013, 2012 and January 1, 2012
amounted to P
= 23.3 billion, P
= 20.3 billion and P
= 13.8 billion, respectively.
Dividends consist of the following:
2013
2012
2011
(In Thousands, except dividends per share)
Dividends to common shares
Cash dividends declared during the year
Cash dividends per share
Stock dividends
Dividends to equity preferred shares declared
during the year
Cash dividends to Preferred A shares
Cash dividends to Preferred B shares
Cash dividends to Voting Preferred
shares
P
= 2,877,477
4.80
–
P
= 2,344,246
4.00
–
P
= 2,124,004
4.00
4,842,317
–
525,000
532,800
–
532,800
–
3,750
10,563
21,126
Capital Management
The primary objective of the Company’s capital management policy is to ensure that it maintains a
strong credit rating and healthy capital ratios in order to support its business and maximize
shareholder value.
The Company manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Company may adjust the
dividend payment to shareholders or issue new shares. No changes were made in the objectives,
policies or processes for the years ended December 31, 2013, 2012 and 2011.
The Company monitors capital using a gearing ratio of debt to equity and net debt to equity. Debt
consists of short-term and long-term debt. Net debt includes short-term and long-term debt less
cash and cash equivalents and short-term investments. The Company considers as capital the
equity attributable to equity holders of the Company.
Short-term debt
Long-term debt
Total debt
Less:
Cash and cash equivalents
Short-term investments
Net debt
Equity attributable to owners of the parent
Debt to equity
Net debt to equity
2013
(In Thousands)
P
= 15,811,285
189,869,862
205,681,147
December 31
2012
January 1,
2012
P
= 12,343,472
162,741,031
175,084,503
P
= 7,333,841
103,934,490
111,268,331
80,286,355
296,503
P
= 94,501,645
P
= 124,097,713
141.1%
76.2%
56,296,503
1,613,058
P
= 53,358,770
P
= 106,353,328
104.6%
50.2%
65,655,049
119,345
P
= 139,906,753
P
= 143,476,282
143.4%
97.5%
The Company is not subject to externally imposed capital requirements.
23. Other Income and Costs and Expenses
Other income consists of:
2013
Revenue from rehabilitation works
(Note 14)
Mark to market gain on financial assets
at FVPL and derivatives (Notes 9
and 31)
Realized income from liquidation of
service connection costs
Revenue from management contracts
Recoveries of accounts written off
(Note 7)
Gain on sale of investments (Note 11)
Dividend income
Foreign exchange gain/(loss) (Note 31)
Gain on sale of other assets
Insurance claim (Note 6)
Remeasurement gain arising from
business combination (Note 24)
Bargain purchase gain (Note 24)
Others (Note 8)
2012
(In Thousands)
2011
P
= 5,160,312
P
= 6,037,467
P
= 7,198,190
981,923
72,698
337,679
646,109
624,424
102,266
518,468
–
529,091
404,595
190,296
173,031
113,226
19,382
23,891
367,415
67,847
180,547
306,431
26,588
25,458
215,026
539,713
234,333
90,060
131,078
–
–
–
605,789
P
= 8,942,978
593,853
–
68,226
P
= 8,367,264
–
558,233
184,477
P
= 10,017,880
Other income mainly includes income derived from ancillary services of consolidated subsidiaries.
This may include, among others, marketing fees, collateral income from vehicle sales and income
from sale of scrap.
Details of costs of rendering services included in the consolidated statement of income are as
follows:
2013
Personnel costs (Notes 26, 27
and 30)
Depreciation and amortization
(Notes 13, 14, 15 and 16)
Rental, utilities and supplies
Professional and management fees
Taxes and licenses
Repairs and maintenance
Transportation and travel
Contract labor
Insurance
Others
2012
(In Thousands)
2011
P
= 8,657,801
P
= 6,440,028
P
= 6,043,245
7,526,263
6,468,249
4,246,499
2,028,640
888,370
658,799
508,047
212,692
291,326
P
= 31,486,686
6,196,599
4,250,922
2,150,607
1,001,047
950,238
206,954
347,081
194,372
1,251,956
P
= 22,989,804
6,273,436
3,195,894
1,941,981
874,993
680,801
239,775
288,860
188,462
1,063,247
P
= 20,790,694
“Others” include various costs such as communication, dues and fees and miscellaneous
overhead, among others.
General and administrative expenses included in the consolidated statement of income are as
follows:
2013
Personnel costs (Notes 26, 27
and 30)
Depreciation and amortization
(Notes 13, 14, 15 and 16)
Professional fees
Taxes and licenses
Provision for doubtful accounts (Note 6)
Rental and utilities
Advertising and promotions
Donations and contributions
Transportation and travel
Repairs and maintenance
Postal and communication
Insurance
Supplies
Contract labor
Research and development
Dues and fees
Entertainment, amusement and
recreation
Others (Note 7)
2012
(In Thousands)
2011
P
= 7,476,239
P
= 6,476,914
P
= 5,890,790
1,117,642
1,021,964
938,430
686,094
453,620
375,341
358,441
325,861
236,864
207,042
160,066
159,782
153,342
94,431
89,352
999,303
984,608
525,786
719,398
287,917
246,935
499,680
279,509
238,192
164,424
133,329
106,999
278,140
90,164
107,370
943,597
807,230
394,021
346,315
475,085
231,675
137,593
271,236
272,694
156,601
105,963
148,162
372,191
67,562
225,725
76,551
631,509
P
= 14,562,571
120,279
512,899
P
= 12,771,846
193,769
49,598
P
= 11,089,807
“Others” include various expenses such as management fees, marketing, collection charges,
sales commission, bank service charge, periodicals and miscellaneous operating expenses.
Depreciation and amortization expense included in the consolidated statement of income follows:
2013
Included in:
Costs of sales and services
General and administrative expenses
P
= 7,526,263
1,117,642
P
= 8,643,905
2012
(In Thousands)
P
= 6,196,599
999,303
P
= 7,195,902
2011
P
= 6,273,436
943,597
P
= 7,217,033
Personnel costs included in the consolidated statement of income follow:
2013
Included in:
Costs of sales and services
General and administrative
expenses
2012
(In Thousands)
2011
P
= 8,657,801
P
= 6,440,028
P
= 6,243,245
7,476,239
P
= 16,134,040
6,476,914
P
= 12,916,942
5,890,790
P
= 12,134,035
Interest and other financing charges consist of:
2013
Interest expense on:
Short-term debt
Long-term debt
Amortization of service concession
obligations and deposits
Amortization of discount on
long-term debt
Others
2012
(In Thousands)
2011
P
= 914,214
7,552,952
P
= 259,734
6,126,583
P
= 205,754
5,479,034
613,142
418,362
345,978
267,612
1,083,039
P
= 8,155,330
206,258
298,219
P
= 6,535,243
274,518
1,156,606
P
= 10,511,432
“Others” include, among others, various charges such as, pretermination costs, bond offering fees,
and credit card charges.
Other charges consist of:
2013
Cost of rehabilitation works (Note 15)
Provision for impairment losses on:
AFS financial assets (Note 10)
Inventories (Note 8)
Property, plant and equipment
(Note 14)
Investment properties (Note 13)
Goodwill (Notes 16 and 24)
Loss on derecognition of derivative asset
(Note 17)
Write offs and other charges
Others
2012
(In Thousands)
P
= 5,161,312
P
= 6,033,936
2011
P
= 7,195,936
228,580
105,702
61,076
330,822
157,314
49,937
222
400
31,830
11,575
19,500
–
–
–
139,170
–
–
4,040
P
= 5,532,086
–
150,392
285,267
P
= 6,892,568
229,613
142,741
18,586
P
= 7,933,297
Other charges include cost and expenses relating to income derived from ancillary services of
subsidiaries as shown in the other income.
24. Business Combinations
2013 Acquisitions
PRP Investors
In the latter part of December 2013, AY Fontana, LLC (AY Fontana) bought the remaining 9.03%
interest of the managing member in PRP Investors Fontana, LLC (PRP Investors) for a nominal
amount of $1 and the related management agreement was likewise amended thereby giving AY
Fontana control over PRP Investors. Below is a summary of the fair values of assets acquired and
liabilities assumed as of the date of the acquisition (amounts in thousands):
Assets
Cash
Receivables
Prepaid expense and other current assets
Investment property
Other noncurrent assets
Liabilities
Accounts payable and accrued expenses
Advances from related parties
Deferred credits
Other payables
Net assets
Goodwill
Acquisition cost
In US$
In Php*
$62
410
215
24,168
3,760
28,615
P
= 2,753
18,202
9,545
1,072,938
166,925
1,270,363
4,745
30,812
955
40
36,552
(7,937)
716
(7,221)
210,654
1,367,899
42,397
1,776
1,622,726
(352,363)
31,787
(P
= 320,576)
*Translated using the exchange rate at the transaction date (US$1:P
= 44.395).
The cost of the acquisition is determined as follows (amounts in thousands):
Cash paid
Fair value of equity interest in PRP Investors held
before business combination
Share in excess losses on PRP Investors
$–
–
(7,221)
($7,221)
P
=–
–
(320,576)
(P
= 320,576)
The fair value of the existing ownership interest in PRP Investors was determined to be nil due to
the net liability position of PRP Investors as of acquisition date.
From the date of acquisition, the Group's share in the revenue and net loss of PRP Investors
amounted to nil. If the combination had taken place at the beginning of the year, the Group's total
revenue would remain at $23.05 million and net income would have been $0.30 million. Given the
net liability position of PRP Investors, the goodwill arising from the business combination
amounting to US$0.72 million was impaired.
Cash on acquisition follows (amounts in thousands):
Cash acquired from PRP Investors
Cash paid
Net cash flow
$62
–
$62
P
= 2,752
–
P
= 2,752
2012 Acquisitions
ALI Makati Hotel & Residences, Inc. (AMHRI) and ALI Makati Hotel Property, Inc. (AMHPI)
On October 2, 2012, AyalaLand Hotels and Resorts Corp. (AHRC), a wholly owned subsidiary of
ALI, entered into an agreement to acquire the interests of Kingdom Manila B.V., an affiliate of
Kingdom Hotel Investments (KHI), and its nominees in KHI-ALI Manila Inc. (now renamed AMHRI)
and 72,124 common shares in KHI Manila Property Inc. (now renamed AMHPI).
AMHRI and AMHPI are the project companies for the Fairmont Hotel and Raffles Suites and
Residences project in Makati which opened last December 2012.
Prior to the acquisition, ALI effectively owned 20% economic interest in AMHRI and AMHPI. ALI
acquired the remaining 80% interest in AMHRI and AMHPI for a total consideration of
P
= 2,430.4 million.
The acquisition is in line with KHI’s value realization strategy and with ALI’s thrust to grow its
commercial leasing business. It adds 32 Raffles Suites and 280 Fairmont Hotel rooms to AHRC’s
growing hotel portfolio. The continuing sale of units in the Raffles Residences will also generate
immediate cash, while the operations of the hotel and serviced apartments will augment and
diversify the sources of recurring revenues. Furthermore, this landmark project will complement
the various offerings of the Makati Central Business District, and fortify its position as the country’s
premier financial district.
The fair value of ALI’s interest prior to the acquisition amounting to P
= 769.0 million was determined
using the adjusted net asset value method. Remeasurement of ALI’s equity interest in both
companies resulted to the recognition of a gain (included under “Other income”) amounting to
P
= 593.9 million.
Prior to the acquisition, ALI effectively owns 20% economic interest in AMHRI and AMHPI, and
through this acquisition, AHRC and the ALI’s ownership in AMHRI and AMHPI now stands at
100%. Remeasurement of ALI’s equity interest in both companies resulted in the recognition of a
gain (included under “Other income”) amounting to P
= 756.1 million (see Note 23).
During the year, ALI finalized its purchase price allocation. Changes to the fair market values of
the assets acquired and liabilities assumed noted are retroactively applied in the 2012 balances.
The following are fair values of the identifiable assets and liabilities assumed (in thousands):
Assets
Cash
Trade and other receivables
Real estate inventories
Other current assets
Hotel property and equipment
Liabilities
Accounts and other payables
Loans payable
Deferred tax liabilities
Net assets
Negative goodwill
Acquisition cost
P
= 1,334,000
1,708,000
936,000
202,000
5,421,000
9,601,000
2,162,000
3,594,000
633,698
6,389,698
3,211,302
(11,870)
P
= 3,199,432
The fair value of the trade and other receivables approximate their carrying amounts. None of the
trade receivables have been impaired and it is expected that the full contractual amounts can be
collected.
From the date of acquisition, the Group’s share in AMHRI and AMHPI’s revenue and net income
amounted to P
= 898.9 million and a loss of P
= 96.4 million, respectively. If the combination had taken
place at the beginning of the year, the Group’s total revenue would have been P
= 64.2 billion, while
the Group’s net income would have been P
= 10.6 billion.
2011 Acquisitions
IMI EY/MX subsidiaries
On April 28, 2011, IMI Philippines infused additional capital to its subsidiary, IMI Singapore,
consisting of US$7.0 million cash and 200 million of IMI Philippines’ own shares in exchange for
43,077,144 newly issued ordinary shares of the latter with par value of SGD1.0 per share. This
was used by IMI Singapore to set up Monarch and Cooperatief as holding companies and
facilitate the acquisition of IMI EY/MX subsidiaries from EPIQ NV.
On May 4, 2011, IMI Philippines, Cooperatief (the Purchaser), and EPIQ NV (the Seller), entered
into a Sale and Purchase Agreement (SPA), for the Purchaser to buy the Seller’s 100% direct or
indirect ownership shares (EPIQ shares) in the IMI EY/MX subsidiaries.
IMI Philippines, Cooperatief and EPIQ NV agreed that the consideration for the EPIQ shares
would include issuance of 200 million of IMI Philippines’ shares (the IMI Consideration Shares);
deferred payment of EUR€7.3 million (P
= 443.1 million) from 2013 to 2018 subject to interest rate of
1.6% plus 1.5%; and assumption of liabilities of EPIQ NV to the IMI EY/MX subsidiaries
aggregating to EUR€2.5 million (P
= 153.6 million).
The acquisition costs are allocated as follows:
IMI BG
Issuance of 200 million IMI Consideration
Shares
Deferred payment
Assumed liabilities of EPIQ NV to EPIQ
subsidiaries
IMI CZ
(In Thousands)
IMI MX
Total
US$20,639
7,533
US$525
191
US$7,645
2,791
US$28,809
10,515
115
US$28,287
9
US$725
3,521
US$13,957
3,645
US$42,969
On July 29, 2011, all of the completion conditions under the SPA were fulfilled by the responsible
parties, and the acquisition of the IMI EY/MX subsidiaries by Cooperatief was completed.
Under the SPA, Cooperatief also purchased receivables of EPIQ NV from the IMI EY/MX
subsidiaries aggregating to EUR€11.7 million (P
= 707.9 million). On July 29, 2011, EUR€4.8 million
(P
= 291.4 million) of this was settled through cash payment, while the rest will be settled through
additional deferred payment from 2013 to 2018 subject to interest rate of 1.6% plus 1.5%
(see Note 20).
The provisional fair values of the identifiable assets and liabilities acquired and goodwill (gain from
bargain purchase) arising as at the date of acquisition follow:
EPIQ EA
In US$
Assets
Cash and cash equivalents
Receivables
Inventories
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
In Php*
EPIQ CZ
In US$
In Php*
(In Thousands)
P
= 48,569
1,116,115
872,338
1,045,517
291,838
–
8,141
3,382,518
US$515
3,334
2,985
5,734
17,651
12,871
1,159
352
1,320
2,139
4,780
40,272
In Php*
444
–
13,012
P
= 21,711
140,492
125,769
241,639
–
18,720
–
548,331
US$3,386
10,508
4,476
8,618
300
–
121
27,409
P
= 142,668
442,811
188,632
363,172
12,631
–
5,092
1,155,006
745,824
542,394
2,445
–
103,025
–
6,410
–
270,107
–
48,831
14,857
55,615
90,131
201,424
1,699,076
378
–
–
–
10,114
12,937
15,919
–
–
–
426,224
545,168
–
1,090
–
1,686
2,909
12,095
–
45,932
–
71,060
122,591
509,690
Net Assets
39,997
1,683,442
75
Cooperatief’s share in the fair
value of net assets acquired
39,949
1,683,442
75
Goodwill (gain from bargain
purchase)
(11,662)
(491,423)
650
Acquisition cost
US$28,335
P
= 1,192,019
US$725
*Translated using the exchange rate at the transaction date (US$1:P
= 42.14)
3,163
15,314
645,316
3,163
15,314
645,316
Liabilities
Accounts payable
Bank loans
Accrued charges and deferred
income
Taxes payable
Provisions
Deferred tax liabilities
Long term debt
US$1,153
26,486
20,701
24,811
6,925
–
193
80,269
EPIQ MX
In US$
27,408
P
= 30,571
(1,357)
US$13,957
(57,175)
P
= 588,141
The purchase price allocation for the acquisition of the IMI EY/MX subsidiaries has been prepared
on a preliminary basis due to unavailability of certain information to facilitate fair valuation
computation, and reasonable changes are expected as additional information becomes available.
The accounts that are subject to provisional accounting are property, plant and equipment,
intangible assets, contingent liabilities and goodwill.
In 2012, IMI Phillippines finalized the purchase price allocation. As shown above, no changes
were made to the provisional values as the impact of additional information subsequently obtained
was not significant to affect the preliminary values.
Acquisition related costs which consist of professional fees, representation and travel expenses
amounting to US$2.1 million (P
= 92.7 million) were recognized as expense in 2011.
From the date of acquisition in 2011, the Group’s share in the revenue and net income of IMI
EY/MX subsidiaries amounted to US$66.2 million (P
= 2.9 billion) and US$2.4 million
(P
= 104.8 million), respectively. If the combination had taken place at the beginning of 2011, the
Group’s total revenue and net income would have been P
= 99.4 billion and P
= 16.1 billion,
respectively.
CWC
On November 8, 2011, MWC and Veolia Water Philippines, Inc. (VWPI) entered into a share sale
and purchase agreement whereby VWPI sold to MWC its 100% interest in CWC and receivable
from Bonifacio Water Corporation (BWC). On November 29, 2011, MWC completed the
acquisition of VWPI’s 100% interest in the common shares of CWC and the BWC receivable at a
total contract price of P
= 1.8 billion, broken down as follows:
BWC Receivable (Note 7)
Investment in CWC
P
= 0.6 billion
1.2 billion
P
= 1.8 billion
The terms of the BWC receivable provide that payments will be made on a quarterly basis at an
amount based on a certain percentage of BWC’s revenue until 2022, the end of BWC’s
concession period. The fair value of the BWC receivable has been determined based on the
present value of forecasted collections of the receivable.
The purchase price allocation of CWC has been prepared on a preliminary basis due to
unavailability of certain information to facilitate fair valuation computation, and reasonable
changes are expected as additional information becomes available. The following is a summary
of the provisional fair values of the assets acquired and liabilities assumed as of the date of the
acquisition (amounts in thousands):
Assets
Cash
Receivable – net
Materials and supplies - at cost
Other current assets
Property, plant and equipment - net
Service concession assets
Other noncurrent assets
Liabilities
Accounts and other payables
Income tax payable
Service concession liabilities
Deferred tax liability
Customers’ deposits
Pension liability
Net assets
Goodwill
Acquisition cost
P
= 31,621
38,854
1,132
1,324
5,188
1,077,361
13,900
1,169,380
P
= 22,178
838
37,013
244
27,429
11,339
99,041
P
= 1,070,339
130,319
P
= 1,200,658
Cash on acquisition follows:
Cash acquired from CWC
Cash paid
Net cash flow
P
= 31,621
1,200,658
P
= 1,169,037
The fair value of receivables amounts to P
= 38.9 million. The gross amount of receivables is
P
= 42.6 million. None of the receivables have been impaired and it is expected that the full
contractual amounts can be collected.
Transaction costs of P
= 2.6 million have been expensed and are included in administrative
expenses.
From the date of acquisition, the Group’s share in the revenue and net income of CWC amounted
to P
= 27.6 million and P
= 6.8 million, respectively. If the contribution had taken place at the beginning
of the year, the revenue of the Group would have been P
= 97.3 billion and net income would have
been P
= 15.9 billion in 2011.
In 2012, MWC finalized the purchase price allocation and there were no changes made to the fair
values of the assets acquired and liabilities assumed for CWC.
IQ BackOffice, LLC (IQB)
On April 29, 2011, AIVPL through LIL and HRMall acquired IQB for a total consideration of
US$12.5 million. IQB is engaged in the business of providing outsourced back office accounting
and financial management services. AIVPL dissolved IQB upon its acquisition to create a new
company in the name of IQ BackOffice, Inc. (IQB Delaware) to serve as a marketing arm for
AIVPL Group.
The purchase price has been allocated based on management’s estimates after considering
independent appraisals of the fair values of the acquired identifiable assets and assumed liabilities
at the date of acquisition as follows (amounts in thousands):
In US$
In Php*
US$323
259
486
7,771
8,839
P
= 13,807
11,065
20,821
332,603
378,296
28
8,811
3,689
US$12,500
1,185
377,111
157,889
P
= 535,000
Assets
Cash
Receivables
Property and equipment
Intangibles
Liabilities
Accounts and other payables
Net assets
Goodwill
Acquisition cost
*Translated using the exchange rate at the transaction date (US$1:P
= 42.80).
The cost of acquisition pertains to cash paid in the amount of US$12.5 million (P
= 535.0 million).
From the date of acquisition, the Group’s share in the revenue and net income of IQB amounted to
US$2.3 million (P
= 100.6 million) and US$0.1 million (P
= 3.6 million), respectively. If the contribution
had taken place at the beginning of the year, the revenue would have been US$2.2 billion
(P
= 94.1 billion) and net income of the Group would have been US$0.4 billion (P
= 15.9 billion) in
2011.
Concurrently, LIL entered into a share purchase agreement with certain IQB officer to sell a
portion of HR Mall Holdings (HMHL) shares, giving the IQB officer a combined ownership interest
of 17.48% in HMHL.
Wind power companies
On March 15, 2011, ACEHI entered into a share purchase agreement with Viage Holdings,
Presage Holdings, Moorland Philippines Investments, Inc. and BDO Capital Corporation for their
respective holdings in Viage Corporation (Viage), Presage Corporation (Presage) and Moorland
Philippines Holdings, Inc. (Moorland). The acquisition gave ACEHI 100% ownership interest in
Viage, Presage and Moorland (collectively “Wind power companies”) which collectively owns a
50% effective stake in NorthWind Power Development Corporation (Northwind). Northwind owns
and operates the 33-MW wind farm located in Bangui Bay, Ilocos Norte.
The following is a summary of the fair values of the assets acquired and liabilities assumed as of
the date of the acquisition (amounts in thousands):
Assets
Cash
Receivables
Other current assets
Investments in stock
Liabilities
Accounts payable
Advances
Net assets
Goodwill
Acquisition cost
P
= 683
42,548
165
457,180
500,576
1,078
21,136
22,214
478,362
411,031
P
= 889,393
The cost of the acquisition is determined as follows (amounts in thousands):
Cash paid
Contingent consideration liability
P
= 492,423
396,970
P
= 889,393
Cash on acquisition follows (amounts in thousands):
Cash acquired from Wind power companies
Cash paid
Net cash flow
P
= 683
492,423
P
= 491,740
As part of the share purchase agreement with the previous owners of the Wind power companies,
a contingent consideration has been agreed. There will be additional payments to the previous
owners for Feed-in-Tariff (FiT) Adjustment and Achieved Capacity Factor Adjustment within one
year from closing date (March 15, 2012).
As at the acquisition date, the fair value of the contingent consideration is P
= 396.97 million.
As of December 31, 2011, Northwind was able to exceed the agreed capacity factor with the
previous owners. However, the FiT provision of the Renewable Energy Act of 2008 is pending
approval by the Energy Regulatory Commission (ERC).
From the date of acquisition, the Group’s share in the revenue and net income of the Wind power
companies amounted to P
= 3.6 million and P
= 2.2 million, respectively. If the combination had taken
place at the beginning of the year, the revenue of the Group would have been P
= 94.0 billion and
net income would have been P
= 15.8 billion in 2011.
Hydro power companies
On April 19, 2011, ACEHI and Sta. Clara Power Corporation (SCP) entered into a Shareholder’s
Agreement (the Agreement) to develop various mini-hydro power projects in various locations in
the Philippines. ACEHI and SCP shall carry out the Agreement through Quadriver Energy
Corporation (QEC), Philnew Hydro Power Corporation (PHPC) and Philnew River Power
Corporation (PRPC) (collectively “Hydro power companies”), wholly owned subsidiaries of SCP.
QEC and PHPC were incorporated on April 5, 2011 while PRPC was incorporated on
June 24, 2011.
Under the Agreement, SCP issued an irrevocable proxy in favor of ACEHI wherein ACEHI will
hold 70% of the subscribed capital stock, vote on any and all corporate actions therein, and elect
such number of directors as corresponds to its intended 70% stake in QEC, PHPC and PRPC.
This enabled ACEHI to exercise control over QEC, PHPC and PRPC.
Simultaneous with the signing of the Agreement, SCP transferred 25% of its ownership interest in
QEC and PHPC to ACEHI.
The following is a summary of the fair values of the asset acquired from QEC and PHPC as of the
date of the acquisition (amounts in thousands).
Assets
Cash
Share in the fair value of the asset acquired (25%)
Goodwill
Acquisition cost
P
= 500
125
55,423
P
= 55,548
The acquisition cost pertains to the cash consideration paid to SCP.
Cash on acquisition of QEC and PHPC follows (amounts in thousands):
Cash acquired from PRPC
Cash paid
Net cash flow
P
= 500
55,548
P
= 55,048
As of December 31, 2011, ACEHI does not own any shares of PRPC but the balances were still
consolidated by virtue of the irrevocable proxy issued by SCP.
The asset of PRPC as of acquisition date pertain to cash amounting to P
= 0.25 million.
Cash on acquisition of PRPC follows (amounts in thousands):
Cash acquired from PRPC
Cash paid
Net cash flow
P
= 250
–
P
= 250
Subsequent to acquisition date, renewable energy contracts under the name of SCP were
transferred to the respective Hydro power companies.
From the date of acquisition, the Group’s share in the revenue and net loss of Hydro power
companies amounted to P
= 0.1 million and (P
= 3.01 million), respectively. Since the business
combination happened close to the date of incorporation of the Hydro power companies, the
Group’s total revenue and net income would be the same as presented in the consolidated
statement of income.
2010 Acquisitions
PSi
On June 25, 2010, IMI and Narra Venture Capital II, LP (Narra VC) (collectively referred to as the
“New Investors”) entered into an Investors’ Agreement (the Agreement) with PSi Technology
Holdings, Inc. and Merrill Lynch Global Emerging Markets Partners, LLC collectively referred to as
the “Old Investors”), to take on 55.8% and 11.2% equity share in PSi, respectively.
The equity subscription of the New Investors was finalized on October 6, 2010, and IMI took
control of PSi on that date.
The Agreement also provided details regarding the grant of put and call options, as follows:
Put Option
Option to require the New Investors to purchase all but not
some of the shares held by the Old Investors (Option Shares) at
the time of exercise, at anytime during the Put Option Period.
Put Option Period
The period from acquisition date up to twenty-four (24) months
from completion date, with 7-day exercise notice.
Put Option Strike Price
The higher of (a) $1.00 and (b) value of the shares calculated
based on 5.5x trailing 12-month earnings before interest, taxes,
depreciation and amortization (EBITDA) of PSi as of receipt of
the exercise notice, less net debt.
Call Option
Option to require the Old Investors to sell all but not some only
of the shares held by the Old Investors at the time of exercise,
at anytime during the Call Option Period.
Call Option Period
The period commencing six (6) days prior to the lapse of the
Put Option Period and ending thirty (30) days after the lapse of
the Put Option Period.
Call Option Strike Price
The higher of (a) $1.00 and (b) value of the shares calculated
based on 6.0x trailing 12-month EBITDA of PSi as of the date of
receipt of the exercise notice, less net debt.
In 2010, IMI recorded its share in the identifiable assets and liabilities of PSi using provisional fair
values due to unavailability of certain information to facilitate the fair value computation of
receivables, property, plant and equipment, accounts payable and accrued expenses, and
goodwill. The acquisition cost also includes contingent consideration.
In 2011, IMI finalized the purchase price allocation as follows:
In US$
In Php*
(In Thousands)
Assets
Cash
Accounts receivable
Inventories
Property, plant and equipment
Other assets
US$10,528
12,454
6,581
9,210
1,312
40,085
P
= 461,966
546,482
288,774
404,135
57,571
1,758,928
31,592
2,348
2,922
902
372
38,136
US$1,949
1,386,257
103,013
128,259
39,581
16,327
1,673,437
P
= 85,491
US$862
US$11,284
P
= 37,804
P
= 495,142
1,087
US$10,197
47,687
P
= 447,455
Liabilities
Accounts payable and accrued expenses
Loans payable
Deferred revenue
Accrued rental noncurrent
Other long-term benefits
Net assets
Non-controlling interest share in the net fair value of
net assets acquired (44.22%)
Acquisition cost
Less IMI’s share in the fair value of net assets
acquired (55.78%)
Goodwill
*Translated using the exchange rate at the transaction date (US$1:P
= 43.88)
Receivables, accounts payable and accrued expenses, and the cost of acquisition (as adjusted for
contingent consideration) decreased by US$5.9 million (P
= 261.9 million), US$$4.2 million
(P
= 184.3 million), and US$0.3 million (P
= 13.2 million), respectively. The final purchase price
allocation resulted in a goodwill of US$$10.2 million (P
= 447.5 million).
Cash on acquisition follows:
Cash acquired from Psi
Cash paid
Net cash flow
In US$
In Php*
(In Thousands)
US$10,528
P
= 461,966
8,325
365,301
US$2,203
P
= 96,665
*Translated using the exchange rate at the transaction date (US$1:P
= 43.88)
Acquisition of Additional Interest in PSi
On September 26, 2012, amendments relating to the Agreement were made to allow the parties to
respectively exercise their option rights without the need for further determination of valuation or
engagement of third parties. Accordingly, a fixed price was established amounting to
US$0.15 million.
On January 9, 2013, pursuant to the second amendment to the Agreement, the exercise notice,
which is one of the conditions for the completion of the sale and purchase of the option shares,
was received by the parties. The sale and purchase transaction involving the option shares shall
be deemed completed upon compliance of the rest of conditions set forth in the Agreement.
On March 12, 2013, the Deeds of Assignment have been executed and the stock certificates have
been delivered. The exercise of the option rights increased IMI’s ownership interest in PSi from
55.78% to 83.25%.
Ten Knots
ALI entered into an agreement with Asian Conservation Company and ACC Resorts, Inc. (the
ACC Group) to create a company which will serve as a holding vehicle for Ten Knots Philippines,
Inc. (TKPI) and Ten Knots Development Corporation (TKDC) (wholly-owned subsidiaries of the
ACC Group prior to ALI’s involvement). TKPI and TKDC are mainly involved in the development
of parcels of land and islands into resorts in Miniloc, Lagen, Pangulasian and Apulit islands in the
municipalities of El Nido and Taytay in Northern Palawan.
The agreement eventually resulted in ALI obtaining 60% interest in the new company for a total
consideration of P
= 2.0 billion and ACC Group acquiring the remaining 40% interest.
ALI subscribed to 60% of the shares of TKPI and TKDC, thereby providing ALI with the ability to
exercise control over TKPI and TKDC effective April 23, 2010. Accordingly, TKPI and TKDC
financial statements were consolidated on a line-by-line basis with that of the Group as of
December 31, 2010.
The following were the fair values of the identifiable assets acquired and liabilities assumed
(in thousands):
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Land and improvements
Deposit on land purchase
(Forward)
P
= 365,652
1,455,940
16,393
25,401
1,361,645
444,622
Assets
Property and equipment
Other assets
Liabilities
Accounts and other payables
Deposits and other current liabilities
Due to related parties
Loans payable
Income tax payable
Deferred tax liabilities – net
Net assets
Non-controlling interest in TKDC and TKPI
Total net assets acquired
Acquisition cost
Negative goodwill
P
= 493,328
140,640
4,303,621
310,177
21,446
89,232
81,621
18,630
399,155
920,261
3,383,360
1,353,344
2,030,016
2,029,500
P
= 516
ALI’s share in the fair value of the net assest amounted to P
= 2.0 billion, which resulted to a
negative goodwill amounting to P
= 0.5 million.
The fair value of the trade and other receivables approximate their carrying amounts since these
are short-term in nature. None of the trade receivables have been impaired and it is expected that
the full contractual amounts can be collected.
The non-controlling interests have been measured at the proportionate share of the value of the
net identifiable assets acquired and liabilities assumed.
In 2011, ALI finalized the purchase price allocation and there were no changes to the fair market
values of the assets acquired and liabilities assumed for TKDC and TKPI.
In 2011, the shareholders of ECI, a subsidiary, approved the increase in its authorized capital
stock and the subsequent issuance of these shares in exchange for the investment of the
Company and ACC Group in TKDC and TKPI. As a result of this transaction, ALI and ACC will
obtain 60% and 40% ownership interest in ECI, respectively. Also, TKDC and TKPI will become
wholly owned subsidiaries of ECI. However, the Exchange Agreement was subsequently
rescinded in 2013, in favor of the acquisition of the minority interest in TKDC and TKPI through
AHRC’s acquisition of 100% interest in ACCI.
Asian Conservation Company, Inc. (ACCI)
On November 19, 2013, AHRC, a wholly owned subsidiary of ALI entered into an agreement to
acquire 100% interest in ACCI, which effectively consolidates the remaining 40% interest in TKDC
and TKPI (60%-owned subsidiary of the Company prior to this acquisition). This acquisition is in
line with ALI’s thrust to support the country’s tourism industry.
The agreement resulted in ALI effectively obtaining 100% interest in TKPI and TKDC. A total of
P
= 2.0 billion was paid to obtain the 100% interest in ACCI. The carrying amount of the noncontrolling interest is reduced to nil as ALI already owns 100% share in TKDC and TKPI. The
difference between the fair value of the consideration paid and the amount by which the noncontrolling interest is adjusted is recognized in equity under “Equity Reserve” amounting to
P
= 586.0 million.
APPHC and APPCo
APPCo owns BPO buildings in Makati, Quezon City and Laguna, with a total leasable area of
approximately 230 thousand square meters. This acquisition is aligned with ALI’s thrust of
expanding its office leasing business and increasing its recurring income.
In 2006, ALI signed an agreement with MLT Investments Ltd. (MIL) and Filipinas Investments Ltd.
(FIL) to jointly develop a BPO office building in Dela Rosa Street, Makati and to purchase the
existing PeopleSupport Building.
APPHC, the joint-venture company formed, is 60% owned ALI. APPHC owns 60% interest in its
subsidiary, APPCo. The remaining 40% interest in both APPHC and APPCo are split evenly
between MIL and FIL. APPHC and APPCo are joint ventures by ALI, MIL, and FIL.
On December 8, 2008, ALI acquired from FIL its 20% ownership in APPHC and APPCo. This
resulted in an increase in ALI’s effective ownership interest in APPHC from 60% to 80% and
APPCo from 36% to 68%, thereby providing ALI with the ability to control the operations of
APPHC and APPCo following the acquisition. Accordingly, APPHC and APPCo’s
financial statements are consolidated on a line-by-line basis with that of the Group as of
December 31, 2008.
On November 16, 2011, the SEC approved the merger of APPHC and APPCo, with APPCo as the
surviving entity. The merger was meant to streamline administrative processes and achieve
greater efficiency. From the perspective of ALI, the merger did not affect its effective interest
(68%) in the merged entity.
On April 15, 2013, ALI entered into a Sale and Purchase Agreement with Global Technologies
International Limited (GTIL) to acquire the latter’s 32% stake in APPCo for P
= 3,520.0 million. Prior
to the acquisition, ALI has 68% effective interest in APPCo.
The carrying amount of the non-controlling interest is reduced to nil as APPCo became a whollyowned subsidiary of ALI. The difference between the fair value of the consideration paid and the
amount by which the non-controlling interest is adjusted is recognized in equity under “Equtiy
Reserve” amounting to P
= 2,722.6 million.
Asian I- Office Properties, Inc. (AiO)
On April 16, 2013, Cebu Property Ventures and Development Corporation (CPVDC) (a subsidiary
of CHI) acquired the 60% interest of ALI in AiO for a cash consideration of P
= 436.2 million. AiO
was previously 40%-owned by CPVDC and 60%-owned by ALI.
This transaction allowed ALI to consolidate into CPVDC the development and operations of BPO
offices in Cebu and businesses related thereto, which should lead to value enhancement,
improved efficiencies, streamlined processes and synergy creation among the Company and its
subsidiaries. This is also consistent with the thrust of the CHI group to build up its recurring
income base.
The acquisition resulted to AiO becoming a wholly owned subsidiary of CPVDC. Both AiO and
CHI are under the common control of the Company. As a result, the acquisition was accounted
for using the pooling of interests method. The transaction has no effect on the carrying amounts
of the Group’s assets and liabilities.
Taft Punta Engaño Property, Inc. (TPEPI)
On October 31, 2013, ALI acquired a 55% interest in TPEPI for a consideration of P
= 550.0 million.
The acquisition will allow ALI to consolidate its businesses resulting in improved efficiencies and
synergy creation to maximize opportunities in the Cebu real estate market. The transaction was
accounted for as an asset acquisition.
The excess of the ALI’s cost of investment in TPEPI over its proportionate share in the underlying
net assets at the date of acquisition was allocated to “Investment properties” account in the
consolidated financial statements. This purchase premium shall be amortized upon sale of these
lots by TPEPI.
TPEPI’s underlying net assets acquired by ALI as of date of acquisition consists of cash in bank,
input VAT and investment properties amounting to P
= 550.0 million.
25. Income Tax
The components of the Group’s deferred taxes as of December 31, 2013, 2012 and January 1,
2012 are as follows:
Net deferred tax assets
December 31
2013
Deferred tax assets on:
Difference between tax and book basis of
accounting for real estate transactions
Allowance for probable losses
Service concession obligation
Retirement benefits
Share-based payments
Advanced rental
NOLCO and MCIT
Revaluation of property, plant and equipment
Unrealized foreign exchange loss
Allowance for inventory obsolescence
Allowance for doubtful accounts
Accrued expenses
Others
Deferred tax liabilities on:
Capitalized interest and other expenses
Unrealized foreign exchange gain
Excess of financial realized gross profit over
taxable realized gross profit
Others
Net deferred tax assets
P
= 3,358,688
1,020,409
814,269
1,292,095
87,265
10,285
287,757
19,722
52,095
10,290
17,489
37,407
100,181
7,107,952
2012
(In Thousands)
P
= 1,530,231
894,084
814,960
1,133,888
116,434
80,076
119,765
18,236
16,881
9,493
7,988
145,355
249,469
5,136,860
January 1,
2012
P
= 1,071,486
908,155
750,240
542,020
90,057
129,087
89,619
19,476
13,154
4,878
–
126,396
111,774
3,856,342
(592,732)
(1,635)
(543,529)
(22,791)
(477,015)
–
–
–
(594,367)
P
= 6,513,585
(7,673)
(15,906)
(589,899)
P
= 4,546,961
(14,279)
(72)
(491,366)
P
= 3,364,976
Net deferred tax liabilities
December 31
Deferred tax assets on:
Difference between tax and book basis of
accounting for real estate transactions
NOLCO
Fair value adjustments on:
Long-term debt
AFS financial asset
Others
Deferred tax liabilities on:
Fair value adjustments on:
Service concession assets
Land and improvements
Property and equipment
Service concession obligation
Customers’ guaranty and other deposits
Investment properties
Excess of financial realized gross profit
over taxable realized gross profit
Revaluation of property, plant and equipment
(Forward)
January 1,
2012
2013
2012
(In Thousands)
P
= 320,464
11,303
P
= 360,289
113,689
P
= 97,392
83,216
167,492
1,116
139,272
639,647
166,286
1,116
2,530
643,910
117,426
1,116
12,682
311,832
(4,742,672)
(625,490)
(531,986)
(34,091)
(18,691)
(12,108)
(4,875,064)
(625,490)
(206,726)
(34,091)
(18,691)
–
(5,119,478)
(392,194)
(58,548)
(34,091)
(18,691)
–
(476,166)
(73,086)
(264,901)
(144,836)
(325,558)
(173,902)
December 31
2013
Unrealized foreign exchange gain
Unrealized mark-to-market gains from put and
call option
Retirement benefits
Capitalized interest and other expenses
Unrealized gain on sale on AFS
Unrealized fair value gain less costs to sell of
biological assets
Prepaid expenses
Others
Net deferred tax liabilities
January 1,
2012
(P
= 19,007)
2012
(In Thousands)
(P
= 230,663)
–
(72,756)
(45,201)
(11,804)
(32,945)
(312,530)
–
(11,487)
(35,982)
(29,132)
–
–
(6,164)
(149,972)
(167,853)
(6,987,047)
(P
= 6,347,400)
(4,531)
–
(138,080)
(6,900,035)
(6,256,125)
(4,662)
(120,134)
(63,866)
(6,448,513)
(P
= 6,136,681)
(P
= 72,275)
The Group has NOLCO amounting to P
= 10.7 billion, P
= 8.0 billion and P
= 7.1 billion in 2013, 2012 and
2011, respectively, on which deferred tax have not been recognized. Further, deferred tax assets
from the excess MCIT over regular corporate income tax amounting to P
= 76.7 million in 2013,
P
= 42.7 million in 2012 and P
= 51.7 million in 2011, respectively, were also not recognized, since
management believes that there could be no sufficient taxable income against which the benefits
of the deferred tax assets may be utilized.
As of December 31, 2013, NOLCO and MCIT that can be claimed as deduction from future
taxable income or used as deductions against income tax liabilities, respectively, are as follows:
Year incurred
Expiry Date
2011
2012
2013
2014
2015
2016
NOLCO
MCIT
(In Thousands)
P
= 3,350,465
P
= 22,293
3,274,417
22,264
4,076,216
32,167
P
= 10,701,098
P
= 76,724
As of December 31, 2013, 2012 and January 1, 2012, deferred tax liabilities have not been
recognized on the undistributed earnings and cumulative translation adjustment of foreign
subsidiaries since the timing of the reversal of the temporary difference can be controlled by the
Group and management does not expect the reversal of the temporary differences in the
foreseeable future. The undistributed earnings and cumulative translation adjustment amounted
to P
= 2.9 billion, P
= 346.8 million and P
= 813.8 million as of December 31, 2013, 2012 and January 1,
2012, respectively.
The reconciliation between the statutory and the effective income tax rates follows:
Statutory income tax rate
Tax effects of:
Nontaxable share of profit of
associates and jointly
controlled entities
Interest income subjected to final tax
at lower rates
Income under income tax holiday
Others
Effective income tax rate
2013
30.00%
2012
(As restated)
30.00%
2011
(As restated)
30.00%
(9.84)
(11.03)
(11.79)
(1.61)
(0.48)
3.55
21.62%
(2.47)
(0.44)
4.27
20.33%
(2.14)
(0.17)
4.89
20.79%
MWC Group
Revenue Regulations (RR) No. 16-2008
RR No. 16-2008 provided the implementing guidelines for Section 34 of RA No. 9504 on the use
of the Optional Standard Deduction (OSD) for corporations. The OSD allowed shall be an amount
not exceeding 40% of the gross income. Gross income earned refers to gross sales or gross
revenue derived from any business activity, net of returns and allowances, less cost of sales or
direct costs but before any deduction is made for administrative expenses or incidental losses.
This was applied by MWC and for the years ended December 31, 2013, 2012 and 2011.
MWC availed of the income tax holiday granted for Board of Investments (BOI) registered
projects, the Antipolo Water Supply Project in 2011 and East La Mesa (Rodriguez) Water
Treatment Plant Project in 2012.
The tax rate of 18% for the years in which OSD is projected to be utilized was used in computing
the deferred income taxes on the net service concession obligation starting 2009.
The availment of OSD affected the recognition of several deferred tax assets and liabilities, in
which the related income and expenses are not considered in determining gross income for
income tax purposes. MWC forecasts that it will continue to avail of the OSD, such that the
manner by which it will recover or settle the underlying assets and liabilities, for which the deferred
tax assets and liabilities were initially recognized, would not result in any future tax consequence
under OSD.
CWC
CWC as a duly registered CFZ enterprise under RA No. 9400, An Act Amending RA No. 7227
otherwise known as the Bases Conversion and Development Act of 1992, is entitled to all the
rights, privileges and benefits established there under including tax and duty-free importation of
capital equipment and special income tax rate of 5% of gross income earned from sources within
the CFZ.
BIWC
On January 25, 2011, BIWC filed an application for registration with the Board of Investments
(BOI) under Executive Order (EO) No. 226, as amended, as a new operator of water supply and
distribution for the Boracay Island on a non-pioneer status. The application was ratified on
February 9, 2011.
On June 17, 2011, BIWC’s application was registered with the BOI under Book 1 of EO 226.
Income Tax Holiday (ITH) is for four (4) years from June 2011 or actual start of commercial
operations, whichever is earlier but in no case earlier than the date of registration. The ITH
entitlement shall be limited to the water sales schedule reflected in specific terms and condition of
the registration. Further, the ITH entitlement for the wastewater or sewerage services shall be
limited only to 10% of the total revenue derived from its water supply.
LAWC
LAWC is registered with the Board of Investments (BOI) under the Omnibus Investment Code of
1987. The registration entitles the Company to an income tax holiday (ITH) for four years until
2010. In 2011, LAWC applied for a one year extension of the ITH incentive which was approved
by BOI on January 19, 2012.
In 2013, LAWC availed of the OSD and the tax rate of 18% for the years in which OSD is
projected to be utilized was used in computing the deferred income taxes of LAWC.
IMI Group
IMI Philippines
IMI Philippines is registered with PEZA and is entitled to certain incentives, which include ITH. IMI
Philippine’s entitlements to ITH under the current PEZA registrations have expirations beginning
January 2010. As of December 31, 2013, there are four (4) remaining project activities with ITH
entitlement which will expire in 2016 and 2017. Upon the expiration of the ITH, the IMI Philippines
will be subject to a five percent (5%) final tax on gross income earned after certain allowable
deductions in lieu of payment of national and local taxes. Income from other income-producing
activities that are not registered with PEZA is subject to regular corporate income tax (RCIT) rate
of 30%.
PSi
PSi is registered with PEZA under the Omnibus Investment Code of 1987 and R.A. No. 7916 on
May 17, 2004, for the manufacture of semiconductor devices and for export and importation of raw
materials, machinery and equipment, and other materials used in manufacturing semiconductor
devices in the Food Terminal Incorporated - Special Economic Zone (FTI-SEZ), Taguig City and
Carmelray Industrial Park II, Calamba City.
On August 24, 2012, PEZA issued an amended Certificate of Registration to PSi as an Ecozone
Export Enterprise to include the transfer of registered activities of PSi Laguna to PSi. The
issuance of the new certification was based on the approval of the merger of PSi and PSi Laguna
with the former as the surviving entity and the latter as the absorbed entity, by the Philippine SEC
on June 21, 2012.
As a PEZA-registered entity, PSi is subject to a five percent (5%) tax on gross income less
allowable deductions, as defined in R.A. No. 7916, as amended by R.A. No. 8748, in lieu of all
national and local taxes, except real property tax on land being leased by PSi in FTI-SEZ and
Carmelray Industrial Park II. The five percent (5%) tax on gross income shall be paid and remitted
as follows: (a) three percent (3%) to the National Government; and (b) two percent (2%) to the
treasurer’s office of the municipality or city where the enterprise is located. Income from other
income-producing activities that are not registered with PEZA is subject to RCIT rate of 30%.
As of December 31, 2013, there are two (2) remaining PEZA registered activities with ITH
entitlement which will expire in 2014.
STHK and Monarch
Hong Kong profits tax has been provided at the rate of 16.5% for the years ended December 31,
2013, 2012 and 2011, on the assessable profit for the year.
SZSTE, STJX, STCQ and IMICD
In accordance with the “Income Tax Law of PRC for Enterprises with Foreign Investment and
Foreign Enterprises”, the subsidiaries in the PRC are entitled to full exemption from Enterprise
Income Tax (EIT) for the first two years and a 50% reduction in EIT for the next three years,
commencing from the first profitable year after offsetting all tax losses carried forward from the
previous five years.
SZSTE is subject to taxation at the statutory tax rate of 24% for the years ended December 31,
2013, 2012 and 2011 on its taxable income as reported in the financial statements of SZSTE
prepared in accordance with the accounting regulations in the PRC.
STJX is entitled to full exemption from EIT for the first two years and a 50% reduction in EIT for
the next three years, commencing from the first profitable year, that is after all tax losses have
been fully offset in accordance with the “Income Tax of the PRC for Enterprises with Foreign
Investment and Foreign Enterprises”. STJX is in its seventh profitable year, and hence is subject
to taxation at the rate of 25% in 2013 and 2012 and 28% in 2011 on the taxable income as
reported in the financial statements of STJX prepared in accordance with the accounting
regulations in the PRC.
STCQ is entitled to full exemption from EIT for the first five years, commencing from the first
profitable year, that is after all tax losses have been fully offset in accordance with the “Income
Tax of the PRC for Enterprises with Foreign Investment and Foreign Enterprises”. STCQ is in its
second profitable year, and hence is not subject to taxation on the taxable income as reported in
the financial statements of STCQ prepared in accordance with the accounting regulations in the
PRC.
IMICD is subject to taxation at the statutory rate of 25% on their taxable income as reported in the
financial statements. With effect from year 2008, the China authority ceased the incentive of
preferential tax treatment for enterprises with foreign investment and foreign enterprises.
STPH
STPH is registered with the PEZA as an economic zone export enterprise engaged in the
manufacture and distribution of electronic products. As a registered enterprise, it is entitled to
certain incentives, including the payment of income tax equivalent to five percent (5%) on gross
income, as defined under R.A. No. 7916, in lieu of payment of national and local taxes. Income
from other income-producing activities that are not registered with PEZA is subject to RCIT rate of
30%.
Cooperatief
Taxation is calculated on the reported pre-tax result, at the prevailing tax rates, taking account of
any losses carried forward from previous financial years (if applicable) and tax-exempt items and
non-deductible expenses and using tax facilities.
IMI France
Income tax is computed based on the income earned by the corporation during the calendar year.
Losses may be carried forward with no time limit. On certain conditions, losses may be carried
back three years. The tax rate applicable in 2013, 2012 and 2011 is 33% based on net profits.
IMI BG
Income taxes are calculated in accordance with the Bulgarian legislation, and the effect of the
current and deferred taxes is reported. The current income tax is calculated based on the taxable
income for tax purposes. The nominal tax rate is 10% for 2013, 2012 and 2011.
IMI MX
IMI MX is subject to Income Tax and the Business Flat Tax. These taxes are recorded in profit or
loss in the year they are incurred. Income tax rate for 2013, 2012 and 2011 is 30%. Business Flat
Tax is calculated on a cash flow basis whereby the tax base is determined by reducing taxable
income with certain deductions and credits. The applicable Business Flat Tax rate is 17.5%.
Income tax incurred will be the higher of Income Tax and Business Flat Tax.
IMI CZ
Income tax due is calculated by multiplying the tax base by the rate as defined by the income tax
law of Czech Republic. The tax base comprises the book income from operations which is
increased or decreased by permanently or temporarily tax-decreasing costs and tax-deductible
revenues (for example, creation and recording of other provisions and allowances, entertainment
expenses, difference between book and tax depreciations). The applicable tax rate in 2013, 2012
and 2011 is 19%.
26. Earnings Per Share
The following table presents information necessary to calculate EPS on net income attributable to
equity holders of the Company:
Net income
Less dividends on preferred stock
Less profit impact of assumed conversions
of potential ordinary shares of investees
Weighted average number of common shares
Dilutive shares arising from stock options
Adjusted weighted average number of
common shares for diluted EPS
Basic EPS
Diluted EPS
2012
2011
2013
(As restated)
(As restated)
(In Thousands, except EPS figures)
P
= 12,777,932
P
= 10,504,385
P
= 9,183,335
528,750
543,363
965,341
12,249,182
9,961,022
8,217,994
16,342
P
= 12,232,840
596,591
3,399
23,953
P
= 9,937,069
585,027
2,341
27,095
P
= 8,190,899
579,965
2,332
599,990
P
= 20.53
P
= 20.39
587,368
P
= 17.03
P
= 16.92
582,297
P
= 14.17
P
= 14.07
27. Defined Benefit Plan
The Company and certain subsidiaries have their respective funded, noncontributory tax-qualified
defined benefit type of retirement plans covering substantially all of their employees. The benefits
are based on defined formula with minimum lump-sum guarantee of 1.5 months effective salary
per year of service. The consolidated retirement costs charged to operations amounted to
P
= 651.5 and P
= 685.9 million in 2013 and 2012, respectively.
The funds are administered by a trustee bank under the supervision of the Board of Trustees of
the plan. The Board of Trustees is responsible for investment of the assets. It defines the
investment strategy as often as necessary, at least annually, especially in the case of significant
market developments or changes to the structure of the plan participants. When defining the
investment strategy, it takes account of the plans’ objectives, benefit obligations and risk capacity.
The investment strategy is defined in the form of a long-term target structure (investment policy).
The Board of Trustees delegates the implementation of the investment policy in accordance with
the investment strategy as well as various principles and objectives to an Investment Committee,
which also consists of members of the Board of Trustees, a Director and a Controller. The
Controller overseas the entire investment process.
Under the existing regulatory framework, Republic Act 7641 requires a provision for retirement
pay to qualified private sector employees in the absence of any retirement plan in the entity,
provided however that the employee’s retirement benefits under any collective bargaining and
other agreements shall not be less than those provided under the law. The law does not require
minimum funding of the plan. The Group also provides additional post employment healthcare
benefits to certain senior employees in the Philippines. These benefits are unfunded.
Changes in net defined benefit liability in 2013 are as follows (amounts in thousands):
Pension Expense
Present value of defined benefit obligation
Fair value of plan assets
Net defined benefit liability
January 1,
2013
Current
Past
(As restated) service cost service cost
P
= 7,055,573
P
= 592,284
P
= 644
(5,472,302)
–
–
P
= 1,583,271
P
= 592,284
P
= 644
Net
interest
P
= 341,299
(291,757)
P
= 49,542
Remeasurements
Loss on
curtailment
and
settlements
P
= 9,009
–
P
= 9,009
Subtotal
P
= 943,236
(291,757)
P
= 651,479
Return on
plan assets
(excluding
amount
included in
net
Benefits
paid
interest)
(P
= 397,507)
P
= 22,128
397,507
(194,375)
P
=–
(P
= 172,247)
Actuarial
Actuarial
changes
changes
arising from arising from
changes in changes in
demographic
financial
assumptions assumptions
P
= 315,393
P
= 422,994
–
–
P
= 315,393
P
= 422,994
Subtotal
P
= 760,515
(194,375)
P
= 566,140
Contribution
from plan Contribution
participant by employer
P
=–
P
=–
(3,855)
(902,735)
(P
= 3,855)
(P
= 902,735)
Transfers
in/out
P
= 45,187
(26,528)
P
= 18,659
Foreign
currency
exchange December 31,
difference
2013
(P
= 8,555) P
= 8,398,449
1,480
(6,492,565)
(P
= 7,075) P
= 1,905,884
Subtotal
P
= 539,680
(434,971)
P
= 104,709
Contribution
from plan Contribution
participant by employer
P
=–
P
=–
(2,700)
(215,942)
(P
= 2,700)
(P
= 215,942)
Transfers
in/out
P
= 3,337
–
P
= 3,337
Foreign
currency December 31,
exchange
2012
difference (As restated)
(P
= 2,244) P
= 7,055,574
25
(5,472,303)
(P
= 2,219) P
= 1,583,271
Changes in net defined benefit liability in 2012 are as follows (amounts in thousands):
Pension Expense
Present value of defined benefit obligation
Fair value of plan assets
Net defined benefit liability (asset)
January 1,
2012
Current
(As restated) service cost
P
= 6,058,696
P
= 606,303
–
(5,048,486)
P
= 1,010,210
P
= 600,303
Past
service cost
(P
= 6,861)
–
(P
= 6,861)
Net interest
P
= 344,078
(284,179)
P
= 59,899
Loss on
curtailment
and
settlements
(P
= 164,914)
191,449
P
= 26,535
Subtotal
P
= 778,606
(92,730)
P
= 685,876
Benefits
paid
(P
= 322,501)
322,501
P
=–
Remeasurements
Actuarial
Return on
Actuarial
changes
changes
plan assets
(excluding arising from arising from
changes in
changes in
amount
financial
included in net demographic
interest) assumptions assumptions
P
=–
(P
= 29,426)
P
= 569,106
(434,971)
–
–
(P
= 434,971)
(P
= 29,426)
P
= 569,106
The maximum economic benefit available is a combination of expected refunds from the plan and reductions in future contributions. The Company doesn’t have unfunded
post-employment medical benefits.
The fair value of plan assets by each classes as at the end of the reporting period are as follow:
2013
(In Thousands)
Assets
Cash and Cash Equivalents
Debt investments
Equity Investments
Other Assets
Liabilities
Trust fee payable
Unamortized tax on premium
Provision for probable losses
Other liabilities
Net Asset Value*
2012
P
= 761,440
2,443,358
3,011,521
78,937
6,295,256
P
= 50,331
2,701,927
2,711,638
12,444
5,476,340
(418)
(1,211)
(10)
(572)
(2,211)
P
= 6,293,045
(621)
(1,669)
(129)
(1,619)
(4,038)
P
= 5,472,302
*The difference of P
= 200 million in the fair value of plan assets as of December 31, 2013 pertains
to movements after the valuation date.
All equity and debt instruments held have quoted prices in active market. The remaining plan
assets do not have quoted market prices in active market.
The plan assets have diverse investments and do not have any concentration risk.
The cost of defined benefit pension plans and other post-employment medical benefits as well as
the present value of the pension obligation are determined using actuarial valuations. The
actuarial valuation involves making various assumptions. The principal assumptions used in
determining pension and post-employment medical benefit obligations for the defined benefit
plans are shown below:
Discount rates:
Future salary increases:
2013
3.5% to 5.3%
4.0% to 8.5%
2012
3.0% to 7.0%
5.0% to 8.0%
There were no changes from the previous period in the methods and assumptions used in
preparing sensitivity analysis.
The sensitivity analysis below has been determined based on reasonably possible changes of
each significant assumption on the defined benefit obligation as of the end of the reporting period,
assuming if all other assumptions were held constant:
Discount rates
Future salary increases
2013
Increase
Net Pension
(decrease)
Liabilities
1.0%
P
= 1,735,804
(1.0%)
(2,119,659)
1.0%
(1.0%)
(P
= 2,260,747)
1,521,023
The management performed an Asset-Liability Matching Study (ALM) annually. The overall
investment policy and strategy of the Group’s defined benefit plans is guided by the objective of
achieving an investment return which, together with contributions, ensures that there will be
sufficient assets to pay pension benefits as they fall due while also mitigating the various risk of
the plans. The Group’s current strategic investment strategy consists of 47.9% of equity
instruments, 38.8% of debt instruments, 1.2% of investment properties and 12.1% cash.
The Group expects to contribute P
= 420.0 million to the defined benefit pension plan in 2014.
The average duration of the defined benefit obligation at the end of the reporting period is
8.3 to 23.4 years in 2013 and 8.6 to 21.1 years in 2012.
Shown below is the maturity analysis of the undiscounted benefit payments as of December 31,
2013 (amounts in thousands):
Less than 1 year
More than 1 year to 5 years
More than 5 years to 10 years
More than 10 years to 15 years
More than 15 years to 20 years
More than 20 years
P
= 6,722
128,735
404,207
1,399
1,214
6,440
P
= 548,717
As of December 31, 2013, 2012 and January 1, 2012, the plan assets include shares of stock of
the Company with total fair value of P
= 981.7 million, P
= 1,101.8 million and P
= 239.9 million,
respectively.
The carrying value and fair value of the plan assets of the Group as of December 31, 2013
amounted to P
= 5,397.2 million and P
= 6,492.6 million, respectively.
The fund includes investment in securities to its related parties. Details of the investment per type
of security are as follows (in thousands):
2013
Equity securities
Debt securities
Unit investment trust funds
Others
2012
Equity securities
Debt securities
Unit investment trust funds
Others
Carrying Value
P
= 829,780
505,424
357,549
115,851
P
= 1,808,604
Carrying Value
P
= 759,716
555,700
33,666
17,438
P
= 1,366,520
Fair Value Unrealized Gains
(In Thousands)
P
= 1,269,258
P
= 439,478
509,988
4,564
358,094
545
117,543
1,692
P
= 2,254,883
P
= 446,279
Fair Value Unrealized Gains
(In Thousands)
P
= 1,361,043
P
= 601,327
561,349
5,649
36,651
2,985
17,461
23
P
= 1,976,504
P
= 609,984
The overall expected rate of return on assets is determined based on the market prices prevailing
on that date.
The Group’s transactions with the fund mainly pertain to contributions, benefit payments,
settlements and curtailments.
28. Stock Option Purchase Plans
The Company has stock option plans for key officers (Executive Stock Option Plan - ESOP) and
employees (Employee Stock Ownership Plan - ESOWN) covering 3.0% of the Company’s
authorized capital stock. The grantees are selected based on certain criteria like outstanding
performance over a defined period of time.
The ESOP grantees may exercise in whole or in part the vested allocation in accordance with the
vesting percentage and vesting schedule stated in the ESOP. Also, the grantee must be an
employee of the Company or any of its subsidiaries during the 10-year option period. In case the
grantee retires, he is given 3 years to exercise his vested and unvested options. In case the
grantee resigns, he is given 90 days to exercise his vested options.
ESOP
2013
Outstanding, at beginning of year
Exercised
Grants
Stock dividends
Cancelled
Outstanding, at end of year
2012
Number
of Shares
3,940,680
(766,450)
445,064
Weighted
Average
Exercise Price
P
= 177.46
(177.61)
500
(725,926)
2,893,368
(89.41)
P
= 249.13
Number
of Shares
5,313,474
(1,019,194)
–
–
(353,600)
3,940,680
Weighted
Average
Exercise Price
P
= 174.63
(183.49)
–
–
–
P
= 177.46
2011
Number
of Shares
4,266,129
(411,743)
894,371
906,620
(341,903)
5,313,474
Weighted
Average
Exercise Price
P
= 179.36
(150.90)
316.87
–
–
P
= 174.63
The options have a contractual term of 10 years. As of December 31, 2013 and 2012 and
January 1, 2012, the weighted average remaining contractual life of options outstanding is 5 and
3.70 years, respectively, and the range of exercise prices amounted from P
= 127.3 to P
= 500.0,
respectively.
The fair value of each option is estimated on the date of grant using the Black-Scholes optionpricing model. The fair values of stock options granted under ESOP at each grant date and the
assumptions used to determine the fair value of the stock options are as follows:
Weighted average share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate
April 26,
2013
P
= 640
P
= 500
42.40%
10 years
0.54%
3.04%
April 18,
2011
P
= 352.08
P
= 316.87
41.21%
10 years
0.86%
6.64%
April 16,
2010
P
= 303.70
P
= 273.03
41.31%
10 years
0.92%
8.56%
June 30,
2005
P
= 327.50
P
= 295.00
46.78%
10 years
1.27%
12.03%
June 10,
2004
P
= 244.00
P
= 220.00
46.71%
10 years
1.43%
12.75%
The expected volatility reflects the assumption that the historical volatility is indicative of future
trends, which may also necessarily be the actual outcome.
ESOWN
The Company also has ESOWN granted to qualified officers and employees wherein grantees
may subscribe in whole or in part to the shares awarded to them based on the 10% discounted
market price as offer price set at grant date. To subscribe, the grantee must be an employee of
the Group during the 10-year payment period. In case the grantee resigns, unsubscribed shares
are cancelled, while the subscription may be paid up to the percent of holding period completed
and payments may be converted into the equivalent number of shares. In case the grantee is
separated, not for cause, but through retrenchment and redundancy, subscribed shares may be
paid in full, unsubscribed shares may be subscribed, or payments may be converted into the
equivalent number of shares. In case the grantee retires, the grantee may subscribe to the
unsubscribed shares anytime within the 10-year period. The plan does not allow sale or
assignment of the shares. All shares acquired through the plan are subject to the Company’s
Right to Repurchase.
The subscribed shares are effectively treated as options exercisable within a given period which is
the same time as the grantee’s payment schedule. The fair values of these options are estimated
on the date of grant using the Binomial Tree Model. In computing for the stock option value for the
2012 grant, the Company assumed volatility, dividend yield and interest rate as 29.8%, nil and
5.8%, respectively.
Shares granted and subscribed under the ESOWN in 2012 follows:
Granted
Subscribed
Exercise price
901,352
851,123
P
= 322
Subscriptions receivable from the stock option plans covering the Company’s shares are
presented as deduction under equity.
For the unsubscribed shares, the employee still has the option to subscribe from the start of the
fifth year but not later than on the start of the seventh year from date of grant. Movements in the
number of options outstanding under ESOWN as of December 31, 2013, 2012 and January 1,
2012 follow:
At January 1
Grants
Stock dividends
Exercised/cancelled
At December 31
December 31
2013
2012
Weighted
Weighted
Number of
average
average
Number of
options exercise price
options exercise price
143,256
P
= 247.93
105,867
P
= 211.51
–
–
50,229
322.00
–
–
–
–
(23,012)
183.73
(12,840)
(237.48)
120,244
P
= 260.22
143,256
P
= 247.93
January 1,
2012
Weighted
average
Number of
options exercise price
141,906
P
= 260.72
–
–
17,644
–
(53,683)
272.06
105,867
P
= 211.51
The fair value of stock options granted on April 23, 2012 is estimated on the date of grant using
the Black-Scholes Merton Formula, taking into account the terms and conditions upon which the
options were granted. The expected volatility was determined based on an independent valuation.
The fair value of stock options granted under ESOWN at grant date and the assumptions used to
determine the fair value of the stock options follow:
Number of unsubscribed shares
Fair value of each option
Weighted average share price
Exercise price
Expected volatility
Dividend yield
Interest rate
50,229
P
= 259.97
P
= 434.47
P
= 322.00
41.78%
0.74%
5.59%
Total expense arising from share-based payments recognized by the Group in the consolidated
statement of income amounted to P
= 483.5 million in 2013, P
= 500.6 million in 2012 and
P
= 447.6 million in 2011.
29. Operating Segment Information
For management purposes, the Group is organized into the following business units:
·
Real estate and hotels - planning and development of large-scale fully integrated residential
and commercial communities; development and sale of residential, leisure and commercial
lots and the development and leasing of retail and office space and land in these communities;
construction and sale of residential condominiums and office buildings; development of
industrial and business parks; development and sale of upper middle-income and affordable
housing; strategic land bank management; hotel, cinema and theater operations; and
construction and property management.
·
Financial services and insurance - universal banking operations, including savings and time
deposits in local and foreign currencies; commercial, consumer, mortgage and
agri-business loans; leasing; payment services, including card products, fund transfers,
international trade settlement and remittances from overseas workers; trust and investment
services including portfolio management, unit funds, trust administration and estate planning;
fully integrated bancassurance operations, including life, non-life, pre-need and reinsurance
services; internet banking; on-line stock trading; corporate finance and consulting services;
foreign exchange and securities dealing; and safety deposit facilities.
·
Telecommunications - provider of digital wireless communications services, wireline voice
communication services, consumer broadband services, other wireline communication
services, domestic and international long distance communication or carrier services and
mobile commerce services.
·
Electronics - electronics manufacturing services provider for original equipment manufacturers
in the computing, communications, consumer, automotive, industrial and medical electronics
markets, service provider for test development and systems integration and distribution of
related products and services.
·
Information technology and BPO services - venture capital for technology businesses and
emerging markets; provision of value-added content for wireless services, on-line business-tobusiness and business-to-consumer services; electronic commerce; technology infrastructure
hardware and software sales and technology services; and onshore and offshore outsourcing
services in the research, analytics, legal, electronic discovery, document management,
finance and accounting, IT support, graphics, advertising production, marketing and
communications, human resources, sales, retention, technical support and customer care
areas.
·
Water distribution and wastewater services - contractor to manage, operate, repair,
decommission, and refurbish all fixed and movable assets (except certain retained assets)
required to provide water delivery, sewerage and sanitation including waste and wastewater
management in the East Zone Service Area.
·
Automotive – manufacture, distribution and sale of passenger cars and commercial vehicles.
·
International - investments in overseas property companies and projects.
·
Others - power, transport infrastructure, education, air-charter services, agri-business and
others.
Management monitors the operating results of its business units separately for the purpose of
making decisions about resource allocation and performance assessment. Segment performance
is evaluated based on operating profit or loss and is measured consistently with operating profit or
loss in the consolidated financial statements.
Intersegment transfers or transactions are entered into under the normal commercial terms and
conditions that would also be available to unrelated third parties. Segment revenue, segment
expense and segment results include transfers between operating segments. Those transfers are
eliminated in consolidation.
The following tables regarding operating segments present assets and liabilities as of
December 31, 2013, 2012 and January 1, 2012 and revenue and profit information for each of the
three years in the period ended December 31, 2013 (amounts in millions):
2013
Parent
Company
Income
Sales to external customers
Intersegment
Share of profit of associates and joint
ventures
Interest income
Other income
Total income
Operating expenses
Operating profit
Interest expense and other financing
charges
Other charges
Provision for income tax
Net income
Other information
Segment assets
Investments in associates and joint
ventures
Deferred tax assets
Total assets
Segment liabilities
Deferred tax liabilities
Total liabilities
Segment additions to property, plant
and equipment and investment
properties
Depreciation and amortization
Non-cash expenses other than
depreciation and amortization
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
P
= 127
216
Water
Financial
Distribution and
Real Estate
Services and Telecommunicati
Wastewater
and Hotels Bancassurance
ons
Services
Information
Technology and
Electronics
BPO Services
Automotive
and Others
Intersegment
Eliminations
P
= 482
–
P
= 10,879
162
P
=–
(568)
P
= 136,941
–
36
1
348
11,426
11,362
64
–
(18)
(674)
(1,260)
(665)
(595)
10,091
3,436
8,943
159,411
112,589
46,822
(18)
–
(25)
(P
= 552)
10,511
5,532
6,654
P
= 24,125
P
= 4,512
(P
= 75,296)
P
= 473,346
334
82
P
= 4,928
(P
= 2,309)
(11)
(P
= 2,320)
–
–
(P
= 75,296)
(P
= 9,862)
–
(P
= 9,862)
119,804
6,514
P
= 599,664
(P
= 357,847)
(6,347)
(P
= 364,194)
P
= 77,770
50
P
=–
–
P
=–
–
P
= 14,503
140
P
= 31,661
–
(133)
670
681
1,561
2,641
(1,080)
550
2,114
1,039
81,523
57,795
23,728
8,321
–
–
8,321
–
8,321
1,612
–
–
1,612
–
1,612
294
174
6,621
21,732
7,920
13,812
–
9
134
31,804
31,035
769
(323)
70
391
1,657
1,798
(141)
(266)
416
403
1,035
703
332
3,911
(158)
125
(P
= 4,958)
4,774
–
4,657
P
= 14,297
–
–
–
P
= 8,321
–
–
–
P
= 1,612
1,631
5,257
1,653
P
= 5,271
122
53
195
P
= 399
25
23
20
(P
= 209)
23
339
(12)
(P
= 18)
P
= 112,147
P
= 308,789
P
=–
P
=–
P
= 85,277
P
= 21,240
P
= 6,751
102,349
94
P
= 214,590
(P
= 83,315)
(83)
(P
= 83,398)
9,319
5,485
P
= 323,593
(P
= 211,065)
(1,307)
(P
= 212,372)
–
–
–
P
=–
–
P
=–
–
–
–
P
=–
–
P
=–
4,708
821
P
= 90,806
(P
= 40,646)
(4,759)
(P
= 45,405)
–
29
P
= 21,269
(P
= 12,642)
(138)
(P
= 12,780)
2,504
3
P
= 9,258
(P
= 120)
(2)
(P
= 122)
P
= 10,516
P
= 2,112
(47)
P
= 2,065
P
= 83
P
= 94
P
= 16,035
P
= 3,892
P
=–
P
=–
P
=–
P
=–
P
= 275
P
= 353
=
P 926
P
= 935
P
= 319
P
= 162
P
= 1,076
P
=1
P
= 18
P
= 47
P
= 275
P
=4
P
=–
P
=–
P
= 6,700
P
= 956
P
=3
P
= 1190
P
= 113
P
=–
P
=–
P
=–
P
=–
P
=–
P
=–
P
=–
P
= 275
P
= 2,495
(P
= 3,700)
= 926
P
P
= 1,015
P
= 956
P
= 319
P
= 234
P
=3
P
= 1,076
P
=2
P
= 1,190
P
= 18
P
= 36
P
= 113
P
= 4,067
P
= 714
P
=–
P
= 83
P
= 94
P
= 275
P
= 11,299
P
= 3,898
(P
= 2480)
P
= 1,519
–
International
P
= 9,926
590
43
18
41
(P
= 38)
P
= 4,067
(P
= 100)
Consolidated
P
= 22,799
P
= 5,384
P
= 9,241
P
= 18,063
P
= 8,488
(P
= 3,643)
2012 (As restated)
Income
Sales to external customers
Intersegment
Share of profit of associates and joint
ventures
Interest income
Other income
Total income
Operating expenses
Operating profit
Interest expense and other financing
charges
Other charges
Provision for income tax (benefit
from)
Net income
Other information
Segment assets
Investments in associates and joint
ventures
Deferred tax assets
Total assets
Segment liabilities
Deferred tax liabilities
Total liabilities
Segment additions to property, plant
and equipment and investment
properties
Depreciation and amortization
Non-cash expenses other than
depreciation and amortization
Water Distribution
Financial
Services and Telecommunicatio and Wastewater
Bancassurance
ns
Services
Electronics
Information
Technology and
BPO Services
International
Automotive
and Others
P
= 13,962
158
P
= 27,979
18
P
= 1,273
17
P
= 314
–
P
= 10,202
190
P
=–
(556)
P
= 109,889
1
2,144
–
–
2,144
–
2,144
206
237
6,672
21,235
7,349
13,886
–
25
31
28,053
27,670
383
17
10
277
10,696
10,517
179
–
(6)
(591)
(1,153)
(829)
(324)
7,682
4,632
8,367
130,571
91,048
39,523
–
–
–
–
1,371
6,118
140
4
27
0
(6)
–
8,155
6,893
3,471
P
= 11,070
–
P
= 5,633
–
P
= 2,144
1,385
P
= 5,012
165
P
= 74
46
P
= 106
3
(P
= 321)
4,976
P
= 19,499
P
= 128,017
P
= 245,680
P
=–
P
=–
P
= 82,810
P
= 18,570
P
= 2,709
P
= 8,280
P
= 3,339
(P
= 85,987)
P
= 403,418
83,801
134
P
= 211,952
P
= 93,877
85
P
= 93,962
8,313
3,179
P
= 257,172
P
= 157,945
1,044
P
= 158,989
–
–
P
=–
P
=–
–
P
=–
–
–
P
=–
P
=–
–
P
=–
3,645
830
P
= 87,285
P
= 40,692
4,897
P
= 45,589
–
37
P
= 18,607
P
= 10,706
182
P
= 10,888
5,773
14
P
= 8,496
P
= 741
–
P
= 741
1,109
–
P
= 9,389
P
= 3,044
43
P
= 3,087
298
55
P
= 3,692
P
= 1,574
4
P
= 1,578
–
298
(P
= 85,689)
(P
= 10,371)
–
(P
= 10,371)
102,939
4,547
P
= 510,904
P
= 298,208
6,255
P
= 304,463
P
= 689
P
= 92
P
= 20,142
P
= 2,715
P
=–
P
=–
P
=–
P
=–
P
= 615
P
= 2,320
P
= 689
P
= 1,127
P
= 79
P
= 260
P
=–
P
=1
P
= 75
P
= 36
P
= 82
P
= 313
P
=–
P
=–
P
= 83
P
= 15
P
= 139
P
= 319
P
=–
Parent
Company
Real Estate
and Hotels
P
= 230
107
P
= 55,929
67
P
=–
–
P
=–
–
(58)
858
1,070
2,207
2,513
(306)
536
3,130
408
60,070
41612
18,458
5,633
–
–
5,633
–
5,633
2,979
44
3,604
313
153
(P
= 3,482)
(574)
73
95
884
1,410
(526)
(222)
305
405
802
806
(4)
18
139
22
275
17
(P
= 700)
(264)
(P
= 37)
Intersegment
Eliminations
P
=–
P
= 638
(P
= 7,121)
Consolidated
P
= 22,289
P
= 7,189
(P
= 6,170)
2011 (As restated)
Parent
Company
Income
Sales to external customers
Intersegment
Share of profit (loss) of associates
and joint ventures
Interest income
Other income
Total income
Operating expenses
Operating profit
Interest and other financing charges
Other charges
Provision for income tax
Net income (loss)
Other information
Segment assets
Investments in associates and joint
ventures
Deferred tax assets
Total assets
Segment liabilities
Deferred tax liabilities
Total liabilities
Segment additions to property, plant
and equipment and investment
properties
Depreciation and amortization
Non-cash expenses other than
depreciation and amortization
P
= 30
(94)
Real Estate
and Hotels
P
=–
–
P
=–
–
389
1,496
605
43,940
33,822
10,118
2,126
143
3,007
P
= 4,842
4,288
–
–
4,288
–
4,288
–
–
–
P
= 4,288
2,873
–
–
2,873
–
2,873
–
–
–
P
= 2,873
P
= 105,052
P
= 158,404
P
=–
56,410
91
P
= 161,553
P
= 56,347
–
P
= 56,347
8,008
2,142
P
= 168,554
P
= 89,485
762
P
= 90,247
P
= 89
P
= 90
P
= 21
33
1,168
501
1,638
1,679
(41)
2,962
(89)
193
(P
= 3,107)
P
= 43,343
(1,893)
Water Distribution
Financial
Services and Telecommunicatio and Wastewater
Bancassurance
ns
Services
P
= 11,746
(124)
Electronics
Information
Technology and
BPO Services
International
Automotive
and Others
Intersegment
Eliminations
Consolidated
P
= 24,845
–
P
= 1,123
(5)
P
= 186
–
P
= 9,174
(140)
P
=–
2,256
P
= 90,447
–
–
575
7,273
19,470
6,198
13,272
1,274
7,548
790
P
= 3,660
–
14
1,093
25,952
25,401
551
109
149
201
P
= 92
(596)
49
89
660
1,340
(680)
11
1
33
(P
= 725)
98
12
468
764
419
345
30
177
30
P
= 108
(39)
6
256
9,257
9,425
(168)
26
5
43
(P
= 242)
–
(3)
(267)
1,986
(2,258)
4,244
(3)
–
(70)
P
= 4,318
7,046
3,317
10,018
110,828
76,026
34,802
6,535
7,934
4,227
P
= 16,106
P
=–
P
= 79,995
P
= 19,267
P
= 3,287
P
= 4,905
P
= 2,964
(P
= 82,985)
P
= 290,889
–
–
–
P
=–
–
P
=–
–
–
–
P
=–
–
P
=–
1,789
760
P
= 82,544
P
= 39,252
5,109
P
= 44,361
–
24
P
= 19,291
P
= 11,015
204
P
= 11,219
5,943
–
P
= 9,230
P
= 330
9
P
= 339
2,352
–
P
= 7,257
P
= 968
43
P
= 1,011
283
46
P
= 3,293
P
= 1,318
10
P
= 1,328
–
302
(P
= 82,683)
(P
= 10,282)
–
(P
= 10,282)
74,785
3,365
P
= 369,039
P
= 188,433
6,137
P
= 194,570
P
= 8,907
P
= 2,304
P
=–
P
=–
P
=–
P
=–
P
= 581
P
= 1,890
P
= 2,346
P
= 1,116
P
= 69
P
= 81
P
=2
P
=2
P
= 49
P
= 1,117
P
= 143
P
=–
P
=–
P
= 331
P
= 149
P
=1
P
= 177
P
=5
P
=–
P
=–
(P
= 5,483)
P
= 12,043
P
= 6,600
(P
= 4,656)
Geographical Segments
Philippines
Japan
USA
Europe
Others (mostly
Asia)
2013
P
= 128,554
2,944
8,927
14,759
Revenue
2012
P
= 111,122
241
7,243
8,679
2011
P
= 87,600
394
6,465
12,292
2013
P
= 577,433
9
410
6,872
4,228
P
= 159,412
3,286
P
= 130,571
4,077
P
= 110,828
14,940
P
= 599,664
Total Assets
2012
2011
P
= 500,806 P
= 352,448
37
39
347
1,351
5,233
4,979
4,481
P
= 510,904
10,222
P
= 369,039
Investment Properties and
Property, Plant and
Equipment Additions
2013
2012
2011
P
= 16,473
P
= 22,223
P
= 10,500
–
3
63
33
9
519
–
1,542
267
P
= 17,322
32
P
= 22,288
297
P
= 12,351
30. Leases
Finance leases - as lessee
The Group conducts a portion of its operations from leased facilitites, which includes various
equipment. These leases are classified as finance leases with a lease term of 3 to 10 years.
IMI Group
On June 30, 2009, IMI entered into a lease contract with IBM for the lease of servers for a threeyear period starting on the same date. IMI has a bargain option to purchase the servers after the
lease term at P
= 50.09. The lease provides for monthly rental payments of US$17,141.
On March 31, 2010, IMI entered into another lease contract with IBM for the lease of additional
server for a one-year period starting on May 1, 2010. IMI has a bargain option to purchase the
servers after the lease term at P
= 50.09. The lease provides rental payments of $1,013,729 each in
the first and last months of the lease. At the end of the lease term, the Parent Company exercised
its bargain option to purchase the servers at a nominal of P
= 45.45.
IMI BG has various finance lease contracts with its machinery and production equipment with
terms of 3 to 5 years and final repayment dates between 2012 and 2016. The leases are subject
to interests of 3-month Euribor plus 2.00% to 4.00%.
IMI CZ has various finance lease contracts related to its machinery and production equipment and
transportation equipment with terms of 5 to 10 years and final repayment dates between 2013 and
2016. The leases of machinery and equipment are subject to interest rates ranging from 5.90% to
7.41% per annum. The lease of transportation equipment pertaining to a car is subject to interest
of 12.26% per annum.
AIVPL Group
The Group leases certain office and computer equipment and office unit with lease terms of three
years and seven years, respectively. Outstanding long-term finance lease obligations represent
contracts entered by the Group bearing interest at approximately 1.6% p.a. to 11.50% p.a. as of
December 31, 2013 and 2012. The carrying values of computer equipment held under finance
lease where the Group is the lessee amounted to $0.70 million and $0.60 million as of
December 31, 2013 and 2012, respectively.
Future minimum lease payments under the finance leases together with the present value of the
net minimum lease payments follow:
December 31
2013
Minimum
Payments
Within one year
After one year but not
more than five
years
Total minimum lease
payments
Less amounts
representing
finance charges
Present value of
minimum lease
payments
P
= 60,764
January 1
2012
2012
Present
values
Minimum Present values
of payments
Payments
of payments
(In Thousands)
P
= 55,177
P
= 44,021
P
= 38,760
Minimum Present values
payments
of payments
P
= 66,855
P
= 67,050
142,138
134,151
36,480
36,254
15,539
17,404
202,902
189,328
80,501
75,014
82,394
84,454
684
–
1,184
–
2,592
–
P
= 202,218
P
= 189,328
P
= 79,317
P
= 75,014
P
= 79,802
P
= 84,454
Operating lease commitments - as lessee
The Group entered into lease agreements with third parties covering real estate properties. These
leases generally provide for either (a) fixed monthly rent, or (b) minimum rent or a certain
percentage of gross revenue, whichever is higher.
ALI Group
On January 28, 2011, the Board of Regents of the University of the Philippines awarded to ALI the
P
= 4.0 billion development of a 7.4-hectare lot at the University of the Philippines’ Diliman East
Campus, also known as the UP Integrated School, along Katipunan Avenue, Quezon City. ALI
signed a 25-year lease contract for the property last June 22, 2011, with an option to renew for
another 25 years subject to mutual agreement of the parties. The lease payments shall commence
as soon as sales are registered by the merchants.
A retail establishment with about 63,000 square meters of gross leasable area and an office/BPO
building about 8,000 square meters of gross leasable area shall be constructed on the property.
For the year ended December 31, 2012, lease payments have been capitalized as construction
was still in progress. For the year ended December 31, 2013, Phase 1a (with gross leasable area
of 5,000 sqm.) of the retail establishment has commenced operations on September 30, 2013.
IMI Group
IMI Japan
On February 15, 2010, IMI Japan entered into a two-year contract with Kabushikigaisha Tokyu
Community for lease of office premises located in Nagoya whereby it is committed to pay a
monthly rental of JPY245,490, inclusive of tax and monthly maintenance fee of JPY35,070,
inclusive of tax. The lease agreement provides for automatic renewal of the lease contract unless
prior notice of termination is given to the lessor. On February 15, 2012, IMI Japan renewed its
lease contract for another two (2) years.
IMI USA
On July 17, 2008, IMI USA entered into a seven-year contract with Roy G.G. Harris and
Patricia S. Harris for lease of office premises commencing on August 2008 up to November 2014.
The lease contains provisions including, but not limited to, an escalation rate of 3% per year and
early termination penalties. The lease provides for monthly rental payments of US$13,464 during
the first year of the lease term.
On January 28, 2010, IMI USA entered into a six-year lease agreement with Fremont Ventures,
LLC commencing two months from issuance of building permit or maximum of 3 months if
Fremont caused the delay. The base monthly rental rate is US$3,687 on the first 6 months with
escalation every 11 months as listed in the lease contract. Average monthly rental rate amounts
to US$9,523.
IMI Singapore and STEL
IMI Singapore and STEL Group have various operating lease agreements in respect of office
premises and land. These noncancellable leases have remaining noncancellable lease terms of
between 1 to 50 years commencing on January 1, 1992 to April 1, 2011 and ending on
February 28, 2010 to April 30, 2050. Most leases contain renewable options. There are no
restrictions placed upon the lessee by entering into these leases.
PSi
PSi has a fifteen-year operating lease agreement with FTI for its plant facilities, office spaces, and
other facilities, with Lot Nos. 92-A and 92-B commencing on August 15, 2004 up to August 14,
2019. The operating lease agreement with FTI provides for a 5% increase in rental per year
starting on the second year and annually thereafter until the end of the lease term.
In 2012, PSi pre-terminated the lease contract of Lot 92-B and transferred its legacy
manufacturing operations and offices to Calamba, Laguna. Accordingly, as of December 31,
2012, the balance of the rent expense computed on a straight-line basis over the amount
computed based on the operating lease agreement for this lot included under “Accrued expenses rental and utilities” in the consolidated statement of financial position amounting to $0.44 million
was reversed and recorded as part of “Rental and utilities” account.
Moreover, PSi leases its plant facilities, office spaces and other facilities in Calamba, Laguna from
Centereach Resources, Inc. (CRI), an unrelated entity. The contract commenced in April 2011
and expired in March 2013. In 2012, PSi accepted the Letter of Offer for the renewal of the lease
until March 2018.
In 2012, the contract of lease for the second facility was executed between CRI and PSi for
office and warehouse use. The contract commenced on October 13, 2012 and will expire on
October 12, 2015.
The lease agreement with CRI provides for increase in rental at varying rates over the term of the
lease and a penalty interest rate of 3% per month using simple interest.
These operating lease agreements of IMI Group include clauses to enable upward revision of the
rental charges on agreed dates.
The aggregate rent expense of the Group included under “Rental and utilities” account under
“General and administrative expenses” in the consolidated statements of income, recognized on
these operating lease agreements amounted to $0.16 million in 2013, $0.54 million in 2012 and
$1.0 million in 2011. Deposits made under these operating lease agreements are intended to be
applied against the remaining lease payments.
Future minimum rentals payable under noncancellable operating leases of lessee subsidiaries are
as follows:
December 31
January 1,
2013
2012
2012
(In Thousands)
P
= 848,509
Within one year
P
= 521,776
P
= 352,261
After one year but not more than
2,514,219
five years
1,313,669
1,165,836
11,810,476
More than five years
9,233,576
8,779,995
P
= 15,173,204
P
= 11,069,021
P
= 10,298,092
Operating leases - as lessor
Certain subsidiaries have lease agreements with third parties covering their investment properties
portfolio. These leases generally provide for either (a) fixed monthly rent, or (b) minimum rent or a
certain percentage of gross revenue, whichever is higher.
IMI Group
On August 1, 2009, IMI subleased the unused portion of its two leased office condominium units
from Cyberzone Properties, Inc., with the consent of the latter. 102.5 square meters and
32.8 square meters were leased to Stratpoint Technologies Inc. and Xepto Computing Inc.,
respectively, at the rate of P
= 475.0 per square meter in the first month and P
= 502.3 per square
meter in the subsequent months. The lease contract is for a term of one (1) year, renewable upon
mutual agreement of both parties.
On June 8, 2010, an extension of the lease contract was executed by IMI and the lessees for a
period of one month from August 1 to 31, 2010. The monthly rental has been amended to P
= 543.8
per square meter. In addition, the lessees have the option to renew the extended lease under the
same terms and conditions, for a month-to-month tenancy basis for 12 months until August 31,
2011. The renewal option was exercised by the lessees for which the term of the lease has been
extended to March 15, 2011. The lease income amounted to nil in 2013 and 2012, and
US$1,899.0 in 2011, is recognized under “Others” account under “Other income” in the
consolidated statements of income.
On January 28, 2011, a notice was given to ALI for the P
= 4.0 billion development of a 7.4-hectare
lot at the University of the Philippines’ Diliman East Campus, also known as the UP Integrated
School, along Katipunan Avenue, Quezon City. ALI signed a 25-year lease contract for the
property last June 22, 2011, with an option to renew for another 25 years by mutual agreement.
The rental commencement date will be on the date when the first paying customer registers sale
in any of the outlets in the building.
STEL Group
STEL Group has entered into leases on their leasehold building. These non-cancellable leases
have remaining lease terms of between one (1) and five (5) years. The lease income of
recognized by STEL amounted to $1.08 million in 2013, $0.57 million in 2012, and $7.32 thousand
in 2011.
Future minimum rentals receivable under noncancellable operating leases of the Group are as
follows:
Within one year
After one year but not more than five
years
More than five years
December 31
2013
2012
(In Thousands)
P
= 3,240,947
P
= 2,657,523
7,494,768
3,160,333
P
= 13,896,048
7,184,441
3,791,740
P
= 13,633,704
January 1,
2012
P
= 2,439,904
5,841,902
2,274,202
P
= 10,556,008
Contract employees agreement
The Group entered into an agreement with a professional employer organization to provide certain
services related to the administration of Group employment matters. The agreement remains in
force and effect until either party gives 30 days advance written notice of termination.
31. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party or exercise significant influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are subject to common control or
common significant influence which include affiliates. Related parties may be individuals or
corporate entities.
In the ordinary course of business, the Group transacts with its related parties. The transactions
and balances of accounts with related parties follow:
a. Transactions with BPI, an associate
i.
As of December 31, 2013, 2012 and January 1, 2012, the Group maintains current and
savings account, money market placements and other short-term investments with BPI
broken down as follows (amounts in thousands):
December 31
2013
2012
P
= 14,403,016
P
= 2,584,779
24,141,865
6,921,085
–
1,039,704
12,794,654
–
Cash in bank
Cash equivalents
Short-term investments
Financial assets at FVPL
January 1,
2012
P
= 4,004,411
29,085,143
1,266,070
–
From the Group’s placements and short-term investments with BPI, the Group has
accrued interest receivable amounting to P
= 8.1 million, 72.1 million and P
= 40.0 million as of
December 31, 2013, 2012 and January 1, 2012, respectively. Interest income earned
amounted to P
= 648.7 million in 2013, P
= 1,166.7 million in 2012 and P
= 1,247.1 million in
2011.
ii.
The Group also has short-term and long-term debt payable to BPI amounting to
P
= 23.2 billion, P
= 15.0 billion and P
= 7.5 billion as of December 31, 2013, 2012 and January 1,
2012, respectively. These loans and debt payables are interest bearing with varying
rates, have various maturities starting 2013 and varying schedules of payments for
interest. The Group has accrued interest payable pertaining to the outstanding loans
amounting to P
= 32.2 million, P
= 39.7 million and P
= 5.7 million as of December 31, 2013, 2012
and January 1, 2012, respectively. Interest expense incurred from the debt amounted to
P
= 145.2 million in 2013, P
= 131.0.9 million in 2012 and P
= 165.5 million in 2011.
b. Outstanding balances of related party transaction follow (amounts in thousands):
Receivable
December 31
2013
2012
Associates:
BPI
Stream
ASTI
First Gen Northern Energy
(FGNEC)
Naraya Development Co.
Ltd.
Interest in limited
partnerships of AINA
BLC
FGU
Others
(Forward)
January 1,
2012
Payable
December 31
2013
2012
January 1,
2012
P
= 276,659
246,488
15,741
P
= 333,189
323,403
11,552
P
= 93,459
–
16,120
P
= 104,911
–
90
P
= 166,346
–
–
P
= 5,961
–
153
5,531
5,531
5,531
–
–
–
4,877
–
1,293
–
–
–
–
–
–
–
549,296
389,368
2
–
–
1,063,045
151,681
50,522
–
–
318,606
–
212,696
–
–
317,697
–
212,696
349
11,861
391,252
–
–
–
139
6,253
Receivable
December 31
2013
2012
Joint ventures:
Integreon
Globe
Asiacom
BPI Globe Banko
Northwind Power
Development Corp.
Other related parties:
Columbus Holdings, Inc.
(Columbus)
AG Holdings Ltd.
Fort Bonifacio Development
Corporation (FBDC)
Ayala Port, Inc.
Honda Cars Philippines,
Inc.(HCP)
GN Power Kauswagan
Isuzu Philippines Corporation
(IPC)
Lagoon Development
Corporation
Fort Bonifacio Holdings
Corp.
myAyala.com, Inc.
Talentworks Asia, Inc.
Glory High
Bonifacio Hotel Ventures,
Inc.
Others
i.
January 1,
2012
Payable
December 31
2013
2012
January 1,
2012
P
= 488,221
141,939
–
–
P
= 299,697
101,046
–
–
P
= 475,751
66,475
–
–
P
=–
2,005
13,581
–
P
=–
953
38,570
29,505
P
= 356
123
94
–
–
630,160
–
400,743
45,017
587,243
–
15,586
–
69,028
–
573
888,815
378,932
888,810
–
888,810
–
1,156,308
–
1,156,308
–
988,808
–
274,645
90,951
71,833
–
271,096
–
2,154,003
–
34
–
–
–
72,650
69,936
–
–
2,428
–
170,298
–
119,961
–
34,682
–
25,452
–
33,787
48,695
271,630
183,371
5,964
–
–
–
–
–
3,085
2,098
2,020
–
–
–
–
–
–
–
–
420,013
–
–
–
–
–
–
–
–
–
–
–
–
–
151,468
1,966,016
P
= 3,145,472
–
164,426
1,125,069
P
= 2,588,857
4,067
1,530
1,621,731
P
= 2,527,580
–
244,422
3,773,726
P
= 4,107,009
–
89,099
1,637,032
P
= 2,097,312
–
12,919
1,219,780
P
= 1,226,606
Receivables from AINA’s interest in limited partnerships are nontrade in nature and bear
interests ranging from 10% to 15% and will mature on May 31, 2013. Interest income
earned amounted to P
= 52.7 million, P
= 25.6 million and P
= 9.5 million in 2013, 2012 and
2011, respectively.
ii. Receivable from BPI includes trade receivables on vehicles sold by AAHC and accrued
interest receivables on short-term placements by the Group.
iii. Receivable from Stream represents a convertible promissory note entered into on
April 27, 2012 for the principal sum of US$4.7 million, plus interest at the rate of 10% per
annum maturing on April 29, 2013. To the extent the outstanding balance is not repaid in
full on or prior to the maturity date, NewBridge may elect at any time after the maturity
date, upon delivery of conversion notice to SGS Holdings LLC, to convert the note into a
number of units of membership interests. On April 19, 2013, Stream and NewBridge
amended the maturity date of the loan to April 29, 2014. Interest income earned for 2013
and 2012 amounted to P
= 21.7 million and P
= 11.9 million, respectively.
iv. Receivables from ASTI and FGNEC are advances made for working capital requirements
which are non-interest bearing and demandable.
v. Receivable from Integreon has an interest rate of 12% in 2013, 14% in 2012 and 15% in
2011 which will mature on February 16, 2014. Interest income earned amounted to
P
= 37.2 million, P
= 54.6 million and P
= 44.5 million in 2013, 2012 and 2011, respectively.
vi. Receivable from GNPK by ACEHI represents an advance for development costs, noninterest bearing and shall be paid in full within 30 days from financial closing of the
project. GNPL is a project company of ACEHI and Power Partners Ltd. Co. for the
development of 3X135MW coal-fired power plant in Kauswagan Lanao del Norte
vii. Receivable from Columbus represents non-interest bearing advance for future acquisition
of shares in BLC.
viii. Receivable from FBDC largely pertains to management fees which are included under
“Other income.”
ix.
Other outstanding balances of receivable from related parties at year-end pertain mostly
to advances and reimbursement of operating expenses. These are unsecured, interest
free, will be settled in cash and are due and demandable.
x. Payable to Columbus and BLC represent non-interest bearing advances for stock
redemption.
xi. Payable to IPC and HCP consist of purchased parts and accessories and vehicles that
are trade in nature, interest-free, unsecured and are payable within 15 to 30 days.
xii. Payable to BPI includes interest payable on subsidiaries’ borrowings payable at various
payments terms like monthly or quarterly and insurance premiums payable which are due
in 30-60 days.
xiii. The other outstanding balances of payable to related parties at year-end are unsecured,
interest-free, will be settled in cash and are due and demandable. Allowance for doubtful
accounts on amounts due from related parties amounted to P
= 145.6 million, P
= 133.0 million
and P
= 116.0 million as of December 31, 2013, 2012 and January 1, 2012, respectively.
Provision for doubtful accounts amounted to P
= 0.8 million, P
= 15.9 million and P
= 16.5 million
in 2013, 2012 and 2011, respectively.
c.
Receivables from officers and employees pertain to housing, car, salary and other loans
granted to the Group’s officers and employees which are collectible through salary deduction,
are interest bearing ranging from 6.0% to 13.5% per annum and have various maturity dates
ranging from 2013 to 2026.
d. The Group has debt investments with its associates and joint ventures which are included in
“Investment in bonds and other securities” account in the consolidated statements of financial
position. These debt instruments earn interest ranging from 6.0% to 8.75% in 2013 and 2012
with maturity dates up to 5 years. The fair values of these investments are as follows
(amounts in thousands):
December 31
2013
2012
Associate:
BPI
Joint venture:
Globe
January 1,
2012
P
=–
P
= 36,597
P
= 130,074
–
P
=–
–
P
= 36,597
101,401
P
= 231,475
e. The fair value of the Group’s total investment in the Fund amounted P
= 12.8 billion and
P
= 51.4 million, as of December 31, 2013 and January 1, 2012, respectively. During 2012, the
Group disposed all of its UITF.
f.
Revenue and expenses from related parties follow:
Associates:
BPI
Stream Global
Services
Ayala System
Technology
PPI
(Forward)
2013
Revenue
2012
2013
Expenses
2012
2011
P
= 702,699
P
= 1,166,696
P
= 1,247,133
P
= 143,582
P
= 131,004
P
= 165,529
21,715
11,859
–
–
–
245
826
417
725,657
1,101
339
1,179,995
2,439
339
1,249,911
–
–
143,582
–
–
131,004
1,889
–
167,663
2011
(In Thousands)
Jointly controlled
entities:
Globe Telecom
Integreon
Asiacom Philippines,
Inc.
Northwind Power
Development
Corp.
BPI Globe Banko
Other related
parties:
Fort Bonifacio
Development Corp.
6750 Ayala Avenue
Lagoon Development
Corporation
San Lazaro BPO
Complex
Bonifacio Arts
Foundation Inc.
Lamcor
Honda Cars Makati,
Inc.
Philippine Family
Mart CV
Global Bridge
Resources, Inc.
MD Distripark
AyalaLife FGU
Sonoma
Others
2013
Revenue
2012
2013
Expenses
2012
2011
P
= 71,913
37,226
P
= 16,642
54,682
P
= 88,860
44,456
P
= 115,809
–
P
= 32,071
–
P
= 75,236
–
1,154
6,998
6,190
–
–
–
–
–
110,293
4,410
222
82,954
2,728
92
142,326
–
–
115,809
–
–
32,071
–
–
75,236
221,483
46,511
113,471
–
–
–
129,175
–
16,959
–
6,768
–
41,143
–
–
–
–
1,817
22,893
–
–
–
–
–
2,126
708
–
679
–
650
4,762
–
–
–
–
–
428
–
–
–
–
–
383
–
–
–
–
–
115
132
–
–
–
–
8,464
122,729
P
= 1,385,678
704
260
1,746
P
= 1,393,983
23,589
157,526
P
= 416,917
–
3,575
20,534
P
= 183,609
–
10,781
19,366
P
= 262,265
221
184
155
92
215
336,542
P
= 1,172,492
2011
(In Thousands)
Revenue recognized from related parties includes:
i.
Leasing and developmental projects services rendered by ALI group.
ii. Water and sewerage services rendered by MWC.
iii. Automotive sales and repair services rendered by AAHC group.
iv. Interest income from cash deposits and money market placements in BPI.
Expenses recognized from related parties include:
i.
Interest expense from short-term and long-term debt payable to BPI.
ii. Purchases of communications software and billings for cellphone charges and WiFi
connections with Globe.
iii. Building rental, leased lines, internet connections and ATM connections with Innove,
subsidiary of Globe.
g. Compensation of key management personnel by benefit type follows:
2013
Short-term employee benefits
Post-employment benefits (Note 27)
Share-based payments (Note 28)
P
= 1,242,543
139,933
63,571
P
= 1,446,047
2012
(In Thousands)
P
= 1,401,840
77,177
158,131
P
= 1,637,148
2011
P
= 1,222,511
57,460
195,154
P
= 1,475,125
The Parent Company’s total compensation of key management personnel amounted to
P
= 348.6 million, P
= 329.3 million and P
= 434.1 million in 2013, 2012 and 2011, respectively.
32. Financial Instruments
Financial Risk Management
General
Risk is inherent in our business; thus, the effective management of risk is vital to the strategic and
sustained growth of the Company and the Ayala Group.
The Ayala Group adopts a formal risk management process as an essential element of sound
corporate governance and an integral part of good management practice. It is designed primarily
to have a structured and disciplined approach of aligning strategy, processes, people, technology,
and knowledge with the purpose of evaluating and managing the uncertainties the Group faces as
it creates value for all stakeholders.
Enterprise Risk Management (ERM) policies and programs are in place, in accordance with an
internationally recognized standards and framework. These are periodically reviewed and
improved to adapt to changes in the business and operating environment, and be responsive to
emerging and changing risks. The risk management framework encompasses the identification
and assessment of risks drivers;measurement of risks impact; formulation of risk management
strategies; assessment of risk management capabilities required to implement risk management
strategies; design and implementation of risk management capability-building initiatives; and
monitoring and evaluating the effectiveness of risk mitigation strategies and management
performance. And as a continuous process, areas and opportunities for improvement in the risk
management process are identified. Also included in the continuous improvement program, the
Group aims to strengthen its ERM practices and benchmark with industry best practices to ensure
they remain relevant, effective, and a key enabler in the achievement of business strategies and
objectives.
Our Chief Risk Officer (CRO) is the ultimate champion of enterprise risk management of the
Group and oversees the entire risk management function. The Group Risk Management Unit
provides support to the CRO and drives the implementation and continuous improvement of the
risk management process. The Unit also provides oversight and assistance to the Ayala group of
companies’ risk management functions.
The Audit and Risk Committee provides oversight to the risk management process in compliance
with the Audit and Risk Committee Charter. The CRO and the Group Risk Management Unit
submit risk management reports to the committee on a quarterly basis, focusing on the
implementation of risk management strategies and action plans for the identified top risks of the
Ayala group, any emerging risks, and developments in risk management. The CRO and the Group
Risk Management Unit report the same to the Ayala Corp and Ayala Group Mancom at least twice
a year.
The Board monitors the effectiveness of risk management through the regular updates on
strategic and operational risks facing the Group from management and reports from the Audit and
Risk Committee. The company’s internal auditors monitor the compliance with risk management
policies to ensure that an effective control environment exists within the entire Ayala group.
The Ayala Group continues to monitor and manage its financial risk exposures in accordance with
Board approved policies. The succeeding discussion focuses on Ayala Group’s financial risk
management.
Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise financial assets at FVPL, AFS financial
assets, bank loans, corporate notes and bonds. The financial debt instruments were issued
primarily to raise financing for the Group’s operations. The Group has various financial assets
such as cash and cash equivalents, short-term investments, accounts and notes receivables and
accounts payable and accrued expenses which arise directly from its operations.
The Group’s main risks arising from the use of financial instruments are interest rate risk, foreign
exchange risk, price risk, liquidity risk, and credit risk. The Group also enters into derivative
transactions, the purpose of which is to manage the currency risks arising from its financial
instruments.
The Group’s risk management policies relevant to financial risks are summarized below:
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to the
Company’s and its subsidiaries’ long-term debt obligations. The Group’s policy is to manage its
interest cost using a mix of fixed and variable rate debt.
The following table demonstrates the sensitivity of the Group’s profit before tax and equity to a
reasonably possible change in interest rates as of December 31, 2013, 2012 and January 1, 2012,
with all variables held constant, (through the impact on floating rate borrowings and changes in fair
value of AFS financial assets).
Fair value interest rate risk
Effect on equity
December 31
2013
2012
(In Thousands)
(P
= 1,148)
(P
= 15,983)
1,150
6,752
Change in basis points
AFS financial assets
+100
-100
January 1,
2012
(P
= 25,800)
27,359
Cash flow interest rate risk
December
2013
+100 basis
points
Parent Company - floating rate
borrowings
Subsidiaries - floating rate
borrowings
2012
Effect on profit before tax
Change in basis points
-100 basis +100 basis
-100 basis
points
points
Points
(In Thousands)
January 1,
2012
+100 basis
points
-100 basis
points
(P
= 58,481)
P
= 57,841
(P
= 53,317)
P
= 53,317
(P
= 48,563)
P
= 48,563
(466,560)
(P
= 525,041)
466,560
P
= 524,401
(448,452)
(P
= 501,769)
448,452
P
= 501,769
(266,572)
(P
= 315,135)
266,572
P
= 315,135
There is no other impact on the Group’s equity other than those already affecting the net income.
The terms and maturity profile of the interest-bearing financial assets and liabilities, together with its corresponding nominal amounts and carrying values (in thousands),
are shown in the following table:
December 31, 2013
Rate Fixing
Period
Nominal
Amount
< 1 year
1 to 5 years
> 5 years
Carrying Value
Various
Various
P
= 65,643,383
119,345
P
= 65,643,383
119,345
P
=–
–
P
=–
–
P
= 65,643,383
119,345
Various
Various
18,264,029
103,301
7,423,796
103,301
8,885,742
–
254,689
–
16,564,227
103,301
P
= 84,130,058
P
= 73,289,825
P
= 8,885,742
P
= 254,689
P
= 82,430,256
5 years
7 years
10 years
15 years
P
= 2,820,000
21,455,000
11,491,667
10,000,000
P
= 2,816,470
1,453,368
1,667
–
P
=–
9,943,541
1,490,000
–
P
=–
9,912,247
9,921,805
9,909,917
P
= 2,816,470
21,309,156
11,413,472
9,909,917
3 months
13,250,000
39,649
4,242,785
8,907,223
13,189,657
Ranging from 1.20% to 8.00%
Ranging from 1.73% to 2.49%
Monthly, quarterly
Monthly, quarterly
12,114,451
3,696,834
12,114,451
3,696,834
–
–
–
–
12,114,451
3,696,834
Fixed at 2.10% to 10.21%
3,4,5,7, 10 and 15
years
89,282,857
2,980,552
29,453,703
56,500,262
88,934,517
3 months,
semiannual
42,443,365
4,649,230
32,698,580
4,948,863
42,296,673
P
= 206,554,174
P
= 27,752,221
P
= 77,828,609
P
= 100,100,317
P
= 205,681,147
Interest terms (p.a.)
Group
Cash and cash equivalents
Short-term investmentsinvestments
Accounts and notes receivable
AFS financial asset Quoted debt investments
Fixed at the date of investment
Fixed at the date of investment or
revaluation cut-off
Fixed at the date of sale or transaction
Fixed at the date of investment or
revaluation cut-off
Company
Long-term debt
Fixed
Fixed
Fixed
Fixed
Fixed
at 7.45%
at 5.45% to 7.20%
at 6.75% to 6.80%
at 6.88%
Floating
Variable at 0.30% over 6-month PDSTR1; 0.75% to 1% over 3-month PDST
R2 or 0% to 0.25% over BSP RRP
Subsidiaries
Short-term debt
Long-term debt
Fixed
Floating
Variable at Libor+0.92% to 4.73%
December 31, 2012
Rate Fixing
Period
Nominal
Amount
< 1 year
1 to 5 years
> 5 years
Carrying Value
Various
Various
P
= 80,280,111
296,503
P
= 80,280,111
296,503
P
=–
–
P
=–
–
P
= 80,280,111
296,503
Various
Various
12,155,639
100,000
4,865,503
49,384
5,823,781
50,117
1,216,872
–
11,906,156
99,501
Various
225,452
92,799
51,765
91,847
236,411
P
= 93,057,705
P
= 85,584,300
P
= 5,925,663
P
= 1,308,719
P
= 92,818,682
5 years
7 years
10 years
15 years
P
= 2,865,000
22,462,500
11,493,333
10,000,000
P
= 39,647
5,539
350
–
P
= 2,816,443
12,377,081
6,638
–
P
=–
9,900,013
11,392,442
9,907,641
P
= 2,856,090
22,282,633
11,399,430
9,907,641
3 months
13,220,000
6,206,531
2,045,092
4,929,515
13,181,138
Ranging from 1.21% to 8.00%
Ranging from 1.05% to 4.13%
Monthly, quarterly
Monthly, quarterly
8,462,714
3,880,757
8,462,714
3,880,757
–
–
–
–
8,462,714
3,880,757
Fixed at 2.48% to 13.50%
3,4,5,7, 10 and 15
years
60,530,930
8,635,837
20,187,517
31,415,410
60,238,764
3 months,
semiannual
43,301,503
4,133,536
26,715,671
12,026,128
42,875,335
P
= 176,216,737
P
= 31,364,911
P
= 64,148,442
P
= 79,571,149
P
= 175,084,502
Interest terms (p.a.)
Group
Cash and cash equivalents
Short-term investments
Accounts and notes receivable
AFS financial asset Quoted debt investments
AFS financial asset Unquoted debt investments
Fixed at the date of investment
Fixed at the date of investment or
revaluation cut-off
Fixed at the date of sale or transaction
Fixed at the date of investment or
revaluation cut-off
Fixed at the date of investment or
revaluation cut-off
Company
Long-term debt
Fixed
Fixed
Fixed
Fixed
Fixed
at 7.45%
at 6.70% to 8.40%
at 6.75% to 6.80%
at 6.88%
Floating
Variable at 0.50% to 0.67% over 91-day
T-bills PDST-R1
Subsidiaries
Short-term debt
Long-term debt
Fixed
Floating
Variable at Libor+0.50% to 3.50%
January 1, 2012
Interest terms (p.a.)
Group
Cash and cash equivalents
Short-term investments
Accounts and notes receivable
AFS financial asset Quoted debt nvestments
AFS financial asset Unquoted debt investments
Fixed at the date of investment
Fixed at the date of investment or
revaluation cut-off
Fixed at the date of sale or transaction
Fixed at the date of investment or
revaluation cut-off
Fixed at the date of investment or
revaluation cut-off
Rate Fixing
Period
Nominal
Amount
< 1 year
1 to 5 years
> 5 years
Carrying Value
Various
Various
P
= 56,138,790
1,616,014
P
= 56,138,790
1,616,014
P
=–
–
P
=–
–
P
= 56,138,790
1,616,014
Various
Various
16,183,396
874,161
7,372,039
132,332
5,930,444
723,664
151,585
18,165
13,454,068
874,161
Various
420,000
126,053
268,905
44,113
439,071
P
= 75,232,361
P
= 65,385,228
P
= 6,923,013
P
= 213,863
P
= 72,522,104
5 years
6 years
7 years
10 years
P
= 5,890,000
1,000,000
12,470,000
11,495,000
P
= 3,009,938
995,233
–
–
P
= 2,856,066
–
2,384,395
–
P
=–
–
9,988,686
11,393,916
P
= 5,866,004
995,233
12,373,081
11,393,916
3 months
6,475,000
249,940
6,215,051
–
6,464,991
Ranging from 3.50% to 8.00%
Ranging from 1.16% to 4.13%
Monthly, quarterly
Monthly, quarterly
3,986,500
3,347,341
3,986,500
3,347,341
–
–
–
–
3,986,500
3,347,341
Fixed at 2.08% to 13.50%
3,4,5,7, 10 and 12
years
42,253,350
2,425,485
30,175,211
9,263,287
41,863,983
3 months,
semiannual
25,240,450
1,061,972
20,341,342
3,573,968
24,977,282
P
= 112,157,641
P
= 15,076,409
P
= 61,972,065
P
= 34,219,857
P
= 111,268,331
Company
Long-term debt
Fixed
Fixed
Fixed
Fixed
Fixed
at 7.45% to 7.95%
at 8.15%
at 6.70% to 8.40%
at 6.75% to 6.80%
Floating
Variable at 0.50% to 0.67% over 91-day
T-bills PDST-R1
Subsidiaries
Short-term debt
Long-term debt
Fixed
Floating
Variable at Libor+0.50% to 3.50%
Foreign exchange risk
The Group’s foreign exchange risk results from movements of the Philippine Peso (P
= ) against
foreign currency. The Group may enter into foreign currency forwards and foreign currency swap
contracts in order to hedge its US$ obligations.
IMI Group
The IMI Group’s foreign exchange risk results primarily from movements of the U.S. Dollar against
other currencies. As a result of significant operating expenses in Philippine Peso, IMI Group’s
consolidated statements of comprehensive income can be affected significantly by movements in
the U.S. Dollar versus the Philippine Peso. In 2013 and 2012, IMI Group entered into currency
forward contracts and structured currency options, respectively, to hedge its risks associated with
foreign currency fluctuations.
IMI Group also has transactional currency exposures. Such exposure arises from sales or
purchases denominated in other than IMI Group’s functional currency. Approximately 43% and
37% of IMI Group’s sales for the years ended December 31, 2013 and 2012, respectively, and
35% and 51% of costs for the years ended December 31, 2013 and 2012, respectively, are
denominated in other than IMI Group’s functional currency.
IMI Group manages its foreign exchange exposure risk by matching, as far as possible, receipts
and payments in each individual currency. Foreign currency is converted into the relevant
domestic currency as and when the management deems necessary. The unhedged exposure is
reviewed and monitored closely on an ongoing basis and management will consider to hedge any
material exposure where appropriate.
MWC Group
The MWC Group’s foreign exchange risk results primarily from movements of the Philippine Peso
(P
= ) against the United States Dollar (US$) and Japanese Yen (JPY). Majority of revenues are
generated in PHP, and substantially all capital expenditures are also in PHP. Approximately 40%
and 47% of debt as of December 31, 2013 and 2012, respectively, was denominated in foreign
currency. Under Amendment 1 of the Agreement, however, the Group has a natural hedge on its
foreign exchange risks on its loans and concession fee payments through a recovery mechanism
in the tariff (see Note 37).
The table below summarizes the Group’s exposure to foreign exchange risk as of December 31,
2013, 2012 and January 1, 2012. Included in the table are the Group’s monetary assets and
liabilities at carrying amounts, categorized by currency.
December 31, 2013
US$
Php
Equivalent*
December 31, 2012
Php
US$ Equivalent*
January 1, 2012
Php
US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Short term investments
Accounts and notes
receivables
US$33,352
–
P
= 1,480,651
–
US$42,557
–
P
= 1,746,965
–
US$101,318
2,199
P
= 4,441,781
96,404
8,440
374,692
17,660
724,943
78,043
3,421,405
Other current assets
–
–
–
–
4
175
Investments
–
–
16,990
697,440
6
263
–
41,792
–
1,855,343
–
77,207
–
3,169,348
2,469
184,039
108,241
8,068,269
Other noncurrent assets
Total assets
(Forward)
December 31, 2013
US$
December 31, 2012
Php
Equivalent*
(In Thousands)
US$
Php
Equivalent*
January 1, 2012
Php
US$ Equivalent*
Liabilities
Accounts payable and
accrued expenses
Other current liabilities
Short-term debt
Long-term debt
Service concession obligation
Other noncurrent liabilities
Total liabilities
Net foreign currency
denominated liabilities
US$233,917
–
37,840
208,085
–
86,729
566,571
P
= 10,384,727
–
1,679,905
9,237,920
–
3,850,326
25,152,878
US$24,841
–
874
272,124
–
81,707
379,546
P
= 1,019,723
–
35,878
11,170,690
–
3,354,072
15,580,363
(US$524,778) (P
= 23,297,535) (US$302,339) (P
= 12,411,015)
US$1,657
–
39,440
258,662
69,554
978
370,291
P
= 72,643
–
1,729,050
11,675,995
3,049,247
42,876
16,569,811
(US$186,252) (P
= 8,501,542)
*Translated using the exchange rate at the reporting date (US$1:P
= 44.395 in December 31, 2013, US$1: P
= 41.05 in December 31, 2012 and
US$1:P
= 43.84 in January 1, 2012).
December 31, 2013
December 31, 2012
Php
Php
JPY Equivalent*
JPY Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes
Receivable
Other noncurrent assets
Total assets
January 1, 2012
JPY
Php
Equivalent*
JPY11,600
P
= 4,919
JPY20,778
P
= 9,974
JPY24,802
P
= 13,899
224,306
2,449
238,355
95,106
1,038
101,063
142,971
162,576
326,325
68,626
78,036
156,636
137,928
2,392
165,122
77,240
1,340
92,479
Liabilities
Accounts payable and
accrued expenses
709,951
301,019
–
–
–
–
Long-term debt
6,567,179
2,784,484
360,283
172,936
8,947,369
5,010,527
Other noncurrent liabilities
1,363,650
578,188
–
–
–
–
Service concession obligation
–
–
7,892,050
3,788,184
1,678,875
940,170
Total liabilities
8,640,780
3,663,691
8,252,333
3,961,120
10,626,244
5,950,697
Net foreign currency
denominated liabilities (JPY8,402,425) (P
= 3,562,628) (JPY7,926,008) (P
= 3,804,484) (JPY10,461,122) (P
= 5,858,218)
*Translated using the exchange rate at the reporting date (JPY1:P
= 0.424 in December 31, 2013, JPY1:P
= 0.48 in December 31, 2012 and
JPY1:P
= 0.56 in January 1, 2012).
December 31, 2013
December 31, 2012
Php
Php
SGD Equivalent*
SGD Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes
receivables
Other current assets
Other noncurrent assets
Total assets
Liabilities
Accounts payable and
accrued expenses
Other current liabilities
Short-term debt
Other noncurrent liabilities
Total liabilities
Net foreign currency
denominated assets
(liabilities)
January 1, 2012
SGD
Php
Equivalent*
SGD3,334
P
= 116,630
SGD3,137
P
= 105,715
SGD4,465
P
= 151,140
298
21
–
3,653
10,426
733
–
127,789
(1,481)
24
–
1,680
(49,895)
802
–
56,622
16
102
10,169
14,752
542
3,453
344,221
499,356
3,900
–
–
–
3,900
136,424
–
–
–
136,424
1,178
1,352
1,705
–
4,235
39,687
45,570
57,473
–
142,730
1,802
1,294
1,633
262
4,991
60,998
43,802
55,277
8,869
168,946
(SGD247)
(P
= 8,635)
(SGD2,555)
(P
= 86,108)
SGD9,761
P
= 330,410
*Translated using the exchange rate at the reporting date (SGD1:P
= 34.98 in December 31, 2013, SGD1:P
= 33.70 in December 31, 2012 and
SGD1:P
= 33.85 in January 1, 2012).
December 31, 2013
December 31, 2012
Php
Php
HKD Equivalent*
HKD Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes
receivables
Investments
Other current assets
Total assets
Liabilities
Accounts payable and
accrued expenses
Net foreign currency
denominated assets
January 1, 2012
HKD
Php
Equivalent*
HKD13,401
P
= 76,721
HKD3,137
P
= 16,660
HKD988
P
= 5,582
45,153
–
–
58,554
258,503
–
–
335,224
75,383
8,579
645
87,744
400,283
45,555
3,423
465,921
78,479
149
9,630
89,246
443,406
54,410
842
504,240
2,853
16,336
6,181
32,823
3,436
19,413
HKD55,701
P
= 318,888
HKD81,563
P
= 433,098
HKD85,810
P
= 484,827
*Translated using the exchange rate at the reporting date (HKD1:P
= 5.725 in December 31, 2013, HKD1:P
= 5.31 in December 31, 2012 and
HKD1:P
= 5.65 in January 1, 2011).
December 31, 2013
December 31, 2012
Php
Php
RMB Equivalent*
RMB Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes
receivables
Other current assets
Total assets
Liabilities
Accounts payable and
accrued expenses
Other current liabilities
Total liabilities
Net foreign currency
denominated assets
January 1, 2012
RMB
Php
Equivalent*
RMB53,670
P
= 393,563
RMB91,751
P
= 606,473
RMB42,525
P
= 295,549
402,731
–
456,401
2,953,229
–
3,346,792
345,540
–
437,291
2,284,018
–
2,890,491
271,962
17,377
331,864
1,890,136
120,770
2,306,455
275,434
–
275,434
2,019,759
–
2,019,759
239,821
–
239,821
1,585,220
–
1,585,220
186,654
38
186,692
1,297,245
264
1,297,509
RMB180,967
P
= 1,327,033
RMB197,470 P
= 1,305,271
RMB145,172
P
= 1,008,946
*Translated using the exchange rate at the reporting date (RMB1: P
= 7.333 in December 31, 2013, RMB1: P
= 6.61 in December 31, 2012 and
RMB1: =
P 6.95 in December 31, 2011).
December 31, 2013
December 31, 2012
Php
Php
INR Equivalent*
INR
Equivalent
(In Thousands)
Assets
Cash and cash equivalents
Receivables
Other current assets
Other noncurrent assets
Total assets
Liabilities
Accounts payable and
accrued expenses
Short term debt
Long-term debt
Other noncurrent liabilities
Total liabilities
Net foreign currency
denominated assets
(liabilities)
January 1, 2012
INR
Php
Equivalent
INR1,790
12,167
7,136
–
21,093
P
= 1,285
8,736
5,124
–
15,145
INR3,420
9,667
1,027
–
14,114
P
= 2,565
7,250
771
–
10,586
INR15,552
–
38,723
–
54,275
P
= 32,179
–
32,179
–
64,358
16,921
–
–
–
16,921
12,150
–
–
–
12,150
6,032
–
–
–
6,032
4,524
–
–
–
4,524
71,368
–
14,951
15,105
101,424
59,307
–
12,424
12,552
84,283
INR4,172
P
= 2,995
INR8,082
P
= 6,062
(INR47,149)
(P
= 19,925)
*Translated using the exchange rate at the reporting date (INR1: =
P0.718 in December 31, 2013, INR1: P
= 0.750 in December 31, 2012 and
INR1: P
= 0.831 in January 1, 2011).
December 31, 2013
December 31, 2012
Php
Php
THB Equivalent*
THB Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes
receivable
Other current assets
Other noncurrent assets
Total assets
Liabilities
Accounts payable and
accrued expenses
Net foreign currency
denominated assets
(liabilities)
January 1, 2012
Php
THB Equivalent*
THB–
P
=–
THB–
P
=–
THB226
P
= 314
34
–
–
34
47
–
–
47
–
–
–
–
–
–
–
41
100,875
101,142
–
57
140,216
140,587
–
–
35,038
46,951
–
–
THB34
P
= 47
(THB35,038)
(P
= 46,951)
THB101,142
P
= 140,587
*Translated using the exchange rate at the reporting date (THB1: =
P 1.352 in December 31, 2013, THB1: P
= 1.34 in December 31, 2012 and
THB1: P
= 1.39 in January 1, 2012).
December 31, 2013
December 31, 2012
Php
Php
MYR Equivalent*
MYR Equivalent*
(In Thousands)
January 1, 2012
MYR
Php
Equivalent*
Assets
Cash and cash equivalents
Short term investments
Other current assets
Investments
Other noncurrent assets
Total assets
Liabilities
Accounts payable and
accrued expenses
Other noncurrent liabilities
Total liabilities
Net foreign currency
denominated assets
MYR4,431
23
24
–
–
4,478
P
= 59,688
310
326
–
–
60,324
MYR4,728
9
24
321
–
5,082
P
= 63,685
121
323
4,322
–
68,451
MYR4,674
–
321
–
6,785
11,780
P
= 64,875
–
4,455
–
94,176
163,506
84
–
84
1,127
–
1,127
41
–
41
556
–
556
49
26
75
680
361
1041
MYR4,394
P
= 59,197
MYR5,041
P
= 67,895
MYR11,705
P
= 162,465
*Translated using the exchange rate at the reporting date (MYR1: P
= 13.469 in December 31,2013, MYR1: P
= 13.47 in December 31, 2012 and
P13.88 in January 1, 2012.)
December 31, 2013
December 31, 2012
Php
Php
EUR Equivalent*
EUR Equivalent
(In Thousands)
Assets
Cash and cash equivalents
Receivables
Total assets
Liabilities
Accounts payable and
accrued expenses
Other current liabilities
Short term debt
Long-term debt
Other noncurrent liabilities
Total liabilities
Net foreign currency
denominated assets
(liabilities)
January 1, 2012
EUR
Php
Equivalent
EUR2,445
24,394
26,839
P
= 148,603
1,482,929
1,631,532
EUR1,836
31,188
33,024
P
= 100,093
1,700,681
1,800,774
EUR3,533
17,176
20,709
P
= 200,816
976,284
1,177,100
11,066
652
9,745
–
–
21,463
672,682
39,663
592,413
–
–
1,304,758
10,380
–
45,756
–
–
56,136
566,018
–
2,495,063
–
–
3,061,081
10,679
24,986
13,552
15,083
188
64,488
606,994
1,420,204
770,296
857,318
10,686
3,665,498
EUR5,376
P
= 326,774
(EUR23,112) (P
= 1,260,307)
(EUR43,779) (P
= 2,488,398)
*Translated using the exchange rate at the reporting date (EUR1: P
= 60.79 in December 31, 2013, EUR1: =
P54.53 in December 31, 2012 and
EUR1: P
= 56.84 in January 1, 2012)
December 31, 2013
December 31, 2012
Php
Php
CZK Equivalent*
CZK
Equivalent
(In Thousands)
Assets
Cash and cash equivalents
Receivables
Total assets
Liabilities
Accounts
payable
and
accrued expenses
Other current liabilities
Short term debt
Long-term debt
Total liabilities
Net foreign currency
denominated liabilities
January 1, 2012
CZK
Php
Equivalent
CZK894
263
1,157
P
= 1,996
587
2,583
CZK1,507
4,183
5,690
P
= 3,210
8,910
12,120
CZK61
1,063
1,124
P
= 134
2,339
2,473
25,794
–
–
–
25,794
57,573
–
–
–
57,573
19,512
6,064
351
–
25,927
41,560
12,917
747
–
55,224
20,420
4,172
3,042
5,256
32,890
44,924
9,178
6,692
11,563
72,357
(CZK24,637)
(P
= 54,990)
(CZK20,237)
(P
= 43,104)
(CZK31,766)
(P
= 69,884)
*Translated using the exchange rate at the reporting date (CZK1:P
= 2.232 in December 31, 2013, CZK1:P
= 2.13 in December 31, 2012 and
CZK1:P
= 2.20 in January 1, 2012).
December 31, 2013
December 31, 2012
Php
Php
VND Equivalent*
VND Equivalent
(In Thousands)
Assets
Cash and cash
equivalents
Other noncurrent assets
Net foreign currency
denominated assets
January 1, 2012
VND
Php
Equivalent
VND34,533,794
–
P
= 69,068 VND142,897,536
–
331,438,800
P
= 285,795
662,878
VND902
857,500
P
=2
1,801
VND34,533,794
P
= 69,068 VND 474,336,336
P
= 948,673
VND858,402
P
= 1,803
*Translated using the exchange rate at the reporting date (VND1:P
= 0.0020 in December 31, 2013 and 2012, and VND1:P
= 0.0021 in
January 1, 2012).
December 31, 2013
December 31, 2012
Php
MXN Equivalent*
(In Thousands)
Php
MXN Equivalent
January 1, 2012
MXN
Php
Equivalent
Assets
Cash and cash equivalents
Receivables
Total assets
Liabilities
Accounts payable and
accrued expenses
Other current liabilities
Loans payable
Long-term debt
Total Liabilties
Net foreign currency
denominated assets
(liabilities)
MXN47,208
123,735
170,943
P
= 160,560
420,834
581,394
MXN7,319
65,044
72,363
P
= 23,201
206,188
229,389
MXN61
1,063
1,124
P
= 191
3,328
3,519
179,946
–
–
–
179,946
612,014
–
–
–
612,014
47,058
504
–
–
47,562
149,173
1,597
–
–
150,770
20,420
4,172
3,042
5,256
32,890
63,914
13,058
9,520
16,452
102,944
(P
= 30,620) MXN24,801
P
= 78,619
(MXN31,766)
(P
= 99,425)
(MXN9,003)
*Translated using the exchange rate at the reporting date (MXN1:P
= 3.404 in December 31, 2013, MXN1:P
= 3.170 in December 31, 2012 and
MXN1:P
= 3.130 in January 1, 2012).
The following table demonstrates the sensitivity to a reasonably possible change in the exchange
rate, with all variables held constant, of the Group’s profit before tax (due to changes in the fair
value of monetary assets and liabilities) and the Group’s equity (amounts in thousands).
2013
Currency
US$
JPY
SGD
HKD
RMB
INR
THB
MYR
EUR
CZK
VND
MXN
Increase
(decrease) in
Peso per foreign
currency
P
= 1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
Increase
(decrease)
in profit
before tax
(P
= 524,778)
524,778
(8,402,425)
8,402,425
(247)
247
55,701
(55,701)
180,967
(180,967)
4,172
(4,172)
34
(34)
4,394
(4,394)
5,376
(5,376)
(24,637)
24,637
(34,533,794)
34,533,794
(9,003)
9,003
Increase
(decrease) in
Peso per foreign
currency
P
= 1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
Increase
(decrease)
in profit
before tax
(P
= 302,339)
302,339
(7,926,008)
7,926,008
(2,555)
2,555
81,563
(81,563)
197,470
(197,470)
8,082
(8,082)
(35,038)
35,038)
2012
Currency
US$
JPY
SGD
HKD
RMB
INR
THB
(Forward)
Currency
EUR
CZK
VND
MXN
Increase
(decrease) in
Peso per foreign
currency
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
Increase
(decrease)
in profit
before tax
(5,041)
(23,112)
23,112
(20,327)
20,327
474,336,336
(474,336,336)
24,801
24,801
Increase
(decrease) in
Peso per foreign
currency
P
= 1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
Increase
(decrease)
in profit
before tax
(P
= 186,252)
186,252
(10,461,122)
10,461,122
9,761
(9,761)
85,810
(85,810)
145,172
(145,172)
(47,149)
47,149
101,142
(101,142)
11,705
(11,705)
(43,779)
43,779
(31,766)
31,766
858,402
(858,402)
(31,766)
31,766
2011
Currency
US$
JPY
SGD
HKD
RMB
INR
THB
MYR
EUR
CZK
VND
MXN
There is no other impact on the Group’s equity other than those already affecting net income.
Equity price risk
AFS financial assets are acquired at certain prices in the market. Such investment securities are
subject to price risk due to changes in market values of instruments arising either from factors
specific to individual instruments or their issuers, or factors affecting all instruments traded in the
market. Depending on several factors such as interest rate movements, the country’s economic
performance, political stability, and domestic inflation rates, these prices change, reflecting how
market participants view the developments. The Group’s investment policy requires it to manage
such risks by setting and monitoring objectives and constraints on investments; diversification
plan; and limits on investment in each sector and market.
The analysis below demonstrates the sensitivity to a reasonably possible change of market index
with all other variables held constant, of the Group’s equity arising from fair valuation of quoted
AFS financial assets (amounts in thousands).
2013
Market Index
PSEi
Change in Variables
5%
-5%
Effect on Equity
Increase (decrease)
P
= 806,369
(806,369)
Change in Variables
5%
-5%
Effect on Equity
Increase (decrease)
P
= 720,597
(720,597)
2012
Market Index
PSEi
Liquidity risk
Liquidity risk is defined by the Group as the risk of losses arising from funding difficulties due to
deterioration in market conditions and/or the financial position of the Group that make it difficult to
raise the necessary funds or that forces the Group to raise funds at significantly higher interest
rates than usual.
This is also the possibility of experiencing losses due to the inability to sell or convert marketable
securities into cash immediately or in instances where conversion to cash is possible but at loss
due to wider than normal bid-offer spreads.
The Group seeks to manage its liquidity profile to be able to service its maturing debts and to
finance capital requirements. The Group maintains a level of cash and cash equivalents deemed
sufficient to finance operations. As part of its liquidity risk management, the Group regularly
evaluates its projected and actual cash flows. It also continuously assesses conditions in the
financial markets for opportunities to pursue fund-raising activities. Fund-raising activities may
include bank loans and capital market issues, both on-shore and off-shore.
ALI Group
ALI Group employs scenario analysis and contingency planning to actively manage its liquidity
position and guarantee that all operating, investing and financing needs are met. ALI Group has
come up with a three-layered approach to liquidity through the prudent management of sufficient
cash and cash equivalents, the potential sale of accounts receivables and the maintenance of
short-term revolving credit facilities.
Cash and cash equivalents are maintained at a level that will enable it to fund its general and
administrative expenses as well as to have additional funds as buffer for any opportunities or
emergencies that may arise. Management develops viable funding alternatives through a
continuous program for the sale of its receivables and ensures the availability of ample unused
short-term revolving credit facilities from both local and foreign banks as back-up liquidity.
MWC Group
MWC Group’s objective is to maintain a balance between continuity of funding and flexibility
through the use of bank overdrafts, bank loans, debentures, preference shares, leases and hire
purchase contracts. The Group’s policy is to maintain a level of cash that is sufficient to fund its
monthly cash requirements, at least for the next four to six months. Capital expenditures are
funded through long-term debt, while operating expenses and working capital requirements are
sufficiently funded through cash collections.
The table summarizes the maturity profile of the Group’s financial liabilities as of
December 31, 2013 and 2012 and January 1, 2012, based on contractual undiscounted
payments.
December 31, 2013
< 1 year 1 to < 2 years 2 to < 3 years
(In Thousands)
Accounts payable and
accrued expenses
Accounts payable
Project costs
Accrued expenses
Related parties
Retentions payable
Dividends payable
Personnel costs
Derivative liability
Service concession liability
Customers’ deposit
Short-term debt
Long-term debt (LTD)
Other noncurrent liabilities
Interest payable
P
= 63,198,549
11,983,222
9,994,662
4,107,009
1,192,251
2,093,323
2,694,816
3,470
1,290,406
5,362,355
15,811,285
11,953,695
–
7,700,799
P
= 137,385,842
< 1 year
Accounts payable and
accrued expenses
Accounts payable
Project costs
Accrued expenses
Related parties
Retentions payable
Dividends payable
Personnel costs
Derivative liability
Service concession liability
Customers’ deposit
Short-term debt
Long-term debt (LTD)
Other noncurrent liabilities
Interest payable
P
= 49,879,159
12,070,336
4,439,188
2,097,312
2,262,833
1,798,399
1,614,684
–
840,563
4,566,684
12,343,472
19,391,264
–
7,261,075
P
= 118,564,969
P
=–
–
–
–
–
–
–
–
1,474,349
–
–
4,092,763
10,057,907
7,200,769
P
= 22,825,788
P
=–
–
–
–
–
–
–
–
708,971
–
–
47,622,962
836,059
24,865,468
P
= 74,033,460
P
=–
–
–
–
–
–
–
–
1,696,571
–
–
39,679,019
7,639,542
6,668,588
P
= 55,683,720
Total
P
=–
P
= 63,198,549
–
11,983,222
–
9,994,662
–
4,107,009
–
1,192,251
–
2,093,323
–
2,694,816
–
3,470
10,539,730
14,013,456
–
5,362,355
–
15,811,285
127,073,470
190,742,890
13,933,971
24,827,937
38,830,272
78,597,308
P
= 190,377,443 P
= 424,622,533
December 31, 2012
1 to < 2 years 2 to < 3 years
(In Thousands)
P
=–
–
–
–
–
–
–
–
1,696,571
–
–
26,905,317
13,976,407
7,008,889
P
= 49,587,184
> 3 years
> 3 years
Total
P
=–
P
= 49,879,159
–
12,070,336
–
4,439,188
–
2,097,312
–
2,262,833
–
1,798,399
–
1,614,684
–
–
3,978,824
8,212,529
–
4,566,684
–
12,343,472
77,897,666
163,873,266
1,358,943
22,974,892
27,701,131
48,639,683
P
= 110,936,564 P
= 334,772,437
January 1, 2012
< 1 year 1 to < 2 years 2 to < 3 years
(In Thousands)
Accounts payable and
accrued expenses
Accounts payable
Project costs
Accrued expenses
Related parties
Retentions payable
Dividends payable
Personnel costs
Derivative liability
Service concession liability
Customers’ deposit
Short-term debt
Long-term debt (LTD)
Other noncurrent liabilities
Interest payable
P
= 29,755,662
7,539,717
4,002,204
1,226,606
1,258,923
1,836,595
1,290,373
1,515
980,620
1,609,504
7,333,841
7,726,861
–
5,054,350
P
= 69,616,771
P
=–
–
–
–
–
–
–
–
946,375
–
–
19,329,254
7,299,133
4,870,537
P
= 32,445,299
P
=–
–
–
–
–
–
–
–
979,431
–
–
12,531,964
2,449,856
4,321,012
P
= 20,282,263
> 3 years
Total
P
=–
–
–
–
–
–
–
–
4,991,192
–
–
65,235,721
1,533,011
14,143,231
P
= 85,903,155
P
= 29,755,662
7,539,717
4,002,204
1,226,606
1,258,923
1,836,595
1,290,373
1,515
7,897,618
1,609,504
7,333,841
104,823,800
11,282,000
28,389,130
P
= 208,247,488
Cash and cash equivalents, short-term investments, financial assets at FVPL and AFS debt
investments are used for the Group’s liquidity requirements. Please refer to the terms and
maturity profile of these financial assets under the maturity profile of the interest-bearing financial
assets and liabilities disclosed in the interest rate risk section. AFS unquoted debt investments
with maturity of more than a year from December 31 are marketable securities and could be sold
as and when needed prior to its maturity in order to meet the Group’s short-term liquidity needs.
Credit risk
Credit risk is the risk that the Group’s counterparties to its financial assets will fail to discharge
their contractual obligations. The Group’s holding of cash and short-term investments and
receivables from customers and other third parties exposes the Group to credit risk of the
counterparty. Credit risk management involves dealing with institutions for which credit limits have
been established. The Group’s Treasury Policy sets credit limits for each counterparty. The
Group trades only with recognized, creditworthy third parties. The Group has a well-defined credit
policy and established credit procedures.
ALI Group
For installments receivable from the sale of properties, credit risk is managed primarily through
credit reviews and an analysis of receivables on a continuous basis. The Group also undertakes
supplemental credit review procedures for certain installment payment structures. The Group’s
stringent customer requirements and policies in place contribute to lower customer default than its
competitors. Customer payments are facilitated through various collection modes including the
use of postdated checks and auto-debit arrangements. Exposure to bad debts is not significant as
titles to real estate properties are not transferred to the buyers until full payment has been made
and the requirement for remedial procedures is minimal given the profile of buyers.
Credit risk arising from rental income from leasing properties is primarily managed through a
tenant selection process. Prospective tenants are evaluated on the basis of payment track record
and other credit information. In accordance with the provisions of the lease contracts, the lessees
are required to deposit with the Group security deposits and advance rentals which helps reduce
the Group’s credit risk exposure in case of defaults by the tenants. For existing tenants, the
Group has put in place a monitoring and follow-up system. Receivables are aged and analyzed
on a continuous basis to minimize credit risk associated with these receivables. Regular meetings
with tenants are also undertaken to provide opportunities for counseling and further assessment of
paying capacity.
IMI Group
The credit evaluation reflects the customer’s overall credit strength based on key financial and
credit characteristics such as financial stability, operations, focus market and trade references. All
customers who wish to trade on credit terms are subject to credit verification procedures. In
addition, receivable balances are monitored on an ongoing basis with the result that the Group’s
exposure to bad debts is not significant.
MWC Group
It is the Group’s policy that except for connection fees and other highly meritorious cases, the
Group does not offer credit terms to its customers. Credit risk is managed primarily through credit
reviews and an analysis of receivables on a continuous basis. Customer payments are facilitated
through various collection modes including the use of postdated checks and auto-debit
arrangements.
With respect to credit risk arising from other financial assets of the Group, which comprise cash
and cash equivalents and short-term investments and AFS financial assets, the Group’s exposure
to credit risk arises from default of the counterparty, with a maximum exposure equal to the
carrying amount of the investments.
Given the Group’s diverse base of counterparties, it is not exposed to large concentrations of
credit risk.
The table below shows the maximum exposure to credit risk for the components of the
consolidated statement of financial position except for those financial assets whose carrying
amounts approximates fair value. The Group’s maximum exposure for cash and cash equivalents
excludes the carrying amount of cash on hand. The maximum exposure is shown at gross, before
the effect of mitigation through the use of master netting arrangements or collateral agreements.
December 31
2012
(In Thousands)
P
= 17,916,513 P
= 4,532,323
456,768
184,276
2013
Financial assets at FVPL
Derivative assets
Accounts and notes receivables
Trade
Real estate
Investment in bonds classified as
loans and receivables
Receivable from officers and
employees
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Unquoted debt investments
Total credit risk exposure
January 1,
2012
P
= 1,470,829
122,704
39,832,997
30,815,940
19,553,267
1,000,000
1,000,000
200,000
274,900
578,541
744,137
1,241,869
1,790,043
1,439,637
1,117,965
103,301
99,501
–
236,411
P
= 62,265,985 P
= 40,355,000
923,563
1,508,373
874,161
439,071
P
= 25,836,105
The aging analysis of accounts and notes receivables that are past due but not impaired follows:
December 31, 2013
Neither Past
Due nor
Impaired
Past Due but not Impaired
<30 days 30-60 days 60-90 days 90-120 days
(In Thousands)
Trade:
P
= 36,449,792 P
= 642,028
Real estate
5,987,296
850,487
Electronics manufacturing
364,981
457,087
Water distribution and wastewater services
528,171
233,620
Automotive
194,584
–
Information technology and BPO
3,603
–
International and others
9,753,179
247,941
Advances to other companies
2,610,919
161,100
Related parties
1,412,577
–
Dividend receivable
544,374
–
Receivable from BWC
376,636
90,203
Receivable from officers and employees
Investment in bonds classified as
1,000,000
–
loans and receivables
72,871
12,934
Others
Total
P
= 59,298,983 P
= 2,695,400
>120 days
Total
Individually
Impaired
Total
P
= 386,081
83,623
176,192
86,221
–
–
2,011
59,408
–
–
4,063
P
= 308,010
88,270
135,852
61,346
–
–
37,015
37,735
–
–
1,415
P
= 312,357 P
= 1,506,867 P
= 3,155,343
79,594
100,254
1,202,228
102,823
128,472
1,000,426
26,533
27,638
435,358
–
–
–
15
–
15
16,947
688,266
992,180
27,212
208,115
493,570
–
–
–
–
–
–
3,087
29,635
128,403
P
= 227,862 P
= 39,832,997
97,268
7,286,792
280,069
1,645,476
21,861
985,390
–
194,584
–
3,618
166,687 10,912,046
40,983
3,145,472
–
1,412,577
–
544,374
2,003
507,042
–
1,653
P
= 799,252
–
1,029
P
= 670,672
–
–
–
539
3,067
19,222
P
= 569,107 P
= 2,692,314 P
= 7,426,745
–
1,000,000
–
92,093
P
= 836,733 P
= 67,562,461
December 31, 2012
Neither Past
Due nor
Impaired
<30 days
Past Due but not Impaired
30-60 days 60-90 days 90-120 days
(In Thousands)
Trade:
Real estate
P
= 28,110,008 P
= 788,525
P
= 554,974
Electronics manufacturing
4,966,938
712,284
147,711
Water distribution and wastewater services
340,050
889,469
142,404
Automotive
460,477
276,974
72,241
Information technology and BPO
131,455
31,880
–
International and others
5,489
636
381
Advances to other companies
6,240,952
55,343
77,737
Related parties
1,990,955
164,178
23,620
Dividend receivable
36,636
–
–
Receivable from officers and employees
499,942
61,474
2,352
Receivable from BWC
572,878
–
–
Investment in bonds classified as
loans and receivables
1,000,000
–
–
Others
409,881
1,067
18,648
Total
P
= 44,765,661 P
= 2,981,830 P
= 1,040,068
>120 days
Total
Individually
Impaired
Total
P
= 345,323
59,139
73,984
89,891
–
–
358,567
52,514
–
760
–
P
= 141,362
22,403
87,826
21,474
–
1
11,316
17,629
–
742
–
P
= 670,966 P
= 2,501,150
42,473
984,010
114,424
1,308,107
45,411
505,991
–
31,880
–
1,018
378,880
881,843
282,168
540,109
–
–
13,271
78,599
–
–
P
= 204,782 P
= 30,815,940
100,950
6,051,898
59,133
1,707,290
1,688
968,156
–
163,335
–
6,507
56,012
7,178,807
57,793
2,588,857
–
36,636
2,080
580,621
–
572,878
–
1,405
P
= 981,583
–
–
–
699
612
22,431
P
= 303,452 P
= 1,548,205 P
= 6,855,138
–
1,000,000
–
432,312
P
= 482,438 P
= 52,103,237
January 1, 2012
Neither Past
Due nor
Impaired
<30 days
Trade:
Real estate
P
= 16,750,391 P
= 718,215
Electronics manufacturing
4,646,243
492,454
Water distribution and wastewater services
309,182
347,096
Automotive
233,644
109,822
Information technology and BPO
34,482
47,824
International and others
1,950
–
Advances to other companies
4,837,519
66,537
Related parties
2,252,492
40,218
Dividend receivable
815,220
–
Receivable from officers and employees
666,594
51,627
Receivable from BWC
599,342
–
Investment in bonds classified as
loans and receivables
200,000
–
Others
2,000,194
733
Total
P
= 33,347,253 P
= 1,874,526
Past Due but not Impaired
30-60 days 60-90 days 90-120 days
(In Thousands)
>120 days
P
= 466,170
168,404
55,170
77,627
5,276
476
36,916
18,149
–
8,030
–
P
= 285,440
53,159
82,763
37,640
2,535
–
37,146
12,150
–
1,667
–
P
= 187,830
27,377
75,914
15,829
2,040
–
54,960
10,717
–
1,132
–
P
= 867,490 P
= 2,525,145
148,126
889,520
173,272
734,215
24,410
265,328
–
57,675
–
476
77,021
272,580
171,398
252,632
–
–
15,087
77,543
–
–
P
= 277,731 P
= 19,553,267
92,797
5,628,560
42,992
1,086,389
36,003
534,975
25,148
117,305
67
2,493
140,516
5,250,615
22,456
2,527,580
–
815,220
14,220
758,357
–
599,342
–
–
P
= 836,218
–
–
P
= 512,500
–
–
–
–
32,446
33,179
P
= 375,799 P
= 1,509,250 P
= 5,108,293
–
200,000
–
2,033,373
P
= 651,930 P
= 39,107,476
Total
Individually
Impaired
Total
The table below shows the credit quality of the Group’s financial assets as of December 31, 2013 and 2012 (amounts in thousands):
December 31, 2013
Cash and cash equivalents
Short-term investments
FVPL financial assets
Accounts and notes receivables
Trade
Real estate
Electronics manufacturing
Water distribution and wastewater services
Automotive
Information technology and BPO
International and others
Advances to other companies
Related parties
Dividend receivable
Receivable from BWC
Receivable from officers employees
Investments in bonds classified as
loans and receivables
Other receivable
AFS Investments
Quoted shares of stocks
Unquoted shares of stocks
Quoted debt investments
Unquoted debt investments
Neither past due nor impaired
High Grade Medium Grade
Low Grade
P
= 53,990,229
P
=–
P
=–
119,345
–
–
17,916,513
–
–
Total
P
= 53,990,229
119,345
17,916,513
Past due but
not impaired
P
=–
–
–
Individually
Impaired
P
=–
–
–
Total
P
= 53,990,229
119,345
17,916,513
33,767,802
275,579
352,650
528,171
–
3,603
9,753,179
2,278,449
1,412,577
544,374
368,845
1,251,638
5,155,813
12,331
–
194,584
–
–
332,470
–
–
7,791
1,430,352
555,904
–
–
–
–
–
–
–
–
–
36,449,792
5,987,296
364,981
528,171
194,584
3,603
9,753,179
2,610,919
1,412,577
544,374
376,636
3,155,343
1,202,228
1,000,426
435,358
–
15
992,180
493,570
–
–
128,403
227,862
97,268
280,069
21,861
–
–
166,687
40,983
–
–
2,003
39,832,997
7,286,792
1,645,476
985,390
194,584
3,618
10,912,046
3,145,472
1,412,577
544,374
507,042
1,000,000
71,119
–
1,752
–
–
1,000,000
72,871
–
1,000,000
92,093
1,241,869
1,439,637
103,301
–
P
= 125,167,242
–
–
–
–
P
= 6,956,379
–
–
–
–
P
= 1,986,256
1,241,869
1,439,637
103,301
–
P
= 134,109,877
–
19,222
–
–
–
–
–
P
= 7,426,745
–
–
–
–
P
= 836,733
1,241,869
1,439,637
103,301
–
P
= 142,373,355
December 31, 2012
Cash and cash equivalents
Short-term investments
FVPL financial assets
Accounts and notes receivables
Trade
Real estate
Electronics manufacturing
Water distribution and wastewater services
Automotive
Information technology and BPO
International and others
Advances to other companies
Related parties
Dividend receivable
Receivable from BWC
Receivable from officers employees
Investments in bonds classified as
loans and receivables
Other receivable
AFS Investments
Quoted shares of stocks
Unquoted shares of stocks
Quoted debt investments
Unquoted debt investments
Neither past due nor impaired
High Grade Medium Grade
Low Grade
P
= 80,280,706
P
=–
P
=–
296,503
–
–
4,532,323
–
–
Total
P
= 80,280,706
296,503
4,532,323
Past due but
not impaired
P
=–
–
–
Individually
Impaired
P
=–
–
–
Total
P
= 80,280,706
296,503
4,532,323
25,988,680
144,585
335,493
460,477
–
3,548
5,876,980
1,343,659
36,636
572,878
406,993
1,057,821
4,750,375
4,557
–
131,455
1,941
363,972
647,296
–
–
7,604
1,063,507
71,978
–
–
–
–
–
–
–
–
85,345
28,110,008
4,966,938
340,050
460,477
131,455
5,489
6,240,952
1,990,955
36,636
572,878
499,942
2,501,150
984,010
1,308,107
505,991
31,880
1,018
881,843
540,109
–
–
78,599
204,782
100,950
59,133
1,688
–
–
56,012
57,793
–
–
2,080
30,815,940
6,051,898
1,707,290
968,156
163,335
6,507
7,178,807
2,588,857
36,636
572,878
580,621
1,000,000
408,130
–
1,751
–
1,000,000
409,881
–
22,431
–
–
1,000,000
432,312
1,790,043
1,117,965
99,501
236,411
P
= 124,931,511
–
–
–
–
P
= 6,966,772
–
–
–
–
P
= 1,220,830
1,790,043
1,117,965
99,501
236,411
P
= 133,119,113
–
–
–
–
P
= 6,855,138
–
–
–
–
P
= 482,438
1,790,043
1,117,965
99,501
236,411
P
= 140,456,689
January 1, 2012
Cash and cash equivalents
Short-term investments
FVPL financial assets
Accounts and notes receivables
Trade
Real estate
Electronics manufacturing
Water distribution and wastewater services
Automotive
Information technology and BPO
International and others
Advances to other companies
Related parties
Dividend receivable
Receivable from BWC
Receivable from officers employees
Investments in bonds classified as
loans and receivables
Other receivable
AFS Investments
Quoted shares of stocks
Unquoted shares of stocks
Quoted debt investments
Unquoted debt investments
Neither past due nor impaired
High Grade Medium Grade
Low Grade
P
= 56,244,086
P
=–
P
=–
1,613,058
–
–
1,470,829
–
–
Total
P
= 56,244,086
1,613,058
1,470,829
Past due but
not impaired
P
=–
–
–
Individually
Impaired
P
=–
–
–
Total
P
= 56,244,086
1,613,058
1,470,829
14,466,198
4,247,002
171,249
201,599
34,482
689
4,554,500
1,728,795
815,220
599,342
472,173
1,463,154
284,263
137,933
32,045
–
1,261
3,856
4,713
–
–
4,235
821,039
114,978
–
–
–
–
279,163
518,984
–
–
190,186
16,750,391
4,646,243
309,182
233,644
34,482
1,950
4,837,519
2,252,492
815,220
599,342
666,594
2,525,145
889,520
734,215
265,328
57,675
476
272,580
252,632
–
–
77,543
277,731
92,797
42,992
36,003
25,148
67
140,516
22,456
–
–
14,220
19,553,267
5,628,560
1,086,389
534,975
117,305
2,493
5,250,615
2,527,580
815,220
599,342
758,357
200,000
1,814,542
–
–
–
185,652
200,000
2,000,194
–
33,179
–
–
200,000
2,033,373
923,563
1,508,373
874,161
439,071
P
= 92,378,932
–
–
–
–
P
= 1,931,460
–
–
–
–
P
= 2,110,002
923,563
1,508,373
874,161
439,071
P
= 96,420,394
–
–
–
–
P
= 5,108,293
–
–
–
–
P
= 651,930
923,563
1,508,373
874,161
439,071
P
= 102,180,617
The credit quality of the financial assets was determined as follows:
Cash and cash equivalents, short-term investments, FVPL financial assets, quoted AFS financial
assets,investment in bonds classified as loans and receivable,advances to other companies and
related party receivables
High grade pertains to cash and cash equivalents and short-term investments, quoted financial
assets, investment in bonds classified as loans and receivable, related party transactions and
receivables with high probability of collection.
Medium grade pertains to unquoted financial assets other than cash and cash equivalents and
short-term investments with nonrelated counterparties and receivables from counterparties with
average capacity to meet their obligation.
Low grade pertains to financial assets with the probability to be impaired based on the nature of
the counterparty.
Trade receivables
Real estate, information technology and BPO and international and others - high grade pertains to
receivables with no default in payment; medium grade pertains to receivables with up to 3 defaults
in payment in the past; and low grade pertains to receivables with more than 3 defaults in
payment.
Electronics manufacturing - high grade pertains to receivable with favorable credit terms and can
be offered with a credit term of 15 to 45 days; medium grade pertains to receivable with normal
credit terms and can be offered with a credit term of 15 to 30 days; and low grade pertains to
receivables under advance payment or confirmed irrevocable Stand-by Letter of Credit and
subjected to semi-annual or quarterly review for possible upgrade or transaction should be under
advance payment or confirmed and irrevocable Stand-By Letters of credit; subject to quarterly
review for possible upgrade after one year.
Water distribution and wastewater services - high grade pertains to receivables that are collectible
within 7 days from bill delivery; medium grade pertains to receivables that are collectible from 11
to 30 days from bill delivery.
Automotive - high grade pertains to receivables from corporate accounts and medium grade for
receivables from noncorporate accounts.
Unquoted AFS financial assets - the unquoted investments are unrated.
33. Fair Value Measurement and Derivative Instruments
Fair Value of Financial and Nonfinancial Instruments
The carrying amounts approximate fair values for the Group’s financial assets and liabilities due to
its short-term maturities except for the following financial instruments as of December 31, 2013
and 2012 and January 1, 2012 (amounts in thousands):
December 31, 2013
December 31, 2012
January 1, 2012
Carrying Value
Fair Value Carrying Value
Fair Value Carrying Value
Fair Value
FINANCIAL ASSETS AT FVPL
Held for trading
Derivative assets
Embedded
Freestanding
Total financial assets at FVPL
P
= 17,916,513
P
= 17,916,513
P
= 4,532,323
P
= 4,532,323
P
= 1,470,829
P
= 1,470,829
456,768
–
18,373,281
456,768
–
18,373,281
184,276
–
4,716,599
184,276
–
4,716,599
119,939
2,765
1,593,533
119,939
2,765
1,593,533
39,325,490
39,362,376
30,489,340
30,641,213
19,226,667
19,980,823
1,000,000
1,091,291
1,000,000
1,040,801
200,000
214,518
274,900
40,600,390
58,973,671
274,972
40,728,639
59,101,920
578,541
32,067,881
36,784,480
578,867
32,260,881
36,977,480
744,137
20,170,804
21,764,337
744,930
20,940,271
22,533,804
1,241,869
1,439,637
103,301
–
2,784,807
P
= 61,758,478
1,241,869
1,437,228
103,301
–
2,782,398
P
= 61,884,318
1,790,043
1,117,965
99,501
236,411
3,243,920
P
= 40,028,400
1,790,043
1,117,965
99,501
236,411
3,243,920
P
= 40,221,400
923,563
1,508,373
874,161
439,071
3,745,168
P
= 25,509,505
923,563
1,508,373
874,161
439,071
3,745,168
P
= 26,278,972
FINANCIAL LIABILITIES AT FVPL
Derivative liabilities
Freestanding
Embedded
Total derivative liabilities
P
= 1,803
1,667
P
= 3,470
P
= 1,803
1,667
P
= 3,470
P
=–
–
P
=–
P
=–
–
P
=–
P
= 1,515
–
P
= 1,515
P
= 1,515
–
P
= 1,515
OTHER FINANCIAL LIABILITIES
Noncurrent other financial liabilities
Service concession obligation
Other noncurrent liabilities
Long-term debt
Total other financial liabilities
Total financial liabilities
7,868,295
23,738,011
178,027,343
209,633,649
P
= 209,637,119
12,738,815
23,809,863
186,432,252
222,980,930
P
= 222,984,400
7,371,965
23,008,929
143,719,591
174,100,485
P
= 174,100,485
13,004,644
23,265,120
151,560,554
187,830,318
P
= 187,830,318
6,916,998
9,748,382
96,129,597
112,794,977
P
= 112,796,492
8,733,961
9,542,916
103,934,322
122,211,199
P
= 122,212,714
LOANS AND RECEIVABLES
Accounts and notes receivables
Trade receivables
Real estate
Nontrade receivables
Investment in bonds classified as
loans and receivables
Receivable from officers and
employees
Total loans and receivables
Total other financial assets
AFS FINANCIAL ASSETS
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Unquoted debt investments
Total AFS financial assets
Total financial assets
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Financial assets at FVPL - Fair values of investment securities are based on quoted prices as of
the reporting date. For other investment securities with no reliable measure of fair value, these
are carried at its last transaction price.
Derivative instruments - The fair value of the freestanding currency forwards is based on
counterparty valuation. The embedded call and put options of IMI were valued using the binomial
option pricing model. This valuation technique considers the probability of PSi's share price, which
is based on a 5-year discounted cash flow valuation, to move up or down depending on the
volatility, the risk free rate and exercise price that is based on a 12-month trailing EBITDA.
Valuation inputs such as discount rates were based on credit adjusted interest rates while interest
rate volatility was computed based on historical rates or data.
Noncurrent trade and nontrade receivables - The fair values are based on the discounted value of
future cash flows using the applicable rates for similar types of instruments. The discount rates
used ranged from 0.23% to 13.25% in 2013, 0.30% to 13.25% in 2012 and 1.22% to 13.25% in
2011.
AFS quoted equity investments - Fair values are based on the quoted prices published in markets.
AFS unquoted equity investments - Fair value of equity funds are based on the net asset value per
share. For other unquoted equity shares where the fair value is not reasonably determinable due
to the unpredictable nature of future cash flows and the lack of suitable method of arriving at a
reliable fair value, these are carried at cost less impairment, if any.
AFS unquoted debt investments - Fair values are based on the discounted value of future cash
flows using the applicable rates for similar types of instruments. The discount rates used ranged
from 1.82% to 6.13% in 2013, 1.80% to 7.18% in 2012 and 2.88% to 7.60% in 2011.
Accounts payable and accrued expenses, customers’ deposits, short-term debt and current
portion of long-term debt and service concession obligation - The fair values of accounts payable
and accrued expenses and short-term debt approximate the carrying amounts due to the shortterm nature of these transactions.
Customers’ deposits - non-current - The fair values are estimated using the discounted cash flow
methodology using the Group’s current incremental borrowing rates for similar borrowings with
maturities consistent with those remaining for the liability being valued. The discount rates used
for Peso-denominated loans were 1.25% to 4.08% in 2013 and 1.37% to 7.11% in 2012 while the
discount rates used for the foreign currency-denominated loans ranged from 0.09% to 4.27% in
2013, 0.13% to 3.01% in 2012 and 1.02% to 3.16% in 2011.
The fair value of noncurrent other financial liabilities (fixed rate and variable rate loans repriced on
a semi-annual/annual basis and deposits) are estimated using the discounted cash flow
methodology using the current incremental borrowing rates for similar borrowings with maturities
consistent with those remaining for the liability being valued. The discount rates used ranged from
0.23% to 6.16% in 2013, 0.28% to 6.37% in 2012 and 1.29% to 5.27% in 2011.
For variable rate loans that reprice every three months, the carrying value approximates the fair
value because of recent and regular repricing based on current market rates.
The following table shows the fair value hierarchy of the Group’s assets and liabilities as at
December 31, 2013, 2012 and January 1, 2012 (amounts in thousands):
2013
Quoted Prices in
Active Markets
(Level 1)
Recurring financial assets measured
at fair value
Financial assets at FVPL
Derivative assets
Embedded
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
(Forward)
Significant
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Total
P
=–
P
= 12,799,097
P
= 5,117,416
P
= 17,916,513
–
–
456,768
456,768
1,241,869
–
103,301
P
= 1,345,170
–
1,156,055
–
P
= 13,955,152
–
281,173
–
P
= 5,855,357
1,241,869
1,437,228
103,301
P
= 21,155,679
Quoted Prices in
Active Markets
(Level 1)
Recurring financial assets for which
fair values are disclosed:
Loans and receivables
Investments in associates and joint
ventures*
Recurring financial liabilities
measured at fair value
Derivative liabilities
Freestanding
Embedded
Recurring financial liabilities for which
fair values are disclosed:
Noncurrent other financial liabilities
Service concession obligation
Other noncurrent liabilities
Long-term debt
Significant
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Total
P
=–
P
=–
P
= 40,453,667
P
= 40,453,667
157,782,802
P
= 157,782,802
–
P
=–
–
P
= 40,453,667
157,782,802
P
= 198,236,469
P
=–
–
P
=–
P
= 1,803
–
P
= 1,803
P
=–
1,667
P
= 1,667
P
= 1,803
1,667
P
= 3,470
P
=–
–
–
P
=–
P
=–
–
–
P
=–
P
= 12,738,815
23,809,863
186,432,252
P
= 222,980,930
P
= 12,738,815
23,809,863
186,432,252
P
= 222,980,930
Non-recurring nonfinancial assets for
which fair values are disclosed:
Noncurrent assets held for sale
P
=–
P
=–
P
= 3,328,712
P
= 3,328,712
Nonfinancial assets for which fair
values are disclosed:
Investment properties
P
=–
P
=–
P
= 232,927,400
P
= 232,927,400
*Fair value of investments in listed associates and joint ventures for which there are published price quotations
2012
Quoted Prices in
Active Markets
(Level 1)
Recurring financial assets measured
at fair value
Financial assets at FVPL
Derivative assets
Embedded
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Unquoted debt investments
Recurring assets for which fair values
are disclosed:
Loans and receivables
Investments in associates and joint
ventures*
Recurring financial liabilities for which
fair values are disclosed:
Noncurrent other financial liabilities
Service concession obligation
Other noncurrent liabilities
Long-term debt
Significant
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Total
P
= 723,700
P
= 4,302
P
= 3,804,321
P
= 4,532,323
–
–
184,276
184,276
1,790,043
–
99,501
–
P
= 2,613,244
–
1,117,965
–
236,411
P
= 1,358,678
–
–
–
–
P
= 3,988,597
1,790,043
1,117,965
99,501
236,411
P
= 7,960,519
P
= 31,682,014
P
= 31,682,014
P
=–
P
=–
146,050,834
P
= 146,050,834
–
P
=–
P
=–
–
–
P
=–
P
=–
–
–
P
=–
–
P
= 31,682,014
P
= 13,004,644
23,265,120
151,560,554
P
= 187,830,318
146,050,834
P
= 177,732,848
P
= 13,004,644
23,265,120
151,560,554
P
= 187,830,318
Nonfinancial assets for which fair
values are disclosed:
Investment properties
P
=–
P
=–
P
= 228,959,300
P
= 228,959,300
*Fair value of investments in listed associates and joint ventures for which there are published price quotations
2011
Quoted Prices in
Active Markets
(Level 1)
Recurring financial assets measured
at fair value
Financial assets at FVPL
Derivative assets
Embedded
Freestanding
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Unquoted debt investments
Recurring assets for which fair values
are disclosed:
Loans and receivables
Investments in associates and joint
ventures*
Recurring financial liabilities
measured at fair value
Derivative liabilities
Freestanding
Recurring financial liabilities for which
fair values are disclosed:
Noncurrent other financial liabilities
Service concession obligation
Other noncurrent liabilities
Long-term debt
Significant
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Total
P
=–
P
= 4,455
P
= 1,466,374
–
–
–
2,765
119,939
–
119,939
2,765
–
–
993,563
1,508,373
874,161
439,071
P
= 5,408,701
993,563
1,508,373
874,161
–
P
= 3,376,097
–
–
–
439,071
P
= 446,291
P
= 1,470,829
–
–
P
= 1,586,313
P
=–
P
=–
P
= 20,195,341
P
= 20,195,341
P
= 88,222,162
P
= 88,222,162
–
P
=–
–
P
= 20,195,341
88,222,162
P
= 108,417,503
P
=–
P
= 1,515
P
=–
P
= 1,515
8,733,961
9,542,916
103,934,322
122,211,199
8,733,961
9,542,916
103,934,322
122,211,199
P
=–
–
–
P
=–
P
=–
–
–
P
=–
Nonfinancial assets for which fair
values are disclosed:
Investment properties
P
=–
P
=–
P
= 211,774,600
P
= 211,774,600
*Fair value of investments in listed associates and joint ventures for which there are published price quotations
There was no change in the valuation techniques used by the Group in determining the fair market
value of the assets and liabilities.
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.
A reconciliation of the beginning and closing balances of Level 3 financial assets at FVPL are
summarized below:
At January 1
Additions
Disposals/ redemptions
Recognized in statement of
income
At December 31
2013
P
= 3,988,597
1,702,033
(451,939)
2012
P
= 1,586,313
2,498,264
–
616,666
P
= 5,855,357
(95,980)
P
= 3,988,597
2011
P
= 903,851
871,555
(229,613)
40,520
P
= 1,586,313
The fair value of the embedded put and call option of IMI are highly sensitive to the estimated
12-month trailing EBITDA of PSi during the option period and PSi’s cost of equity as of valuation
date.
The following are the estimated changes in the fair values of the embedded derivatives assuming
the estimated EBITDA used in the fair value calculation would vary by 5% (amounts in thousands):
2012
Increase
(Decrease)
in net income
Estimated EBITDA is 5% higher
Call option
Estimated EBITDA is 5% lower
Call option
P
=–
–
In 2012, an amendment to the investors’ agreement regarding the call strike price was made. The
new agreement defines call and put strike price at a fixed amount of US$150,000. Hence, the fair
value of the put and call options would not be affected by the changes in the estimated EBITDA
Derivatives
Derivative Assets
Conversion option of AIVPL
Embedded call options of IMI
Derivative Liabilities
Conversion option of AIVPL
Freestanding currency forwards of IMI
2013
2012
P
= 456,768
–
P
= 456,768
P
= 66,996
117,280
P
= 184,276
P
= 1,604
1,803
P
= 3,407
P
=–
–
P
=–
Freestanding Derivatives
In 2013 and 2012, IMI entered into various short-term currency forwards with an aggregate
notional amount of US$37.0 million and US$13.0 million, respectively. As of December 31, 2013
and 2012, the outstanding forward contracts have a net positive fair value of US$0.04 million and
nil and US$0.03 million, respectively. Net fair value gains (loss) recognized in 2013, 2012 and
2011 amounted to (US$0.4) million, nil and US$0.9 million, respectively (see Note 23).
Embedded derivatives
MWC
P
= 2.0 Billion and P
= 1.5 Billion Loans
MWC has two 7-year loans with an aggregate amount of P
= 3.5 billion where it has the option to
prepay the whole loan or any part of the loan. For each Tranche, MWC will pay the amount
calculated as the greater of the present value of the remaining cash flows of the relevant Tranche
discounted at the yield of the “comparable benchmark tenor” as shown on the Bloomberg MART1
page or one hundred percent (100%) of the principal amount of the relevant Tranche being
prepaid.
The prepayment option of MWC effectively has two components: a long call option and a short put
option. The long call option entitles MWC to buy back the issued loan at the face amount while the
short put option enables the counterparty bank to sell back the loan to MWC at the market price
(present value of future cash flows discounted at prevailing market rates).
The long call option has a strike price equal to the face amount. Most likely, MWC will exercise
the long call option if the market value of the loan is higher than the face amount (in the money).
However, if the market value of the loan is lower than the face amount (out of the money), the
option will not be exercised.
On the other hand, the put option enables the counterparty bank to demand payment based on
the market value of the loan. Therefore, the strike price of the option is identified as the market
value of the loan. Based on analysis, the put option is not the usual option availed to protect the
holder from future decline of an asset’s market value. By setting the strike price at market value,
the put option provides protection to the holder, as a writer of the call option, from possible losses
resulting from the exercise of the call option.
Based on the payoff analysis, the value of the long call and the short put options are offsetting
resulting to net payoff of zero. Consequently, no value for the embedded derivatives is
recognized.
P
= 4.0 Billion Bonds Embedded Call Option
MWC has an embedded call option on the P
= 4.0 billion Peso Bonds issued on October 22, 2008.
The embedded call option gives MWC the right to redeem all, but not in part, the outstanding
bonds on the twelfth interest payment date. The amount payable to the bondholders in respect of
such redemptions shall be calculated based on the principal amount of the bonds being
redeemed, as the sum of 102% of the principal amount and accrued interest on the bonds on the
optional redemption date. On issue date, MWC recognized separately the fair value of the
embedded call option, resulting in recognition of a derivative asset and loan premium amounting
to P
= 210.6 million. The embedded derivative is carried at FVPL while the loan premium is
amortized at effective interest rate over the life of the loan.
On October 23, 2011, the derivative asset was derecognized upon redemption of the P
= 4.0 billion
Peso Bonds. The loss recognized due to the derecognition of derivative asset amounted to
P
= 229.6 million.
P
= 10.0 Billion Notes Payable
MWC has an embedded call option on the P
= 10.0 Billion Corporate Notes issued on April 8, 2011.
The embedded call option gives MWC the right to redeem all, but not in part, the outstanding
notes starting on the seventh anniversary. The amount payable to the holder in respect of such
redemptions shall be calculated based on the principal amount of the bonds being redeemed, as
the sum of 102% of the principal amount and accrued interest on the notes on the optional
redemption date. As of December 31, 2011, the option was assessed as not clearly and closely
related to the host contract since the amortized cost of the loan does not approximate the
prepayment at each option exercise date. However, as of inception date, the value of the option is
not material. As of December 31, 2012, the option has been reassessed which resulted to the
option as clearly and closely related to the host contract since the amortized cost of the loan
approximates the prepayment at each option exercise date.
P
= 5.0 Billion Notes
MWC has an embedded call option on the P
= 5.00 Billion Corporate Notes issued on
August 16, 2013. The embedded call option gives MWC the right to redeem all but not in part the
outstanding notes starting on the 3rd anniversary. The amount payable to the holder in respect of
such redemptions shall be calculated based on the principal amount of the bonds being
redeemed, as the sum of 102%-100.5% of the principal amount and accrued interest on the notes,
depending on the optional redemption date.
As of December 31, 2013, the option was assessed as clearly and closely related to the host
contract since the amortized cost of the loan approximates the prepayment at each option
exercise date. However, as of inception date, the value of the option is not material.
IMI Group
IMI Philippines
In 2013 and 2012, IMI Philippines entered into various short-term currency forwards with an
aggregate notional amount of US$37.0 million and US$13.0 million, respectively. As of
December 31, 2013 and 2012, the outstanding forward contracts have a net negative fair value of
US$0.04 million and nil, respectively. Net fair value gains (loss) recognized in 2013, 2012 and
2011 amounted to (US$0.4) million, US$1.6 million and US$0.9 million, respectively.
PSi Equity Call and Put Option
As discussed in Note 24, the acquisition of PSi gave rise to a long equity call option and written
equity put option for IMI Philippines.
As of December 31, 2013 and 2012, the call option has zero value and US$2.86 million
(P
= 117.4 million), respectively, while the put option has a zero value on both years. Net fair value
gain on the options amounted nil, US$0.1 million (P
= 5.3 million) and US$5.4 million (P
= 221.7 million)
in 2013, 2012 and 2011 respectively. The call option is included as part of “Other current assets”
while the put option is included as part of “Other current liabilities” in the consolidated statement of
financial position.
AIVPL Group
Note A
In conjunction with the transactions contemplated by the Subscription Agreement among the
Borrower, Lender and Actis, in February 2010, Integreon has settled $22.15 million of the total
outstanding notes receivables. Consequently, upon settlement of the notes, the marked to market
valuation amounting to $1.75 million, which had been recognized in prior years pertaining to the
convertible promissory notes of $7.30 million was reversed and charged to “Other expenses”
account. Simultaneously, Integreon has issued a new 14% one-year convertible promissory note
with a principal of $7.30 million. Certain provisions of the promissory note are as follows:
1. The lender has a conversion option, which set forth that the principal can be converted to
Class A-4 preferred shares, for a period of thirty (30) days beginning on the Final Maturity
Date at a price of US$55.91 per share.
2. The Borrower has the option to prepay the loan in full or in part together with the accrued
interest, which upon exercise shall annul the optional conversion option of the lender on the
extent of the principal paid.
On February 15, 2011, AIVPL, Integreon and Actis have approved amendments on the 14%
convertible note, with a principal amount of $7.30 million dated February 16, 2010, as follows:
a) The Final Maturity Date is extended to February 15, 2012 and if unpaid, interest shall continue
to accrue at the rate of 15% per annum until such time Integreon has settled the note.
b) The Optional Conversion Period shall be from February 16, 2011 through March 15, 2012.
c) The Lender has the right to exercise the Conversion Option as many times during the Optional
Conversion Period provided that Conversion amount shall not exceed the principal amount.
As a result of the amendments made on the note, this effectively terminated the rights and
obligations of AIVPL associated with the loan. Thus, the derivative liability initially recognized on
February 16, 2010 expired. The amended note introduced new rights and these have been
recognized as derivative asset in the consolidated statement of financial position.
On July 15, 2012, AIVPL, Integreon and Actis have approved amendments on the 14% convertible
note, with a principal amount of $7.30 million dated February 16, 2010, as follows:
a) The Final Maturity Date is extended from February 15, 2012 to February 15, 2014;
b) The Borrower is liable for the principal sum of $7.30 million, plus accrued interest at the rate of
a) fourteen percent (14%) p.a. until February 15, 2012; and b) twelve percent (12%) p.a. from
February 16, 2012 until the Final Maturity Date.
c) The Optional Conversion Period shall be from February 15, 2014 through March 16, 2015.
d) The Lender has the option to extend the Final Maturity Date to a date that is one (1) year from
the immediately preceding Final Maturity Date. This option shall be exercised during the
Optional Conversion Period.
The abovementioned amendments to the note effectively terminated the rights and obligations of
AIVPL associated with the loan. The derivative asset initially recognized on February 16, 2011
has expired, and thus has been reversed. The amended note introduced new rights and these
have been recognized as derivative asset in the consolidated statement of financial position.
As of December 31, 2013 and 2012, the fair value of the compound embedded derivatives
representing the Conversion Option and the Term Extension Option amount to $0.65 million and
$0.36 million, respectively.
As of December 31, 2013 and 2012, the carrying amount of the note amounted to $7.49 million
and $7.68 million, respectively. This is determined using EIR at 11.0%, after the effect of
separating the compound embedded derivative upon issuance of the note.
Note B
On April 27, 2012, Stream issued a convertible promissory note to AIVPL amounting to
$4.72 million, which bears interest of 10% p.a, compounded annually, calculated on the basis of a
360-day year and actual days elapsed. The note will mature on April 29, 2013.
Certain provisions of the promissory note are as follows:
a) Conversion option - The Lender may elect at any time after the Maturity Date, upon delivery of
written notice to the Borrower, at least two (2) days prior to the date specified therein for
conversion, to convert the note to a number of units of membership interest in Stream,
determined by dividing the (i) the outstanding principal amount that has not been repaid,
together with all accrued and unpaid interest thereon, as of the date of conversion, by (ii) a
conversion price equal to $3.25 per unit, subject to certain adjustments.
b) Prepayment option - The Borrower has the option to prepay all (but not less than all) of the
unpaid principal balance of the Note, together with all accrued interest thereon and all other
sums payable thereunder.
On April 19, 2013, Stream, NewBridge and certain holders of convertible promissory notes
entered to an exchange agreement which the original convertible promissory notes issued on
April 27, 2012 was amended and restated into new convertible promissory notes dated
April 19, 2013. The new convertible promissory note issued to NewBridge amounting to
$4.72 million has the following amended provisions:
a) The Final Maturity Date is on April 29, 2014.
b) The Borrower is liable for the principal sum of $4.72 million, plus accrued interest commencing
on April 27, 2012 at the rate of 10% p.a. compounded annually, calculated on the basis of a
360-day year and actual days elapsed.
c) The Conversion price shall be equal to $325 per share, subject to certain adjustments.
Management has assessed that the prepayment option is clear and closely-related to the host
contract, thus has not been separately accounted for.
Fair Value Changes on Derivatives
The net movements in fair values of the Group’s derivative instruments as of December 31 follow
(amounts in thousands):
Derivative Assets
Balance at beginning of year
Initial value of long call option
Net changes in fair value of derivatives
Fair value of settled instruments
Balance at end of year
2013
P
= 184,276
–
389,772
574,048
(117,280)
P
= 456,768
2012
P
= 122,704
1,027
128,945
252,676
(68,400)
P
= 184,276
Derivative Liability
Balance at beginning of year
Net changes in fair value of derivatives
Balance at end of year
2013
P
=–
3,470
P
= 3,470
2012
P
= 1,515
(1,515)
P
=–
Net changes in fair value of derivative asets and liabilities was recognized in the consolidated
statement of income under “Other Income”. However, the net changes in fair value of IMI Group’s
freestanding currency forward are recognized in the consolidated statements of comprehensive
income under “Foreign exchange gains (losses)” (see Note 23).
34. Registration with the Philippine Export Zone Authority (PEZA) and Board of Investments
(BOI) Incentives
Some activities of certain subsidiaries are registered with the PEZA. Under the registration, these
subsidiaries are entitled to certain tax and nontax incentives, which include, but are not limited to,
income tax holiday (ITH) and duty-free importation of inventories and capital equipment. Upon the
expiration of the ITH, the subsidiaries will be liable for payment of a five percent (5%) tax on gross
income earned from sources within the PEZA economic zone in lieu of payment of national and
local taxes.
On March 23, 2011, the BOI issued in favor of a subsidiary a Certificate of Registration as New
Developer of Low-Cost Mass Housing Project for its Amaia Scapes Laguna, Brgy. Barandal,
Calamba City, Laguna. Pursuant thereto, the project has been granted an Income Tax Holiday for
a period of four (4) years commencing from March 2011.
On December 13, 2011, the BOI issued in favor of a subsidiary a Certificate of Registration as a
New Developer of Low-Cost Mass Housing Project for its Avida Towers Cebu Tower 1, Asiatown
I.T. Park, Lahug, Cebu City. The project has been granted an Income Tax Holiday for a period of
four (4) years commencing from December 2011.
On December 14, 2011, the BOI issued in favor of a subsidiary a Certificate of Registration as an
Expanding Developer of Low-Cost Mass Housing Project for its Avida Towers San Lazaro
Tower 5, Lot 5 E Block 50 C Pista St., Brgy. 350, Zone 035 Sta. Cruz, Manila, Avida Towers Cebu
Tower 2, Asiatown I.T. Park, Lahug, Cebu City and Avida Towers Sucat Tower 7, Dr. A. Santos
Ave., Brgy. San Dionisio, Parañaque City. The projects have been granted an Income Tax
Holiday for a period of three (3) years commencing from December 2011.
35. Notes to Consolidated Statements of Cash Flows
The Group’s noncash investing and financing activities are as follows:
2013
· Conversion of subscription and advances of the Company from ACEHI amounting to
P
= 3.4 billion into 33.9 million common shares in 2013.
· In November 2013, the Company acquired 37.6 million ADHI Class B common shares for a
total consideration of P
= 13.2 billion. Outstanding payable to ADHI arising from this transaction
amounted to P
= 9.9 billion.
· LAWC’s payable to LTI amounting to P
= 343.75 million representing 55% of the total purchase
price amounting to P
= 625.00 million as of December 31, 2013.
· Noncontrolling interest in shares of subsidiary through business combination pertaining to
purchase of water assets from LTI amounting to P
= 281.96 million.
· Capitalization of office equipment under finance lease amounting to P
= 134.5 million.
· Transfers from land and improvements to inventories amounting to P
= 14.7 billion.
· Transfers from land and improvements to investment properties amounting to P
= 1.5 billion.
· Transfers from inventories to investment properties and property and equipment amounting to
P
= 26.1 million in 2013.
· Transfers from investment properties to property and equipment amounting to P
= 157.4 million.
· Transfers from property and equipment to other assets amounting to P
= 2.2 billion.
2012
· Conversion of subscription and advances from ACEHI amounting to P
= 2.2 billion into 21.8
million common shares in 2012.
· In 2012, the Company acquired 309.3 million common shares of DBS in BPI and
15.0 million ADHI Class B common shares for a total consideration of P
= 21.6 billion and
P
= 3.98 billion, respectively. As of December 31, 2013 and 2012, outstanding payable to DBS
amounted to P
= 4.3 billion and P
= 12.8 billion, respectively. The decrease in accounts payable
and accrued expenses relating to this transaction were classified under investing activities.
· Conversion of receivable from BHL amounting to US$2.7 million (P
= 110.8 million) into
0.3 million redeemable preferred shares in 2012.
· Subscription of the Company to 1.4 million common shares of AC Infra, which amounted to
P
= 140.0 million in 2012. The related amount is recorded under subscription payable.
· In 2012, cash activity pertaining to service concession assets amounting to P
= 907.8 million and
P
= 189.2 million were classified under investing and operating activities, respectively.
· Contingent consideration for the purchase of KDW amounting to P
= 90.2 million as of
December 31, 2012 (see Note 12).
· Capitalization of office equipment under finance lease amounting to $32 million.
· Transfers from land and improvements to inventories amounting to P
= 1.2 billion.
· Transfers from investment properties to inventories amounting to P
= 116.1 million.
· Transfers from investment properties to property and equipment amounting to P
= 96.1 million.
· Transfers from property and equipment to other assets amounting to P
= 764.4 million.
· Other noncash items pertain to business combinations in 2012 and 2010 (see Note 24).
2011
· Exchange of interest in ARCH Capital for additional interest in TRG shares (see Note 12).
· Recognition of contingent consideration arising from the acquisition of wind power companies
amounting to P
= 397.0 million (see Note 24).
· Issuance of 200 million of IMI Philippines’ shares in exchange for EPIQ shares (see Note 24).
· Declaration of a 20% stock dividend on all common stockholders of the Company.
· Conversion of notes receivable amounting to P
= 47.5 million into Series G Preferred shares of
stock of an investee company classified as investments in bonds and other securities.
· Certain investment properties with an aggregate carrying value of P
= 15.1 million were donated
by the Group to various organizations.
36. Interest in a Joint Operation
MDC has a 51% interest in Makati Development Corporation - First Balfour, Inc. Joint Venture (the
Joint Venture), a joint operation whose purpose is to design and build St. Luke’s Medical Center
(the Project) in Fort Bonifacio Global City, Taguig. The application of PFRS 11 does not have
significant impact on the Group’s accounting of its interest in a joint operation since it already
reported its share in interest in a joint operation using proportionate consolidation.
The Project, which started on January 31, 2007, is a world-class medical facility comprising, more
or less, of a 611-bed hospital and a 378-unit medical office building, with an approximate gross
floor area of 154,000 square meters, which meets international standards, and all standards and
guidelines of applicable regulatory codes of the Philippines and complies with the criteria of the
Environment of Care of the Joint Commission International Accreditation. The project was
completed on October 30, 2009. Activities in 2011 to 2013 mainly pertain to winding down
operations and punch listing works.
The share of MDC in the net assets and liabilities of the Joint Operation at December 31, 2013
and 2012 and January 1, 2012 which are included in the consolidated financial statements follow:
2013
Current assets:
Cash and cash equivalents
Amounts due from customers
for contract work
Other current assets
Total assets
Total liabilities
2012
(In Thousands)
2011
P
= 65,045
P
= 33,217
P
= 24,622
–
51,698
P
= 116,743
P
= 18,986
10,582
55,317
P
= 99,116
P
= 49,330
10,582
54,809
P
= 90,013
P
= 66,968
The following is the share of the MDC on the net income of the Joint Venture:
2013
Revenue from construction contracts
Contract costs
Interest and other income
Income (loss) before income tax
Provision for income tax
Net loss
2012
(In Thousands)
P
=–
P
=–
(1,031)
(994)
946
1,175
(85)
181
85
(181)
P
=–
P
=–
2011
P
= 2,069
(9,687)
2,490
(5,128)
(148)
(P
= 5,276)
The Joint Venture’s Management Board declared and paid cash dividends amounting to
P
= 185.3 million in 2010. Based on 51% share, MDC received P
= 94.5 million cash dividends in
2010.
Provision for income tax pertains to the final tax on interest income.
37. Commitments
The Company acted as guarantor to AYCFL’s term loans and credit facilities as follows:
Description of Facility
Date Contracted
US$50.0 million transferable
term loan facility
April 15, 2008
US$229.2 million transferable
term loan facility
December 16, 2010
US$150 million transferable
term loan facility
March 28, 2011
US$20.0 million revolving
credit facility
September 28, 2012
US$225 million transferable
term loan facility
November 28, 2013
2013
2012
Amount
drawn as of
December 31,
Outstanding balance as of
2013
December 31
(Amounts in thousands)
US$50,000
US$–
US$40,000
229,200
229,200
229,200
50,000
50,000
–
Undrawn
–
–
Undrawn
–
US$279,200
–
US$269,200
The Company unconditionally guaranteed the due and punctual payment of advances if, for any
reason AYCFL does not make timely payment. The Company waived all rights of subrogation,
contribution, and claims of prior exhaustion of remedies. The Company’s obligation as guarantor
will remain in full force until no sum remains to be lent by the lenders, and the lenders recover the
advances.
ALI Group
On February 10, 2010, ALI signed a lease agreement with the Subic Bay Metropolitan Authority
(SBMA), for the development of a 7.5-hectare property along Rizal Highway within the Subic Bay
Freeport Zone, located between the two main gates linking the Freeport Zone to Olongapo City.
The lease commitment is expected to be completed in 2060 after the 50-year lease term. The
lease may be renewed for another 25 years upon mutual agreement of the parties. ALI offered to
develop a mall with an estimated gross leasable area of 38,000 square meters.
On March 25, 2010, ALI entered into an assignment of lease agreement whereby ALI assigned its
rights and obligations granted to or imposed under the lease agreement to its subsidiary, SBTCI.
The lease payments to SBMA started from the commencement of the commercial operation of the
mall last April 26, 2012 which was completed during the same period.
On October 27, 2006, an ALI subsidiary entered into a land lease agreement with a third party for
a term of 25 years. The lease generally provides for a monthly rent based on a certain percentage
of gross revenue.
ALI has an existing contract with Bases Conversion and Development Authority (BCDA) to
develop, under a lease agreement a mall with an estimated gross leasable area of 152,000 square
meters on a 9.8-hectare lot inside Fort Bonifacio. The lease agreement covers 25 years,
renewable for another 25 years subject to reappraisal of the lot at market value. The annual fixed
lease rental amounts to P
= 106.5 million while the variable rent ranges from 5% to 20% of gross
revenues. Subsequently, ALI transferred its rights and obligations granted to or imposed under
the lease agreement to a subsidiary, in exchange for equity.
As part of the bid requirement, ALI procured a performance bond in 2003 from the Government
Service Insurance System in favor of BCDA amounting to P
= 3.9 billion to guarantee the committed
capital to BCDA. Moreover, the subsidiary obtained standby letters of credit to guarantee the
payment of the fixed and variable rent as prescribed in the lease agreement.
MDC, in the normal course of business, furnishes performance bonds in connection with its
construction projects. These bonds shall guarantee MDC’s execution and completion of the work
indicated in the respective construction contracts.
On October 18, 2010, ALI undertook to cause the planning, developing and construction of
Anvaya Golf and Sports Club, Inc.’s leisure and recreational facilities. ALI shall ensure the
development and construction by second quarter of the year 2013 for an estimated total
development cost of P
= 920.0 million.
Parent Company’s Concession Agreement
In 2012, the Company entered into a concession agreement with the DPWH to finance, design,
construct, operate and maintain the Daang Hari - SLEX Link Road (the Project). Under the
concession agreement, the Company will:
a. Purchase the advance works on Segment I of the Project from Alabang - Sto. Tomas
Development, Inc. and finance and construct the remaining works thereof.
b. Finance, design, and construct Segment II of the Project.
c. Undertake the operations and maintenance of the Project.
d. Impose and collect tolls from the users of the Project.
e. Grant business concessions and charge and collect fees for non-toll user related facilities and
toll user related facilities situated in the Project.
The Company is authorized to adjust the toll rates once every two years in accordance with a
prescribed computation as set out in the concession agreement and upon compliance with the
rules and regulations on toll rate implementation as issued or may be issued by the Toll
Regulatory Board.
In the event that the Company is disallowed from charging and collecting the authorized amounts
of the toll rates as prescribed in the concession agreement from the users of the Project, the
Company shall be entitled to either of the following:
a. Compensation from the DPWH of the toll income forgone by the Company which shall be
calculated based on a prescribed computation under the concession agreement.
b. Extension of the concession period to compensate the Company for the forgone toll income
which shall be mutually agreed by the Company and the DPWH.
The Company shall pay the DPWH an amount equal to 5% of all gross revenues arising from nontoll user and toll user related facilities situated within the Project.
The concession period shall commence on the date of the issuance of the Notice to Proceed with
Segment II and shall end on the date that is 30 years thereafter, unless otherwise extended or
terminated in accordance with the concession agreement. Any extension of the concession period
shall in no event be beyond 50 years after the date of the issuance of the Notice to Proceed with
Segment II.
As of December 31, 2013 and 2012, the Company’s capital commitment for construction of
service concession asset amounted to P
= 665.8 million.
MWC Group
MWC’s Concession Agreement (Agreement)
The significant commitments of MWC under the Agreement and Extension are as follows:
a. To pay MWSS concession fees;
b. To post a performance bond, bank guarantee or other security acceptable to MWSS
amounting to US$70.0 million in favor of MWSS as a bond for the full and prompt performance
of MWC’s obligations under the Agreement. The aggregate amounts drawable in one or more
installments under such performance bond during the Rate Rebasing Period to which it relates
are set out below.
Rate Rebasing Period
First (August 1, 1997 - December 31, 2002)
Second (January 1, 2003 - December 31, 2007)
Third (January 1, 2008 - December 31, 2012)
Fourth (January 1, 2013 - December 31, 2017)
Fifth (January 1, 2018 - December 31, 2022)
Sixth (January 1, 2013 - December 31, 2027)
Seventh (January 1, 2028 - December 31, 2032)
Eighth (January 1, 2033 - May 6, 2037)
Aggregate amount drawable
under performance bond
(in US$ millions)
US$70.0
70.0
60.0
60.0
50.0
50.0
50.0
50.0
Within 30 days from the commencement of each renewal date, MWC shall cause the
performance bond to be reinstated in the full amount set forth above as applicable for that
year.
Upon not less than 10-day written notice to MWC, MWSS may make one or more drawings
under the performance bond relating to a Rate Rebasing Period to cover amounts due to
MWSS during that period; provided, however, that no such drawing shall be made in respect
of any claim that has been submitted to the Appeals Panel for adjudication until the Appeals
Panel has handed down its decision on the matter.
In the event that any amount payable to MWSS by MWC is not paid when due, such amount
shall accrue interest at a rate equal to that of a 364-day Treasury Bill for each day it remains
unpaid;
c.
With the Extension, MWC agreed to increase its annual share in MWSS operating budget by
100% from P
= 100 million to P
= 395 million, subject to annual CPI;
d. To meet certain specific commitments in respect of the provision of water and sewerage
services in the East Zone, unless deferred by MWSS-RO due to unforeseen circumstances or
modified as a result of rate rebasing exercise;
e. To operate, maintain, renew and, as appropriate, decommission facilities in a manner
consistent with the National Building Standards and best industrial practices so that, at all
times, the water and sewerage system in the East Zone is capable of meeting the service
obligations (as such obligations may be revised from time to time by the MWSS-RO following
consultation with MWC);
f.
To repair and correct, on a priority basis, any defect in the facilities that could adversely affect
public health or welfare, or cause damage to persons or third party property;
g. To ensure that at all times, MWC has sufficient financial, material and personnel resources
available to meet its obligations under the Agreement; and
h. To ensure that no debt or liability that would mature after the life of the Agreement will be
incurred unless with the approval of MWSS.
Failure of MWC to perform any of its obligations that is deemed material by MWSS-RO may cause
the Agreement to be terminated.
In 2013, MWC submitted the Rate Rebasing Proposals to MWSS for final evaluation as set forth in
the Concession Agreement. On September 10, 2013, MWSS-RO issued Resolution No. 13-09-CA
providing for the MWSS rate rebasing negative adjustment of negative 29.47% to MWC’s 2012
average basic water charge of P
= 24.57 per cubic meter. The adjustment was supposed to be
implemented in 5 equal tranches of negative 5.894% per charging year. Consequently, MWC
objects to MWSS’ Rate Rebasing Determination and thus brings the matter before the Appeals
Panel, pursuant to the dispute resolution mechanism in the Concession Agreement sections 9.4
and 12. MWC formally filed its Dispute Notice on September 24, 2013, which officially
commenced the arbitration process pursuant to the Concession Agreement with MWSS.
On December 10, 2013, the MWSS Board of Trustees thru R.O. Resolution No. 13-012 CA,
approved the implementation of a Status Quo for Manila Water’s Standard Rates and FCDA for
any and all of its scheduled adjustments, until such time that the Appeals Panel has issued the
Final Award for the 2013 Rate Rebasing determination. The adjustments resulting from the status
quo for FCDA shall be reckoned upon resumption of said adjustments, subject to the principle of
no-over recovery or no-under recovery.
LAWC’s Concession Agreement
The significant commitments of LAWC under its concession agreement with POL are as follows:
a. To pay POL concession fees;
b. To manage, occupy, operate, repair, maintain, decommission, and refurbish the transferred
facilities;
c.
To design, construct and commission the new facilities during the cooperation period;
d. To provide and manage the services;
e. To bill and collect payment from the customer for all services;
f.
To extract raw water exclusively from all sources of Raw Water; and
g. To negotiate in good faith with POL any amendment or supplement to the concession
agreement to establish, operate and maintain wastewater facilities if doing such is financially
and economically feasible.
BIWC’s Concession Agreement
The significant commitments of BIWC under its concession agreement with TIEZA are as follows:
a. To meet certain specific commitments in respect of the provision of water and sewerage
services in the service area, unless deferred by the TIEZA Regulatory Office (TIEZA-RO) due
to unforeseen circumstances or modified as a result of rate rebasing exercise;
b. To pay concession fees, subject to the following provisions:
i.
Assumption of all liabilities of the BWSS as of Commencement Date and service such
liabilities as they fall due. BWSS has jurisdiction, supervision and control over all
waterworks and sewerage systems within the Boracay island prior to commencement
date. The servicing of such liabilities shall be applied to the concession fees;
ii.
Payment of an amount equivalent to 5% of the monthly gross revenue of BIWC,
inclusive of all applicable taxes. Such payments shall be subject to adjustment based
on the gross revenue of BIWC as reflected in its separate financial statements;
iii.
Provision of the amount of the TIEZA BOD’s approved budget in 2012, payable in
semi-annual installments at the first month of each quarter and not exceeding:
Month
January
July
iv.
Provision of the annual operating budget of the TIEZA-RO, payable in 2 equal
tranches in January and July and not exceeding:
Year
2011
2012
2013 and beyond
c.
Maximum Amount
P
= 10,000,000
10,000,000
Maximum Amount
P
= 15,000,000
20,000,000
20,000,000, subject to annual
CPI adjustments
To establish, at Boracay Island, a TIEZA-RO building with staff house, the cost of which
should be reasonable and prudent;
d. To pay an incentive fee pegged at P
= 1.00 per tourist, local and foreign, entering the service
area;
e. To raise financing for the improvement and expansion of the BWSS water and wastewater
facilities;
f.
To operate, maintain, repair, improve, renew and as appropriate, decommission facilities, as
well as to operate and maintain the drainage system upon its completion, in a manner
consistent with the National Building Standards and best industrial practices so that, at all
times, the water and sewerage system in the service area is capable of meeting the service
obligations (as such obligations may be revised from time to time by the TIEZA-RO following
consultation with BIWC);
g. To repair and correct, on a priority basis, any defect in the facilities that could adversely affect
public health or welfare, or cause damage to persons or third party property; and
h. To ensure that at all times, BIWC has sufficient financial, material and personnel resources
available to meet its obligations under the Agreement.
In addition, MWC, as the main proponent of BIWC shall post a bank security in the amount of
US$2.5 million to secure MWC’s and BIWC’s performance of their respective obligations under the
agreement. The amount of the performance security shall be reduced by MWC following the
schedule below:
Rate Rebasing Period
First
Second
Third
Fourth
Fifth
Amount of
Performance Security
(in US$ millions)
US$2.5
2.5
1.1
1.1
1.1
On or before the start of each year, BIWC shall cause the performance security to be reinstated in
the full amount set forth as applicable for that year.
Upon not less than 10 days written notice to BIWC, TIEZA may take one or more drawings under
the performance security relating to a Rate Rebasing Period to cover amounts due to TIEZA
during that period; provided, however, that no such drawing shall be made in respect of any claim
that has been submitted to the Arbitration Panel for adjudication until the Arbitration Panel has
handed its decision on the matter.
In the event that any amount payable to TIEZA by BIWC is not paid when due, such amount shall
accrue interest at a rate equal to that of a 364-day Treasury Bill for each day it remains unpaid.
Failure of BIWC to perform any of its obligations that is deemed material by TIEZA-RO may cause
the concession agreement to be terminated.
Technical services agreement
Simultaneous with the execution of BIWC’s concession agreement, BIWC and MWC executed a
Technical Services Agreement by which MWC is being paid by BIWC a technical services fee
equivalent to 4% of the annual gross revenue of BIWC, for rendering the following services to
BIWC:
a. Financial management, including billing and collection services, accounting methods and
financial control devices; and
b. Operations and project management, including facility operations and maintenance, and
infrastructure project management.
CWC’s Concession Agreement
The significant commitments of CWC under its concession agreement with CDC are follows:
a. To pay franchise and rental fees of CDC;
b. Finance, design, and construct the New Facilities - defined as any improvement and extension
works to (i) all Existing Facilities - defined as all fixed and movable assets specifically listed in
the Concession Agreement; (ii) the Construction Work - defined as the scope of construction
work set out in the Concession Agreement; and (iii) other new works that do not constitute
refurbishment or repair of Existing Facilities undertaken after the Commencement Date;
c.
Manage, exclusively possess, occupy, operate, repair, maintain, decommission and refurbish
the Existing Facilities, except for the private deep wells set out in the Concession Agreement,
the negotiations for the acquisition and control of which shall be the sole responsibility and for
the account of the Company; and manage, own, operate, repair, maintain, decommission and
refurbish the New Facilities;
d. Treat raw water and wastewater in CSEZ;
e. Provide and manage all water and wastewater related services (the Services) like assisting
locator of relocating of pipes and assess internal leaks;
f.
Bill and collect payment from the customers for the services (with the exception of SM City
Clark). SM City Clark has been carved out by virtue of Republic Act 9400 effective 2007 even
if it is located within the franchise area; and
g. Extract raw water exclusively from all sources of raw water including all catchment areas,
watersheds, springs, wells and reservoirs in CFZ free of charge by CDC.
MWC Management Contracts
Vietnam Project
On July 22, 2008, MWC entered into a Performance-Based Leakage Reduction and Management
Services Contract with Saigon Water Corporation. The contract involves the following
components:
a.
b.
c.
d.
d.
e.
General requirements;
District Metering Area establishment;
Leakage reduction and management services;
System expansion work;
Emergency and unforseen works; and
Daywork schedule
In 2013, 2012 and 2011, total revenue from the Vietnam Project amounted to P
= 174.9 million,
P
= 169.5 million and P
= 162.5 million, respectively. Total costs related to the Vietnam Project
amounted to P
= 96.2 million, P
= 124.5 million and P
= 171.7 million in 2013, 2012 and 2011,
respectively.
MWC contracts with the Maynilad Water Services, Inc. (Maynilad)
In relation to the Concession Agreement with MWSS, MWC entered into the following contracts
with Maynilad:
a. Interconnection Agreement wherein the two Concessionaires shall form an unincorporated
joint venture that will manage, operate, and maintain interconnection facilities. The terms of
the agreement provide, among others, the cost and the volume of water to be transferred
between zones.
b. Joint Venture Arrangement that will operate, maintain, renew, and as appropriate,
decommission common purpose facilities, and perform other functions pursuant to and in
accordance with the provisions of the Agreement and perform such other functions relating to
the concession (and the concession of the West Zone Concessionaire) as the
Concessionaires may choose to delegate to the joint venture, subject to the approval of
MWSS.
c.
In March 2010, MWSS entered into a loan agreement with The Export-Import Bank of China to
finance the Angat Water Utilization and Aqueduct Improvement Project Phase II (the
Project). Total loan facility is US$116,602,000 with maturity of 20 years including 5 years
grace period. Interest rate is 3% per annum. MWSS then entered into a Memorandum of
Agreement with MWC and Maynilad for MWC and Maynilad to shoulder equally the repayment
of the loan, to be part of the concession fees.
38. Contingencies
The Group has various contingent liabilities arising in the or