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A B O I T I Z
T R A N S P O R T
S Y S T E M
A T S C )
C O R P O R A T I O N
2 T H
F L O O R
U. N.
T I M E S
A V E.
P L A Z A
C O R N E R
E R M I T A
B U I L D I N G
T A F T
M A N I
A V E.
L A
Month
Day
(Fiscal Year)
02-5287516 / 02-5287630
(Company Telephone Number)
1
(Form Type)
Month
Day
(Annual Meeting)
2,219
Total No. of Stockholders
Domestic
Foreign
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
2.
4.
Exact name of issuer as specified in its charter Aboitiz Transport System (ATSC) Corporation
5. Philippines
Province, Country or other jurisdiction of
incorporation or organization
6.
7. 12th Floor Times Plaza Building United Nations Avenue corner Taft Avenue Ermita, Manila
__________
of principal office
1000
Postal Code
Address
2,446,136,400
4,560,417
No [ ]
No [ ]
13. Aggregate market value of the voting stock held by non-affiliates as of April 04, 2007:
P 225,921,214.50
TABLE OF CONTENTS
PAGE NO.
PART I BUSINESS AND GENERAL INFORMATION
Item 1
Item 2
Item 3
Item 4
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
4
24
27
27
28
30
41
42
43
53
54
56
57
a. Exhibits
b. Reports on SEC Form 17-C
SIGNATURES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
INDEX TO EXHIBITS
58
59
Item 1. Business
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION (ATS)
Business Development
The Companys history dates back to May 26, 1949 with the establishment of William Lines,
Inc., a passenger and cargo shipping company headquartered in Cebu. Driven by the vision
of providing the nation with the best shipping services, the company consolidated its
resources and expertise with two other Cebu based companies namely Carlos A. Gothong
Lines, Inc. and Aboitiz Shipping Corporation last December 21, 1995. This marked the birth
of William, Gothong & Aboitiz, Inc. (WG&A).
In 2002, Aboitiz Equity Ventures, Inc. (AEV) acquired the combined holdings of the Chiongbian
and Gothong Group. The buyout by AEV of the shareholdings of C&G Group was executed
through an Escrow Agreement dated July 31, 2002. In compliance with the agreement, the
Company amended its Article of Incorporation to change its registered corporate name from
William, Gothong & Aboitiz, Inc. (WG&A) to Aboitiz Transport System (ATSC) Corporation
which the Securities and Exchange Commission (SEC) approved last February 4, 2004.
Last October 24, 2005, the SEC authorized the issuance of 414,121,123 common shares in
exchange for the 100% of the outstanding capital stock of Aboitiz One Inc. (AONE), 50% of the
outstanding capital stock of Jebsen Management (BVI) Limited (JMBVI) and 62.5% of the
outstanding capital stock of each of Aboitiz Jebsen Bulk Transport Corporation (ABOJEB),
Aboitiz Jebsen Manpower Solutions, Inc. (AJMan) and Jebsen Maritime Inc (JMI). The major
shareholders of Aone, Abojeb, AJMSI, JMI and JMBVI are Aboitiz & Company, Inc. (ACO) and
certain affiliates of ACO. The ownership percentage of ACO increased from .02% to 16.50%
while AEV, although it remained the controlling stockholder of ATS, decreased its percentage
of ownership from 92.69% to 76.11%. The said share swap transaction consolidated the
transport and logistics businesses of the Aboitiz Group and is envisioned to maximize the
synergy and efficiencies and streamline operations and backroom processes.
ATS has six operating subsidiaries, Aboitiz One, Inc. (A-One), Aboitiz Jebsen Bulk Transport
Corp. (Abojeb), Aboitiz Jebsen Manpower Solutions, Inc. (AJMan), Jebsen Maritime Inc.
(JMI), Jebsen Management (BVI) Limited (JMBVI), Zoom In Packages, Inc. (ZIP).
Business of ATS
The Company is principally engaged in providing inter-island passenger transport and
cargo liner services in containers or break bulk through a route network comprising 20
ports of call in the Philippines. Today, ATS is the largest provider of domestic ferry
transportation services in the Philippines. Its branches maintain warehouses and
container yards in all of key locations of operations. It also has extensive passage sales
network nationwide.
Full branch operations are maintained in Manila, Cebu, Iloilo, Cagayan de Oro, Davao, General
Santos, Bacolod, Zamboanga, Dumaguete, Puerto Princesa, Iligan, Tagbilaran, Dipolog,
Cotabato, Nasipit and Surigao. An extensive agency network covering Ormoc, Coron, Ozamiz,
and Jagna strategically supports these branches.
Currently, ATS fleet includes 12 Company owned and 1 chartered operating vessels. This
vessel fleet has a combined Gross Registered Tonnage (GRT) of approximately 104,387
metric tons (MTs), total passenger capacity of approximately 21,857 passengers and
aggregate cargo capacity of approximately 1,810 twenty-foot equivalent units (TEUs).
With an estimated market share of 68% of the domestic passenger ferry service and an
estimated 34% of the domestic cargo service for the year ended December 31, 2006, ATS is
the market leader for domestic ferry transportation services. Consistent on-time delivery,
quality of service and high standardof safety make ATS an excellent business partner in the
Philippines.
Product Lines and Markets
Briefly, the Companys product lines or services are described as follows:
1. Passage - ATS offers domestic inter-island sea travel to eighteen (18) major destinations
in the Philippines. Its carrier brand SuperFerry is known for providing the best interisland sea travel within the Philippines through its continuous effort to upgrade levels of
Safety and Security, Cleanliness and Customer Service.
In 2006, the increasing number of alternatives in the transport industry and the resulting
lowering of fares by Airlines have made the competitive landscape an exciting one for
SuperFerry.
Year after year, SuperFerry does a survey to see what the customers expect from the
company. The top five customer expectations have always been better promos and
discounts, schedules and routes, customer service, cleanliness, and safety and security.
Multiple initiatives were carried out by Superferry to meet these expectations always
making sure that solutions were simple, enjoyable, always available as an option, and
selected ports that had ongoing fiestas. The Sail Sale promo was a monthly promo that
encouraged passengers to buy tickets in advance to avail of lower rates and offered a
pioneering one rate each for Central Visayas, Western Visayas, Northern Mindanao, and
Southern Mindanao. Lastly, Turistang Pinoy was a promo designed to stimulate travel
during the September Travel Month, and took the Sail Sale pricing approach a step
further by offering one rate for Visayas and one rate for Mindanao.
The SuperFerry call center renewed its ISO certification for the second year, ensuring
that quality systems are in full force to service customer needs. The E-ticket facility and
the entire SuperFerry website were redesigned to make it more customer friendly,
providing our customers with easier access to information.
SuperFerry pioneered the free shuttle service in Western Visayas and the SuperConnect
service in Northern Mindanao. Both initiatives were launched in partnership with top
local bus operators, ensuring the smooth entry of the service into the market. It also
expanded our service delivery to customers, allowed us convenient access to various
towns and cities, and provided a convenient pick-up and drop off point for SuperFerry
passengers. In addition, the SuperConnect partnership with one of Mindanao's largest
bus companies, Rural Transit Mindanao Inc., increased the frequency of our regular
Davao to Manila routes from 3x weekly to 8x weekly, and cut travel time from the regular
54 hours to 36 hours.
The traffic flow at the Eva Macapagal Super Terminal was rerouted to lessen the vehicle
congestion in the area and speed up the loading and unloading of passengers.
Boarding procedure was rationalized to address the different boarding needs of our
passengers. Passengers with plenty of baggage are directed to the newly completed
Baggage Terminal Area, which has the security, baggage handling, and porterage system
necessary to process large volumes of baggage, efficiently.
This successfully
decongested an express boarding lane used by light travelers, senior citizens, minors,
and persons with disabilities.
We instituted more measures to strengthen our safety and security system and
significantly cut-down inspection time. Highlights include the installation of a scan and
shoot system, enabling us to have a digital image of every ticketed passenger; and the
deployment of x-ray machines in the outports, as it was previously initially only available
in the Manila port.
Additional measures were instituted to strengthen our safety and security system and to
significantly cut-down inspection time. These include the installation of a scan and shoot
system, enabling us to have a digital image of every ticketed passenger; and the
deployment of x-ray machines in the outports, as it was previously initially only available
in the Manila port.
The pricing of on-board food and beverage items was rationalized, while at the same time
expanding the variety of choices. As a result of the successful sourcing of cheaper and
better raw materials, for example, a Chicken BBQ that used to sell for P99 is now
available at P55 for the same quality. Affordable impulse products are also available on
sari-sari store prices of between P2 to P5.
As a way of thanking customer patronage in Bacolod City, SuperFerry organized a Mega
Papremyo Raffle Promo, which awarded up to P1.5 million worth of prizes. This
successful project model will be replicated in other ports next year.
Customized apprenticeship programs are continuously being offered onboard the
SuperFerries for hotel, tourism and maritime students nationwide. The Maritime
Experience program (MarEx) provides on the job training for maritime students, while
Apprenticeship by Experience program (ApEx) provides hands on training for tourism,
hotel & restaurant management students. Both programs are TESDA-approved and are
fully integrated into the educational curriculum of schools. New training programs on
criminology, culinary, and cruise-line management are being developed.
Even as SuperFerry decreased its ports of call from 20 to 18, as part of its rationalization
efforts, it remains the leading passenger shipping line in the country.
True to the vision of its founders, SuperFerry continues to set new standards in the local
maritime industry.
2. Freight ATS offers various services under its 2GO Brand. These services are classified
under 4 main business divisions: freight, express, logistics and solutions.
2GO Express offers services that are Less Container Load or LCL including parcels
and documents. The LCLs can be divided into Day 1, Day 3 or Day 6 service. These refer
to the number of days the package or cargo is expected to arrive in the destination port.
2GO Logistics - offers services that require international connection to and from the
Philippine port. ATS has partnered with several agencies globally.
2GO Solutions offers service solutions for companies that require more than just freight
services.
2GO Freight offers services for Full Container Load. This caters to most kinds of
products except those identified as Dangerous Cargoes. In general, these cargoes come
from various segments such as Agriculture (including livestock), Manufacturing,
Construction, FSL (Foreign Shipping Lines), Mining, Retail and Wholesale, and 3PL such
as Forwarders and Truckers. It also accepts rolling cargoes such as cars, trucks and
equipment.
ATS believes in being able to provide for the specific needs of its market. 2GO Freight
further provides various container types depending on the need of the customers. These
containers come in three (3) sizes: 10-footer, 20-footer and 40-footer. They also come in
different forms: close container, special containers like flat racks (use to carry lumber),
fruit vans, hog vans, cattle vans and reefer vans.
2GO Freight also offers varied options designed to meet the customers needs and
requirements. Customers can choose among different delivery options -door-to-door,
door-to-pier, pier-to-door, or pier-pier. ).
ATS also boasts of having the only Customer Interaction Center in the industry that is
open for 24 hours. They are the frontliners who receive the bookings and confirmations
from customers as well as answering any queries on status of customers cargo.
The Companys net revenue mix (in millions of pesos) is as follows;
2006
Freight
Passage
Others
Total
P
=
P
=
6,530
3,020
1,021
10,571
2005
62%
28%
10%
100%
P
=
P
=
6,842
3,672
1,142
11,656
59%
32%
9%
100%
Competition
1. Passage
The passenger ferry service sector is considered as one of the primary means of inter-island
transport in the Philippines, being more cost effective compared with the other means of
transportation. At present, the domestic shipping industry provides a less expensive
alternative to air transport over long distances within the country.
On average, about 80% of the Companys passengers board the economy accommodation
with the remaining 20% split among the higher classes of accommodation tourist, business
class and Suite/Stateroom.
SuperFerry covers Central & Western Visayas and some parts of Northern & Southern
Mindanao.
SuperFerry competes with airlines as well as other domestic inter-island ferries. In order to
attract passengers to travel by sea, the shipping industry sees to it that a suitable gap
between the price of ferry tickets and airline fares is maintained.
For the past year, within the travel industry, the rise of consumer preference for RORO or
land transfer was evident. Specifically in Panay and Bacolod areas, there is a growing
passenger market that is shifting to another alternative means of transportation, using the
buses going to Manila and vice versa.
The companys strategy to combat this new transport alternative is to introduce new rate
promos and launched shuttle service to various points in Panay and Bacolod areas.
The type of market in which the company competes in has no barriers to entry.
Cut throat competition is an effect of fare diving to compensate for rising costs especially
fuel. There is no limit to competition in terms of pricing which can also be readily copied by
any player.
In terms of service, the players compete by providing reliable service to passengers in the
form of safety and on-time departures and arrivals. Convenient Ticket purchase
accessibility and booking process, frequency of schedules, improved facilities on-board and
entertainment also contribute to building Customer Satisfaction.
The following are the principal competitors of ATS in the passage services and the
corresponding geographic areas of competition:
1.
Negros Navigation for Bacolod, Iloilo, Puerto Princesa, Cagayan de Oro, Iligan,
Ozamis
2.
Sulpicio Lines for Iloilo, Iligan, Ozamis, Cebu, Cotabato, Davao, General Santos,
Dipolog, Dumaguete, Surigao, Tagbilaran, Zamboanga
3.
Cebu Pacific Bacolod, Butuan, Cotabato, Cebu, Cagayan de Oro, Dumaguete, Davao,
Iloilo, Puerto Princesa, Roxas, Tagbilaran, Zamboanga, Dipolog
4.
5.
In 2006, it is estimated that at least 8.8 million passengers, representing 11% of the total
population, were carried by domestic inter-island ships and airlines.
PAL is the largest player in the transport industry.
In the shipping industry, SuperFerry is the market leader.
Aggressive marketing and promotional activities play a key role in attracting passengers and
preserving the Companys market share.
Our passenger terminal in South Harbor, Manila is more efficient and hassle free compared
with the other shipping and bus lines. We installed x-ray machines to extensively check on
passenger baggage so they will feel more at ease with their journey. We installed digital
cameras in terminal counters to ensure all passengers are properly identified and accounted
for.
We also implemented simple promotional offers that makes riding the SuperFerry affordable
and easy to do. With our Tipid Trips promos, we simply required passengers to buy tickets in
advance to get discounted rates and they can be booked for their travel immediately.
Compared with the other players in the transport industry, numerous on-board activities
were conducted to entertain passengers. We also held various terminal activities to make
the waiting time for departure more pleasant such as product samplings, cooking demos,
and mascot shows.
2. Freight
Based on NSO Reports, the flow of commodities in the country or domestic trade is primarily
through water, air and rail transport system. Amongst the three, water transport is the most
utilized. It is deemed as the most cost efficient means of transporting goods and services,
mainly in the Visayas and Mindanao areas. The bulk of commodities transported via water
consists of food and live animals; mineral fuels, lubricants and related materials; and
manufactured goods.
2GO freight deals with containerized shipments and rolling cargoes. The market covers
most of the segments in both goods and services namely: agriculture, construction, mining,
manufacturing, retail, FSL and 3PL. Bulk of the shipments are from the Goods Sector which
are mostly manufacturing products, followed by agriculture products.
2GO currently enjoys market leadership in the domestic shipping area. It covers Central and
Western Visayas, and Northern and Southern Mindanao. In year 2006 total shipment carried
by 2GO was at 32% for Central Visayas, followed by Northern Mindanao at 25%, then
Southern Mindanao and Western Visayas.
The company covers 20 ports utilizing 13 vessels for its Southbound, Northbound and
Interport operations.
As early as 2004, increase in the price of oil has greatly affected both 2GO and its market.
The company had to increase freight rates to cover the growing expense of oil and the
growing demand for increased cargo safety. Simultaneously, the market is looking more and
more for cost efficient means of transporting their goods.
The past year showed a behavioral shift in the market customers became more and more
cost conscious, continuously looking for the cheapest rate for shipping goods while expecting
a high standard of customer service.
To address this, 2GO started offering TVR (Time, Volume, Rate Contracts) as a value
proposition to its key customers. Furthermore, the company has introduced a lot of
operational changes that are aimed to increase efficiency and response time.
In the past 2 years, there has been a growth in the number of players in the domestic
shipping industry. Pricing is no longer regulated, thus allowing new entrants to compete via
this means. Barge operators and chartered vessels are increasing in volume shipments as
companies both small and large continue to look for alternative shipping lines.
The following are the major competitors of 2GO in the domestic shipping industry:
a. Sulpicio Lines Bacolod, Leyte, Butuan, Cagayan, Cebu, Cotabato, Davao,
Dipolog, Dumaguete, Gen San, Iligan, Iloilo, Masbate, Ormoc, Ozamis, Puerto
Princesa, Surigao, Tacloban, Tagbilaran, Zamboanga
b. Lorenzo Shipping Bacolod, Cagayan, Cebu, Cotabato, Davao, Dumaguete,
General Santos, Iloilo, Zamboanga
c. Negros Navigation Bacolod, Cagayan, Cebu, Dipolog, Iligan, Iloilo, Ozamis,
Coron, Puerto Princesa, Roxas
d. National Marine Cagayan, Cebu, Davao, General Santos
e. CAGLI (Gothong Lines) Butuan, Cagayan, Cebu, Ozamis
f.
manned with qualified, medically fit and suitably experienced seafarers and qualified and
competent shore-based staff to support the safe and efficient operation of vessels. Various
in-house and external training programs are instituted for all the staff to upgrade their
skills and to keep them abreast with developments in international shipping.
The Company and its entire fleet has to undergo a periodic ISM external audit conducted by
American Bureau of Shipping to ensure continuous improvement of safety and quality on
board. The ISM code is an IMO initiated mandatory requirement for all companies that
operate ships. The ISMs objectives are to ensure safety at sea, prevent human injury and
the loss of life and avoid damage to the marine environment and property. The Philippine
Maritime Industry (MARINA) has issued a memorandum circular requiring all domestic
passenger vessels to comply with the ISM code.
In the strive to continually improve its Safety and Quality Standards, the company in 2006,
implemented new procedures such as the amendment and categorization of safety
inspection reports, standardized the drill evaluation format and servicing procedures of fire
extinguishers, provided cages for LPG tanks during the loading and unloading of cargoes,
designated specific areas as smoking areas on board the vessel.
Customers
The Company has a wide customer base that includes manufacturers of consumer goods and
finished products, traders of commercial, industrial and agricultural goods as well as the
general public. The Company monitors its top 50 customers. No single customer accounts for
20% or more of the Companys freight revenue.
Purchases of Materials, Parts and Supplies
Materials, parts and supplies are obtained mostly from local suppliers at competitive rates.
Fuel and lubes, the biggest operating expense of the Company is purchased from a major fuel
provider.
Selected Major Suppliers of the Registrant:
Items/Services Supplied
Major Supplier
4. Propmech Corporation
5. Wartsila NSD Phils.
1. Interpool
Trucking services
1.
2.
3.
4.
5.
Insurance
Security services
Communication
1. PLDT
COX Trucking
EUG Trucking
RS Master Trucking
Quicktrans
St. Pio Transport
certificate of accreditation of domestic shipping enterprise / entities from the Authority before
they can provide a water transport service.
The Circular is intended to foster standards for domestic shipping operations in order to
protect public interest and to generate vital information that will enable MARINA to effectively
supervise, regulate and rationalize the organizational movement, ownership and operation of
all inter-island water transport utilities, and consequently, to prevent the proliferation of
incompetent, inefficient, unreliable and fly-by-night operators.
Accreditation serves as a prerequisite to the granting of franchises for individual vessel
operations. ATS vessels have been issued Certificates of Public Convenience/Provisional
Authorities to operate in specified routes.
Research and Development Activities
The Company spent on the development and acquisition of several application software
related to integrated financial accounting, revenue management system and freight and
passage operating system. The amount of such development and its percentage to revenues
during each of the last three fiscal years are as follows:
Year
% to
Revenue
2006
2005
2004
372,991
548,077
456,396
4%
5%
5%
company now has its own EWRM framework tailor fitted to the structure and culture of the
company. It has helped the company to identify, assess, manage and mitigate business
risks. Among the major aspects of the business where risk is perceived are vessel, cargo
and passenger safety, information technology, foreign exchange, and general business
environment.
At present, ATS is on the second phase of the EWRM program. This stage re-assesses all
the already ascertained risks and continues to identify new risks related to the business.
On the part of one of ATS subsidiaries A-One the major risk involved in the business is
basically damage to cargoes. Following the EWRM framework of ATS, A-ONE assesses the
business process to identify the major risks involved in cargo handling. In addition, to
minimize financial impact, the company entered into contracts with insurance companies to
cover the risks of the business.
ABOITIZ ONE, INC. (A-ONE)
A. Business Development
A-One, which was incorporated last January 28, 1988, is a leading one-stop shop logistics
solutions and transportation services provider in the Philippines. It is engaged in the
business of air, land and sea transportation such as but not limited to carrying and
transporting of any and all kinds of goods and cargo, chartering and to act as courier of
mails, letters and pouches of all kinds. Through A-Ones various subsidiaries [i.e., Aboitiz
Logistics, Inc. (ALI), Hapag-Llyod Philippines, Inc. (HLP) and Cox Trucking Corporation] and
affiliates, it provides seamless total logistics solutions to its customers via air, land and sea
A-One offers various transportation and logistics services ranging from transportation
management to logistics and distribution to customs brokerage and international trade
services. In accordance with customers needs, it offers supply chain management and
logistics services to major importers into the Philippines requiring national distribution as
well as major exporters in the Philippines requiring global distribution.
Through its fleet of aircrafts, trucks, vans, motorbikes, trikes as well as ATS fleet of vessels,
A-One is able to offer complete air, land and sea transportation of any and all kinds of goods
and cargo and act as courier for smaller items such as mails, letters and cash in the
Philippines.
To date, A-One through its subsidiaries and affiliates, is among the leading air cargo and
forwarding business in the Philippines.
B. Business
A-One, together with its subsidiaries and associates, has two main areas of business, namely
logistics and express courier delivery services.
A-Ones operations are supported by a logistical backbone which comprise 3 YS-11 aircraft
(with a capacity of 6 tons each), 159 delivery vans, 250 motorcycles, 56 refrigerated trucks
and 108 vans, 121 prime movers and trailers as well as ATS vessels ships.
(1) Logistics Operations
Products
A-Ones key logistics services are primarily provided through the following subsidiaries and
associated companies:
Subsidiaries
ALI provides various supply chain management and logistics services such as, inter alia,
freight forwarding, container yard management, warehousing and distribution as well as
trucking. Operating as part of an integrated, unified A-ONE group, ALI is focused on providing
seamless total logistics solutions to major importers into the Philippines requiring national
distribution as well as major exporters from the Philippines requiring global distribution
Through ALI, A-One also offers container leasing, container yard services, container repair,
tank container cleaning, testing and other tank-related services, both domestically in the
Philippines and internationally. It maintains a container yard with a size of approximately
6,000 square meters as well as various equipment such as tower cranes and top loaders.
HLP acts as an agent of Hapag-Lloyd Container Line AG, a global shipping container line and
is engaged in global door-to-door container transport. Hapag-Lloyd Container Line AG
provides global shipping services to major trade lanes such as Europe, Asia, North America,
Canada, the Middle East and the South American East Coast.
Cox Trucking Corporation fulfils the land transport requirements of the Groups customers.
Cox engages in the transportation, hauling and forwarding of cargo freight, merchandise and
various types of goods. Currently, Cox owns approximately 108 trucks equipped with mobile
radios and approximately 124 trailers for its hauling services.
Affiliated Companies
APTSC was established in August 1996 as a joint venture between A-ONE and Hansameyer
Freight Forwarders Pte. Ltd., a transportation company headquartered in Germany
specializing in project transport logistics and engineering project management consultancy.
APTSC is engaged in project cargo transportation and management, which involves the
haulage and transportation of heavy and bulk-sized equipment such as those used in power
plants and telecommunication infrastructure.
APTSCs services in various industries such as ship building, power generation &
distribution, mining, cement, oil & gas telecommunications include global project
coordination of heavy cargo movement, project feasibility studies and transportation surveys,
budget calculations, communication, deliveries, packaging consultancy, transhipments,
barge transports, roll-offs and landing of heavylifts, heavy cargo haulage, consultancy in
transportation support techniques, rigging jobs on heavy machineries, deliveries into very
remote areas with no road access as well as the design and construction of jetties, beach
heads, bridge reinforcements and by-passes.
Refrigerated Transport Services, Inc. (RTSI) and Reefer Van Specialist, Inc. (RVSI)
Through RTSI and RVSI, A-One offers refrigerated transportation services under the CRYO
brand name for perishables food products such as processed meat, poultry, fruits,
vegetables, and non-food industries like electronics, flowers, and chemicals. Currently, RVSI
and RTSI offer, among others, reefer container forwarding, refrigerated land transportation,
reefer storage service, equipment leasing, technical services & reefer consultant, contract
warehousing, hauling services. The companies have the country's newest and largest fleet of
over 150 reefer containers & refrigerated trucks and the most diverse operations servicing
the cities of Metro Manila, Cebu, Cagayan de Oro, Iloilo, Davao, Bacolod, Zamboanga,
Palawan, and General Santos.
Service Offerings
A-One markets all its services under the 2GO brand. 2GO Distribution is a just-in-time
operation geared at providing total distribution of high-value and high-turnaround cargoes
such as medicines and health care products, electronic spare parts and consumer items
nationwide. It provides fast and accurate delivery of products and cargoes to any point in the
Philippines. Through 2GO Distribution, manufacturers, suppliers, wholesalers and retailers
can have a better inventory management system, more effective production planning and
faster order fulfillment process.
Some of 2GO Distributions customers include major pharmaceutical and healthcare
products companies such as Diethelm Phils., Inc., Johnson & Johnson Phils., Inc., Mercury
Products
A-One acts as courier of mails, letters and pouches, delivery and transfer of money
remittances and its equivalent.
Service Offerings
A-One has the following express courier services, all marketed under the 2GO brand:
contemporaneously, to any such private person, firm, company, corporation or entity without
the prior approval of the Congress.
L. Effect of Existing or Probable Governmental Regulations
The passage of Republic Act 9337 last May 24, 2005 has abolished the franchise tax of Aboitiz
One, Inc. It is now subject to the corporate income tax.
M. Number of Employees
Present average number of employees for the group is 798.
JEBSEN MANAGEMENT (BVI) LIMITED (JMBVI)
A. Business Development
JMBVI (formerly JM Crewing Limited) was incorporated in the British Virgin Islands on
August 27, 1999 under the International Business Companies Ordinance with Certification of
Incorporation Number 340674.
Propelled by the unique synergy of its worldwide network of offices and a solid commitment
to excellence, JMBVIs business activities has continuously expanded over the years and is
moving to become a leading international provider of supply chain services.
The following are the subsidiaries of JMBVI:
1. Jebsens Orient Shipping Services AS, founded on December 6, 1989 in Norway
2. Jebsens International (Australia) PTY Ltd., founded on March 31, 1989 in Australia
3. Jebsens International (Singapore) PTE Ltd., founded on September 15, 1989 in
Singapore
4. International Marketing & Logistics (IML), founded on August 14, 2000 in Australia
Ship Chartering and Vessel Operations are handled under the Pool Management of Jebsen
Orient Shipping Services A/S (JOSS). JOSS operates a fleet of modern, sel-sustaining, and
geared vessels ranging from 7,000 to 30,000 tons dwat. The ships trade dry bulk
commodities mainly in the Australasian region, but also spans within the Far East and across
the Pacific Ocean.
Our key customers include, inter alia, PT Freeport Indonesia, PT Newmont Nusa Tenggura,
Phosphate Resources Limited, San Miguel Corporation, Hunter Grain Pty Ltd, and Alcan
Trading Ltd.
JMBVI, through its subsidiaries, also provides complete third-party logistical services
specializing in road, rail and sea-based transport solutions. Its logistics operations are
primarily active in Australia with various customers being serviced in inter-modal transport,
bagging, distribution, and warehousing inclusive of support services. By 2007, all logistical
services will be merged under one entity Jebsens Logistics Services.
Some of our key logistics customers include Interfert Pty Ltd, Impact Fertilizers, Industrial
Energy Pty. Ltd, Hi Fert Pty Ltd, and Incitec Fertilizer Limited.
B. Competition
In shipping, competitors generally maintain single offices within the trading area; only few
owners have grab-fitted tonnage. Competitors also possess contracts with the same
customers.
In logistics, at the moment, competitors are the individual manufacturing companies
themselves. The major transport companies offer a total package (warehouse, trucking, etc.)
and there is a strong local presence required to develop business.
JMBVI believes it has the following strengths to effectively compete with other companies:
Quality of Fleet
To expand activities by increasing and balancing our tonnage trading
capacities against our cargo commitments.
Business Integration
To vertically integrate and develop services across the supply chain through
leveraging on the existing client base in shipping & logistics, strengthening
customer service, and utilizing a variable labor component for cost efficiency.
Item 2. Properties
ABOITIZ TRANSPORT SYSTEM (ATSC) CORPORATION
Vessels
The ATS Fleet is Philippine-flagged and registered in the name of the Company.
The Companys operates 13 vessels consisting of 8 SuperFerries, 1 ATSC Ferry, 3 Cebu
Ferries, and 1 Freighter.
During the year, two (2) Cebu Ferries were sold, Our Lady of Guadalupe and Our Lady of
Fatima. In July 2006, ATS chartered in MV 2GO1, a freighter vessel, from Wallock
Enterprises to partially replace lost capacity from vessels sold. On the other hand,
SuperFerry 19 was chartered out to Peninsula Shipping Lines (PNG) Limited in Papua New
Guinea last September 2006.
On the latter part of the year, the company has entered into a memorandum of agreement
with Pacific Asia Shipping Co. Ltd., a Marshall Islands registered company, for the sale of
the two (2) SuperFerries, SuperFerry 17 and SuperFerry 18. SuperFerry 18 was delivered
last December 2006. Meanwhile, SuperFerry 17 is scheduled for delivery in the second
quarter of this year.
To ensure ATS commitment to service excellence and continuity of operations, the
Company has brought back its SuperFerry 19 vessel that was chartered out earlier.
Land, Buildings and Warehouses
The Company owns several pieces of land and a number of buildings and warehouses. These
are used in the normal course of business. For details of their location, please refer to
Schedule E.1 and E.2.
Insurance Coverage
ATS takes out insurance for all its vessels. Marine Hull and Machinery insurance which
covers physical damage to the ship or vessel insured (i.e. Hull, Machineries, Equipment,
Gears, and all appurtenances connected therewith) is placed with Pioneer Insurance and
Surety Corporation. Insurance policies covering War and Strikes are issued by BPI/MS
Insurance Corporation. In addition, for the other smaller vessels, Marine Hull, Machinery,
War and Strikes are placed with UCPB General Insurance Corporation.
Protection and Indemnity (P&I) insurance covering principally legal liabilities of shipowners
are placed with British Marine Luxemburg Limited and The Steamship Mutual Management.
Marine Cargo insurance covering claims arising from cargo loss or damage is placed with
UCPB General Insurance Corporation.
Importantly, all passengers and crew of all the Company's vessels are sufficiently insured
against death and permanent disability arising from accidents and are placed with Philam
Insurance Corporation.
The rest of the properties nationwide, including containers & handling equipments are
likewise fully covered with insurance policies issued by reputable insurance companies.
Container Yard and Warehousing Facilities
The Company has one of the most extensive networks of container yards and warehousing
facilities nationwide.
Most of the Companys container yards have been cemented, whether in whole or in part, to
achieve greater efficiency in terminal operations, allow for shorter turnaround time in port,
greater utilization in stacking of containers and lower repair and maintenance costs for the
operating equipment used at the container yards.
The Company also has sufficient warehouse space. Warehouse are either owned or leased by
the Company. The Companys warehouse network consists of warehouses at Bacolod,
Butuan, Cebu, Davao, Dumaguete, General Santos, Iligan, Iloilo, Ozamis, Zamboanga and
Manila.
Containers and Other Equipment
ATS owns and leases a variety of containers and other equipment of various types and sizes
for use in its cargo operations including forklift, top loaders, yard tractors and trailers or
chassis. Master lease agreements entitle the Company to use the containers in exchange for
a per diem rate for the duration of the lease. Lease purchase agreements allow the Company
to use the containers for a specified number of years while it continues to pay the lessor a
fixed per diem rate and gives the Company the option to acquire the containers at the end of
the lease. Installment purchase agreements allow the Company to pay the full purchase
price of the containers by installments in accordance to a fixed schedule.
Containers under capital leases as of December 31, 2006 are shown under the Property and
Equipment account in the consolidated balance sheets with details as follows (amounts in
P000):
Cost
Less accumulated depreciation
Net book value
P
= 1,032,033
799,276
P
= 237,757
Units
Van Size
600
850
550
850
550
600
1047
1320
282
351
150
1000
1000
2952
20
20
20
20
20
20
20
20
20
20
40
10
10
10
In US ($)
Purchase Option
Per Unit
250
250
250
250
250
250
250
250
250
250
250
200
200
200
In US ($)
Rate/Day
0.80
0.80
0.79
0.80
0.81
0.81
0.89
0.88
0.89
0.89
1.32
0.60
0.56
0.60
Period of
Lease
Lease
End date
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
7 yrs
Jan 2007
Mar 2007
May 2007
Aug 2007
Dec 2007
Jul 2007
Dec 2007
Jan 2008
Mar 2008
Jun 2008
Aug 2008
Sept 2008
Feb 2009
Dec 2009
Vessel
SuperFerry 1, SuperFerry 2, SuperFerry 9, SuperFerry 15, SuperFerry 16, SuperFerry 19, OLO
Medjugorje, OLO Good Voyage, OLO Mt. Carmel, and OLO Rule.
Real Estate
Cebu TC# T-13864, 13865, 13866, Bacolod TCT # T-264558, 264548, 264559, Zamboanga TCT#
T-94204, Butuan TCT# T-15911, Iligan TCT# T-59710, 59709, 18018, 18019, 22713, 22712,
23111, 22714, Pulupandan TCT# T-82859, Tagbilaran TCT# T-30173, 30172, 30171, 30170,
30131, Davao TCT# T-89506, Ozamis TCT# T-8805, 8804, 8934, Gensan TCT# T-90846, 90847,
90848, 90849, 90850, 90851, and 91172.
COST
ACC DEP
NBV
156,332
90,663
133,913
141,187
15,461
537,556
110,231
75,716
109,555
118,038
1,710
415,250
46,101
14,947
24,358
23,149
13,751
122,306
Over 90% of the total assets are located in Manila being the head office of A-One and
subsidiaries. All of these assets are free of any of mortgage or lien or encumbrance. The
following are the major capital expenditures to be acquired in 2007 which will be serviced by
the normal operating profits of A-One: (Amounts in 000s of pesos)
Systems Related/Computer Equipment
Transportation & Delivery Equipment
Others
Total
P 18,516
18,111
9,941
P 46,568
Major leases of A-ONE include rental offices, outlets and warehouses nationwide.
The lease contracts for its outlets nationwide are renewable every year.
JMBVI
The company has no significant hard assets.
Item 3. Legal Proceedings
There are certain legal cases filed against ATS, A-One, JMBVI and other subsidiaries in the
normal course of business. Management and its legal counsel believe that ATSC and its
subsidiaries have substantial legal and factual bases for their position and are of the opinion
that losses arising from these cases, if any, will not have a material adverse impact on the
consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
Nothing was submitted during the fourth quarter of the fiscal year covered by this report to a
vote of security holders, through the solicitation of proxies or otherwise.
Item 5.
A.
The Common Stock of the Corporation is listed at the Philippine Stock Exchange. As of
latest market date, April 04, 2007, the market price of the Companys common stock is P1.50
per share.
Below is the range of high and low bid information for the Companys common equity for
each quarter within the last two fiscal years and any subsequent interim period:
B.
High
Low
2007
First Quarter
P
= 1.88
P
= 1.24
2006
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
P
= 1.70
1.70
1.36
1.48
P
= 1.50
1.46
0.00
1.14
2005
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
P
= 1.82
1.80
1.72
1.72
P
= 1.70
1.24
1.54
1.50
Stockholders
The number of common shareholders of record as of February 28, 2007 was 2,231. The top
20 common stockholders as of February 28, 2007, are as follows:
Name
1.
2.
3.
4.
5.
6.
7.
% to total
77.24
15.72
3.66
0.80
0.20
0.12
0.07
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
C.
Miguel G. De Asis
Union Properties, Inc.
Josephine Te
Abacus Securities Corporation
Enrique M. Aboitiz Jr.
Bauhinia Management, Inc.
Santiago Tanchan III
Constantine Tanchan
Lekeitio & Company, Inc.
PCD Nominee Corporation (Non-Filipino)
Xavier Jose Aboitiz
Lilian P. Cariaso
Montavo Management & Dev. Corp.
1,655,153
1,578,125
1,561,425
1,530,000
1,524,330
1,418,951
1,262,500
1,262,500
1,238,604
1,137,515
1,039,727
1,030,060
946,875
0.07
0.06
0.06
0.06
0.06
0.06
0.05
0.05
0.04
0.05
0.04
0.04
0.04
For the two most recent fiscal years 2005 and 2006 and subsequent interim period of 1st
quarter 2007, there was no cash dividend declared.
The Companys retained earnings include undistributed earnings amounting to P
= 284,533 in
2006 and P
= 227,207 in 2005 representing accumulated equity in net earnings of subsidiaries
and associates, which are not available for dividend declaration until received in the form of
dividends from such subsidiaries and associates. Retained earnings are further restricted
for the payment of dividends to the extent of the cost of the shares held in treasury.
D.
Last May 10, 2005 and June 17, 2005, the Companys Board of Directors and Stockholders
approved, respectively, the issuance of 414,121,123 million common shares from the
increase in authorized capital stock applied by the Company with the Securities and
Exchange Commission (SEC). Said common shares were issued at a price of P1.76 per
share or a total of P728,853,176.48 to Aboitiz and Company, Inc. (ACO), Aboitiz Equity
Ventures (AEV), certain affiliates of ACO and individual Filipino investors (the transferors)
in exchange for the transferors 100% shares in A-One, 62.5% in Abojeb, 62.5% in AJMSI,
62.5% in JMI and 50% in JMBVI.
Last August 3, 2005, the Company submitted an application for Commissions confirmation
of availability of exemption from registration of the above issuance citing SRC Section 10.2
The Commission may exempt other transactions, if it finds that the requirements of
registration under this Code is not necessary in the public interest of for the protection of
the investors such as by reason of the small amount involved or the limited character of the
offering as the basis. The Company believed that said issuance is exempt from
registration for the reason that the buyers involved in the transaction are considered to be
qualified buyers because they have sufficient knowledge about the issuer.
On December 20, 2005, ATSC received a written confirmation from the SEC that such
issuance is an exempt transaction under Section 10.2 of the Securities Regulation Code
citing that it is limited in character therefore registration is not necessary in the public
interest or for the protection of the investors.
Item 6.
Revenues
2006
Aboitiz Transport System Corporation (ATS or the Company) posted total consolidated
Revenues of P10.6 billion in 2006. Its freight business constitutes the bulk of the Companys
revenues at 62% or P6.5 billion. It reflected a slight 5% drop versus 2005 largely because of
the decline in the international charter business from its subsidiary company, Jebsen
Management (BVI) Ltd. (JMBVI) due to unfavorable market conditions and the shipping
business reduction in fleet capacity. Likewise, ATS passage business reflected an 18%
decline against last year to register at P3.0 billion in 2006. Aggressive promotions from the
airlines have contributed to lower passage volumes and rates.
2005
The Company posted higher consolidated revenues in 2005 as compared to the previous year.
At the end of 2005, total revenues reached P11.7 billion, registering an increase of about 20%
or about P2.0 billion over the P9.7 billion 2004 revenues. The jump in revenues is largely
attributable to the 37% increase in freight revenues, which is mainly due to the consolidation
of about P1.9 billion of freight revenues of JMBVI and subsidiaries in 2005. This group is not
included in the restated consolidated 2004 financial statements as they were only acquired
by the Company in 2005. Average freight rate per TEU of the parent company increased 7%
over 2004. Likewise, average rate per passenger rose 12% as compared to the previous
year. Other accounts contributing to the increase in revenues include passage meals,
logistics and other income coming from JMBVI.
2004
The Company, on consolidated basis, posted revenues totaling P9.7 billion. Passage revenue
reached P3.7 billion brought about by strong marketing efforts of promoting higher value
passenger accommodations and higher number of passengers carried during the year. The
Companys freight business likewise posted revenues of P5.0 billion brought about by its
focus on higher paying and higher yielding cargoes.
reduced by P211.8 million. This is a result of the Companys increased efficiencies and its
utmost priority in the constant maintenance of assets over the years.
2004
With 21 vessels operating at the end of the year 2004, the Companys total costs and
expenses amounted to P9.2 billion. Operating expenses contribute the bulk of its costs and
expenses, with total contribution amounting to P6.6 billion. Major costs included under these
operating expenses include fuel and lubricants of P2.7 billion.
In consonance with the Companys safety standards, repairs and maintenance costs relating
to both operations and terminal expenses registered P693.3 million as the Company
continuously upgrades its fleet and operational assets/equipment.
The Companys total depreciation & amortization expense totaled P891.8 million as operating
vessels were added and investments in software was made as part of its investments in new
technology.
Other Income (Charges)
2006
The Company continues to focus on enhancing shareholder value and is committed to having
positive cash flows and strengthening its financial position. During the period under review,
the Company sold various assets including three vessels (Our Lady of Fatima, Our Lady of
Guadalupe, and SuperFerry 18) which generated gains of P226.4 million. Also, in line with its
strategy of focusing on its core business, the Company also sold its entire shareholdings in
Davao Integrated Port and Stevedoring Services Corporation (DIPPSCOR), generating gains
of P262.3 million.
Proceeds of these sales were utilized to pay down debt, thus resulting in a 10% lower
Finance Costs from P375.7 million in 2005 to P337.8 million in 2006.
2005
The Companys other charges amount to P147.6 million. With a total interest bearing debt
(inclusive of finance lease and redeemable preferred shares) of P3.6 billion, ATS incurred net
financing costs of P375.7 million.
The Company recognized P98.4 million gain on disposal of property and equipment through
the sale of two vessels, Our Lady of Rosary and Super Roro 500. In 2004, the gains arose
from the sale of three vessels, M/V Brinknes, Our Lady of Lipa and Our Lady of Sacred Heart.
In addition, ATS, in 2004, reflected P208.7 million insurance recovery on its SuperFerry 14
vessel which burned down while on voyage.
The Company recognized higher gains on foreign exchange for its obligations under finance
lease (up to P29.2 million) due to a lower average dollar rate in 2005.
Rental income for the period under review increased to P22.9 million versus P8.2 million
during the same period the previous year. Rental income is composed mainly of space
rentals of vessel subcontractors doing business on board the Companys vessels.
2004
The Company registered Other Income totaling P123.1 million. This is mainly because it
recognized gains from the sale of three vessels, M/V Brinknes, Our Lady of Lipa and Our
Lady of Sacred Heart, containers and other non-performing assets, together amounting to
P211.3 million. It also recognized gains on insurance recovery, (P208.7 million) on
SuperFerry 14, which burned down while on voyage and P35.7 million from sale of containers
and other fixed assets.
ATS total financial cost for the year was at P384.6 million.
Net Income
2006
The Company registered P191.9 million in Net Income in 2006. Income Before Income Tax of
P96.8 million is 227% higher compared to 2005, mainly from overall lower costs and
expenses and higher other income. ATS also recognized a benefit from income tax of P95.1
million due to the recognition of net operating loss carryover.
Net Income directly attributable to the equity holders of the parent company registered
P197.3 million. This is 370% higher versus P42.0 million in 2005. Similarly, the Company
registered a net loss attributable to minority interests of P5.4million particularly because of
losses generated by JMBVI, its ship chartering company, due to unfavorable market
conditions.
2005
The Company registered P65.7 million in net income in 2005. This reflected a drop versus
P512.5 million in 2004, as the companys expenses escalated higher than its rise in revenues.
Despite registering an income before tax of P29.6M, ATS recognized a benefit from income
tax of P36.1 million, due mainly to the recognition of net operating loss carryover (NOLCO)
during the year amounting to P90.7 million. The NOLCO was a result of a larger net taxable
loss position, after exempting income from the vessels enjoying income tax holidays.
conversion price of 2 common shares for every 1 RPS held. Consequently 70,343,670 million
RPS or 94% of the outstanding RPS of the Parent Company were converted to common
shares.
As a result of the conversion, the capital stock of the company increased P140.7 million
representing the issuance of new common shares. The excess between the carrying value of
the preferred shares converted over the par value of the common stock issued was credited
to Capital in excess of par value amounting to P67.2 million.
Total Stockholders Equity stood at P4.8 billion, a 9% increase from last year of P4.4 billion.
Similarly, retained earnings also registered a 16% increase due to higher net income of the
company.
2005
Consolidated assets of the Company reached P11.4 billion, a slight increase from its asset
level in 2004 of P11.2 billion.
Total current assets reflected a 9% increase, from P3.3 billion in 2004 to P3.6 billion in 2005.
Major increases came from cash and cash equivalents, inventories and prepaid expenses.
Net receivables however decreased 12% to P1.9 billion largely due to the collection of non
trade receivables and advances to a contractor upon completion of a chassis fabrication
contract.
Total inventories of P318.9 million include fuel and lubricants, various materials, spare parts
and supplies mostly on board vessels.
Prepaid expenses and other current assets registered a 31% rise to P529.9 million as
creditable withholding taxes withheld by customers and creditable senior citizen discount
accumulated during the period. These will be credited against tax due as the company
comes into a taxable position in the next years.
Investments in associates of P46.9 million are the Companys investments in about five
companies where it exercises significant influence, but which ATS considers neither as
subsidiaries nor joint ventures. These companies include, among others, New Zealand
Lumber Shippers Ltd. (a transatlantic lumber shipping company), Refrigerated Transport
Services, Inc. and Reefer Van Specialist, Inc (both companies are engaged in providing
refrigerated transport solutions), and Aboitiz Project TS Corporation (a project transport
solution and consultant firm).
Net deferred income tax increased by 67% to P242.3 million, mainly due to the increase in
net operating loss carryover brought about by a taxable loss position of the parent company
in 2005. Likewise, deferred income tax pertaining to allowances for doubtful accounts and
probable losses also increased as additional provisions were booked during the year.
Total liabilities amounted to P6.9 billion. Total bank debt for the year ending December 31,
2005 is P3.0 billion, down by 4% compared to December 31, 2004 balance as a result of the
Companys efforts to pay its obligations. Short term loans payable decreased 51% as the
company continues to pay down short term debt. Similarly, total obligations under finance
lease have dropped 31% to P350.9 million.
Accounts payable & other current liabilities increased by over 10% primarily due to the
increase in trade payables. Of the P375.3 million increases in trade payables, P300.7 million
pertains to the total of JMBVI and subsidiaries which were consolidated only starting 2005.
Parent Companys outstanding redeemable preferred shares were reclassified to liability, in
line with the adoption of a new financial reporting standard which qualifies these shares as
liability rather than equity. The adoption resulted to an increase in the shares carrying value
to P200.3 million. A portion of the increase was charged as a reduction from the beginning
retained earnings, and the remainder was charged to the current years total interest
expense.
Total Stockholders Equity stood at P4.4 billion, barely a decrease from last year of P4.5
billion.
2004
Consolidated assets of the Company reached P11.2 billion. Total receivables amounting to
P2.2 billion are largely from trade receivables, receivables from affiliates and insurance
claims receivables.
Prepaid expenses and other non-current assets stood at P405.4 million, mainly due to
investments in developing various software applications, geared towards further improving
the Companys efficiency and reliability.
Total Inventories of the Company in 2004 amount to P197.9 million. This includes fuel and
lubricants and vessel spare parts.
Total liabilities amounted to P6.7 billion. Total bank debt for the year ending December 31,
2004 is P3.2 billion,. In line with the Companys thrust to reduce debt, payments on its
obligation under capital lease on containers were made during the year.
Total Stockholders Equity as of December 2004 stood at P4.5 billion. The Securities and
Exchange Commission approved in September 2004 the increase of authorized common
shares by P750.0 million and authorized the issuance of stock dividend by P393.2 million
from the Companys additional paid in capital. Furthermore on November 2004, the
Company retired P499.6 million redeemable preferred shares (about 74.9 million shares).
10,571,185
1,725,105
96,767
1.14:1
0.99:1
11,679,618
1,707,433
29,608
1.56:1
0.82:1
1. Revenues
2. EBITDA
3. NIBT
4. Debt-to-equity ratio
5. Current ratio
1,201,204
77,679
669
1.86:1.00
1.11:1.00
1,254,488
170,639
96,819
1.74:1.00
1.12:1.00
179,190
45,776
35,836
2.91:1.00
1.27:1.00
JMI
Dec 31, 2006
1. Revenues
2. EBITDA
3. NIBT
4. Debt-to-equity ratio
5. Current ratio
102,920
17,585
6,049
53.35:1.00
0.91:1.00
AJMSI
Dec 31, 2006
1. Revenues
2. EBITDA
3. NIBT
4. Debt-to-equity ratio
5. Current ratio
5,742
2,010
1,973
2.53:1.00
1.02:1.00
1,547,496
(32,662)
(32,662)
106.6:1.00
0.98:1.00
Outlook
For the coming years, ATS will continue the various initiatives it has embarked on in the past.
It intends to remain focused on becoming the lowest cost operator in the country with
positive cash flows and very strong balance sheet. Efforts will be directed at liquidating debt,
removing interest costs, rationalizing cost structures, and increasing earning capacity of all
assets. It intends to capitalize on its integrated transport businesses to achieve higher
operating efficiencies and provide complete solutions to customers.
2GO, the Companys integrated logistics solutions provider, is still at the forefront in
providing containerized shipping services as well as simplified solutions to its customers by
offering 136, a time-defined, time-priced cargo service; and RoRo, a self-driven cargo
service concept which is given priority loading to ensure faster delivery lead-time. The
Company sees the 2GO freight business evolving further towards increasing freight capacity
and Roll-on Roll-Off (RoRo) movements. This was marked by the entry of 2GO1 freighter in
the 3rd quarter of 2006 with capacity of over 444 TEUs. In addition, unused passenger
capacity in existing vessels is being converted to make room for the heightened demand of
our RoRo service.
SuperFerry, the Companys passenger business, which has been operating on a very
competitive landscape in 2006, will continue implementing the initiatives it had started,
including offering year round promotional rates and improving the experience of every
traveler within the Philippines.
ATS is continuously realigning its efforts to be able to capitalize on economic upturn and
sustain profitability in the long term. The company believes much of the growth in the
coming years will be in supply chain management, offering more and more sophisticated
customers with complete logistics solutions. There are plans to launch its Supply Chain
Division as well as Cold Chain Division in 2007. The cold chain service will be focused on
serving the Loose Cargo Load market, linking farmers, fishermen and the consumers
directly to help bring down distribution costs.
Other Information
Other material events and uncertainties known to management that would address the past
and would have an impact on the Companys future operations are discussed below.
1. The Parent Company is required to meet certain loan covenants with creditor banks,
including financial ratios. During the year, ATS obtained approvals from the majority
of the bank creditors for the adjustment in the financial ratios covenants, including
the adjustment in current ratio from 1.00:1.00 to 0.50:1.00 and debt service coverage
ratio of from 1.50:1.00 to 0.85:100.
As of December 31, 2006, the Companys current ratio is 0.99:1.00 and its debt service
coverage ratio is 0.91:1.00.
2. Total fuel/lubes expense is a major component of the Company's total cost and
expenses. Given this, the Company is constantly looking for ways to reduce fuel
consumption to lessen the impact of the increasing fuel prices on the bottom line.
3. The Company has not made any material commitments for capital expenditures.
4. Except as disclosed in the management discussion and notes to the financial
statements, there are no other known events that will trigger direct or contingent
financial obligation that is material to the company, including any default or
acceleration of an obligation despite the companys low current ratio.
5. Except as disclosed in the management discussion and notes to the financial
statements, there are no other known trends, events or uncertainties that have had
or that are reasonably expected to have a material favorable or unfavorable impact on
revenues or income from operations.
6. All significant elements of income or loss from continuing operations are already
discussed in the management discussion and notes to financial statements.
Likewise any significant elements of income or loss that did not arise from the
registrants continuing operations are disclosed either in the management discussion
or notes to financial statements.
7. There is no material off-balance sheet transaction, arrangement, obligation, and
other relationships of the company with unconsolidated entities or other persons
created during the reporting period.
8. Seasonal aspects of the business are considered in the Companys financial forecast.
9. The company does not expect any liquidity or cash problem within the next twelve
months.
Item 7. Financial Statements
The consolidated financial statements and schedules listed in the accompanying Index to
Financial Statements and Supplementary Schedules are filed as part of this Form 17-A.
The management is not aware of any significant or material events or transactions not
included nor disclosed in the consolidated financial statements in compliance with the SRC
Rule 68.
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
TOTAL
Year ended
December 31, 2006
P 1,240,000
300,000
50,000
Year ended
December 31, 2005
P 1,240,000
300,000
450,000
P 1,590,000
P 1,990,000
Audit Fees
This represents professional fees for financial assurance services rendered for the
Companys Annual Financial Statements, review and opinion for SEC Annual Report.
Audit-Related Fees
This represents professional fees for technology and security risk services rendered by the
external auditor in connection with the Audit on Companys Annual Financial Statements.
Tax Fees
This represents professional fees for rendering assistance to the computation of income tax
holiday and the tax compliance review for selected internal tax liabilities.
All Other Fees
This represents fees for services rendered for training the Companys finance and
accounting personnel on the new accounting guidance on IFRS and assisting the adoption of
such guidance to the financial statement of the Company as of December 31, 2004 and 2005.
Audit services provided to the Company by external auditor, SGV & Co. have been preapproved by the Audit Committee. The Audit Committee has reviewed the magnitude and
nature of these services to ensure that they are compatible with maintaining the
independence of the external auditor.
(2) Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
There was no event in the past years where SGV and the Company had any disagreements
with regard to any matter relating to accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
Age: 58
Citizenship: Filipino
Age: 51
Citizenship: Filipino
Age: 54
Citizenship: Filipino
Age: 50
Citizenship: Filipino
Age: 57
Citizenship: Filipino
Age: 49
Citizenship:
Filipino
Age: 42
Citizenship: Filipino
Age: 85
Citizenship: American
Age: 57
Citizenship: Filipino
Age: 47
Citizenship: Filipino
Age: 46
Citizenship: Filipino
Age: 44
Citizenship: Filipino
Age: 46
Citizenship: Filipino
Age: 54
Citizenship: Filipino
Age: 44
Citizenship: Filipino
Age: 49
Citizenship: Filipino
Age: 54
Citizenship: Filipino
Age: 54
Citizenship: Filipino
Age: 50
Citizenship: Filipino
Age: 44
Citizenship: Filipino
Age: 40
Citizenship: Filipino
Age: 52
Citizenship: Filipino
Age: 48
Citizenship: Filipino
Age: 37
Citizenship: Filipino
Mr. Oscar Y. Go
Age: 56
Citizenship: Filipino
Age: 49
Citizenship: Filipino
any type of business, securities, commodities or banking activities; and (d) such person being
found by a domestic or foreign court of competent jurisdiction (in a civil action), the
Commission or comparable foreign body, or a domestic or foreign Exchange or other
organized trading market or self regulatory organization, to have violated a securities or
commodities law or regulation and the judgment has not been reversed, suspended, or
vacated.
Resignation or Refusal to Stand for Re-election by Members of the Board of Directors
No Director has resigned or declined to stand for re-election to the board of directors since
the date of the last annual meeting of the Company because of a disagreement with the
Company on matters relating to the Companys operations, policies and practices.
Item 10. Executive Compensation
The following table summarizes certain information regarding compensation paid or
accrued during the last three fiscal years and to be paid in the ensuing fiscal year to the
Companys Chief Executive Officer and each of the Companys four other most highly
compensated executive officers:
SUMMARY OF COMPENSATION TABLE
Amounts in Thousands of Pesos (000s)
SALARY
BONUS
(13th and 14th Months Pay)
OTHER
COMPENSATION
2005
2006
Projected
2007
2005
2006
Projected
2007
18,877
16,997
17,935
3,146
2,833
2,989
13,265
15,044
2,211
2,507
16,175
2,696
The Company has no significant or special arrangements of any kind as regard to the
compensation of all officers and directors other than the funded, noncontributory taxqualified retirement plans covering all regular employees. Each Board Member receives a
per diem allowance of P15,000 for every board meeting attended.
Except for the regular company retirement plan, which by its very nature will be received by
the officers concerned only upon retirement from the Company, the above-mentioned
directors and officers do not receive any profit sharing nor any other compensation in the
form of warrants, options, bonuses, etc.
Likewise, there are no standard arrangements that compensate directors directly or
indirectly, for any services provided to the Company either as director or as committee
member or both or for any other special assignments.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Security ownership of certain record (r) and beneficial (b) owners of five per centum (5%)
or more of the outstanding capital stock of the Registrant as of February 28, 2007:
Title of
Class
Common
Citizenship
No. of Shares
Held
Percent of
Class
Filipino
1,889,482,107
77.24%
Filipino
384,448,390
15.72%
PROXY:
Authorized to vote on
behalf of AEV are any of the
following:
Roberto E. Aboitiz
Director
Erramon I. Aboitiz
EVP & COO
Common
Authorized to vote on
behalf of ACO are any of the
following:
Erramon I. Aboitiz
SVP & CFO
Roberto E. Aboitiz
SVP
Preferred
Filipino
2,747,731
60.25%
Aboitiz Equity Ventures, Inc. (AEV) is a publicly listed company and as of February 28, 2007,
Aboitiz and Company, Inc. (ACO) owns 43.48% of AEV. ACO is a corporation wholly owned
by the Aboitiz family. No single stockholder, natural or juridical, owns five per centum (5%)
or more of the shareholdings of ACO.
Security Ownership of Management Record r and Beneficial b (direct/indirect) owners
as of February 28, 2007:
Title of
Class
Common
Citizenship
Filipino
Percent
of Class
0.06%
Common
Bob D. Gothong
Filipino
148 r
328,750 b
Record Owner: One Wilson Place Holdings
0.08%
1,561,425 b
Record Owner: Josephine Te, wife
Common
Filipino
1,524,330 r/b
2,845,967 b
0.18%
Common
Erramon I. Aboitiz
Filipino
Director
188,287 r/b
1,418,951 b
0.07%
Common
Roberto E. Aboitiz
Filipino
170,281 r/b
Filipino
1,250 r/b
Filipino
910,372 r/b
449,000 b
Director
Common
Justo A. Ortiz
Director
Common
Sabin M. Aboitiz
Director
0.01%
0.00%
0.06%
Common
Washington Z. SyCip
American
12 r/b
Independent Director
Common
Aloysius B. Colayco
Filipino
1,250 r/b
Filipino
1,030,060 r/b
0.04%
Filipino
250,687 r/b
0.01%
Filipino
250,513 r/b
0.01%
Filipino
167,124 r/b
0.01%
Filipino
62,758 r/b
0.00%
Filipino
166,951 r/b
0.01%
Filipino
83,562 r/b
0.00%
Independent Director
Common
Lilian P. Cariaso
0.00%
0.00%
Common
Susan V. Valdez
EVP-CEO Freight
Common
Evelyn L. Engel
EVP-CEO Passage and CRO
Common
Miguel A. Camahort
SVP-COO 2GO Solutions
Common
Shelley U. Rapes
VP-Information Technology
Common
Magdalena A. Anoos
VP-Materials Management Division
Common
Maribeth L. Marasigan
VP-Business Support & 2GO Brand
Management
Common
Norissa L. Ridgwell
Filipino
TOTAL
Preferred
Sabin M. Aboitiz
24,517 b
0.00%
VP-Freight Operations
5,053,921r/b; 7,867,214b
Filipino
2,650 r/b
Director
TOTAL
0.00%
2,650 b
Security Ownership of the Directors and Officers in the Company as a Group: Common is
12,921,1345 shares; Preferred 2,650 shares.
Voting trust holders of 5% or More
No person holds more than five per centum (5%) of a class under a voting trust agreement or
similar arrangement.
Changes in Control
There is no existing arrangement which may result in a change in control of the registrant.
Item 12. Certain Relationships and Related Transactions
In the ordinary course of business, the Company has transactions with fellow subsidiaries,
associates, and other related companies consisting of shipmanagement services, charter
hire, management services, purchases of steward supplies, availment of stevedoring,
arrastre, trucking, rental and repair services. The Company needs these services to
complement its services to the freight and passage customers.
The identification of the related parties transacting business with the Company and how the
transaction prices were determined by the parties are discussed in the Note 20 of the
consolidated financial statements. The Company will continue to engage the services of
these related parties as long as it is economically beneficial to both parties.
Last October 24, 2005, SEC approved issuance of 414,121,123 new common shares of the
Corporation in exchange for the 100% outstanding capital stock of Aboitiz One, Inc. (AONE),
50% of the outstanding capital stock of Jebsen Management (BVI) Limited (JMBVI) and 62.5%
of the outstanding capital stock of each of Aboitiz Jebsen Bulk Transport Corporation
(ABOJEB), Aboitiz Jebsen Manpower Solutions, Inc. (AJMSI) and Jebsen Maritime, Inc. (JMI).
The said common shares were issued to the transferors/subscribers who are the
shareholders of Aone, Abojeb, AJMSI, JMI and JMBVI. These shareholders include Aboitiz
& Company, Inc. (ACO), certain affiliates of ACO and certain directors and officers of ATS.
Below is the list of subscribers of the transactions who are existing security holders owning
more than 5%, directors and executive officers, including their immediate family, of ATS.
Name
Parent Company
Principal Stockholder
Director
Director/Officer
Director
Director/Officer
Director
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Stockholder
ATS Shares
Subscribed
1,529,569
379,948,390
842,210
186,541
188,275
196,250
169,031
250,687
250,513
250,513
167,124
166,951
125,517
83,562
62,758
890,752
Price
2,692,041
668,709,166
1,482,290
328,312
331,364
345,400
297,495
441,209
440,903
440,903
294,138
293,834
220,910
147,069
110,454
1,567,724
None
372,389
655,405
None
101,939
179,413
Stockholder
979,342
1,723,642
Stockholder
1,010,201
1,777,954
Stockholder
682,367
1,200,966
Except as discussed above, the Corporation has no other transaction during the last two
years or proposed transaction to which it was or is to be a party in which any of its directors,
officers, or nominees for election as directors or any member of the immediate family of any
of the said persons had or is to have a direct or indirect material interest.
Moreover, ATS and its subsidiaries do not have existing or proposed transactions with parties
that are considered outside of the definition of "related parties" but have the influence of
negotiating the terms of material transactions that may not be available to other, more
clearly independent parties on an arm's length basis.
In compliance with the Manual, the Board and Executive Officers of the Corporation attended
a corporate governance seminar. The Manual was also cascaded to all leaders and was
posted at the Corporations intranet for wider dissemination to its team members.
ATS and its directors, officers and employees have, in all material respects, complied with its
Code of Corporate Governance.
To measure the extent of compliance with the Manual, the Corporation conducted selfassessment and submitted its first Governance Self Rating to SEC and PSE last January 20,
2005, which reported no significant deviation.
To further strengthen its corporate governance, the Corporation started during the first
quarter of 2004, an Enterprise Wide Risk Management Program (EWRM) to identify, assess
and manage its business risks. In August 2006, ATS and its subsidiaries have completed its
EWRM program. The program is tailor fitted to the structure and culture of the company. It
re-assesses the risks already identified and will continue to identify new risks. Further, the
company is now on its second phase of the EWRM program.
ATS continues to do an annual self-assessment and for 2006, no material deviation from the
manual was found.
Also, ATS is committed to raising the standards of corporate governance by aligning with
global best practices, whenever it is applicable to our own local business setting. As part of
this direction, an assessment of our current practices as against the global best practices
was conducted in 2006 and the results were presented to management.
b)
During the last six months of CY 2006, the Company filed the SEC 17-C Report, the list of the
reports submitted to the Commission is as follows:
Date of
Report
Title of Report
Item
No.
Item Title
July 27
Changes in
Securities
Aug 01
Other events
Aug 30
Conversion Notice
Changes in
Securities
Other events
Other Events
Oct 02
Nov 03
Dec 27
Dec 29
Sale of DIPSSCOR
Acquisition or
Disposition of Assets
Acquisition or
Disposition of Assets
*
*
These schedules, which are required by Part IV(e) of SRC Rule 68, have been omitted because
they are either not required, not applicable or the information required to be presented is
included in the Companys consolidated financial statements or the notes to consolidated
financial statements.
SGV & CO
We have audited the accompanying consolidated financial statements of Aboitiz Transport System
(ATSC) Corporation and Subsidiaries, which comprise the consolidated balance sheets as at
December 31, 2006 and 2005, and the consolidated statements of income, consolidated statements of
changes in stockholders equity and consolidated statements of cash flows for each of the three years
in the period ended December 31, 2006, and a summary of significant accounting policies and other
explanatory notes. We did not audit the consolidated financial statements of Jebsen Management
(BVI) Limited and Subsidiaries, which the financial statements reflect total assets and total revenues
of 5% and 15% in 2006, and 4% and 18% in 2005, respectively, of the related consolidated totals.
Those statements were audited by other auditors whose reports thereon have been furnished to us, and
our opinion, insofar as it relates to the amounts included for those entities, is based solely on the
reports of the other auditors.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Philippine Financial Reporting Standards. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable
in the circumstances.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits and the
reports of the other auditors. We conducted our audits in accordance with Philippine Standards on
Auditing. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditors 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 entitys
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entitys internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
SGV & Co is a member practice of Ernst & Young Global
-2We believe that the audit evidence we have obtained and the reports of the other auditors are sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, based on our audits and the reports of the other auditors, the consolidated financial
statements present fairly, in all material respects, the financial position of Aboitiz Transport System
(ATSC) Corporation and Subsidiaries as of December 31, 2006 and 2005, and their financial
performance and their cash flows for each of the three years in the period ended December 31, 2006 in
accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
P
=992,600
2,104,832
255,599
555,708
3,908,739
659,510
4,568,249
=
P872,848
1,900,477
318,915
529,899
3,622,139
3,622,139
Noncurrent Assets
Investments in associates (Notes 9 and 19)
Available-for-sale investments (Notes 10 and 33)
Property and equipment - net (Notes 11, 16 and 17)
Deferred income tax - net (Note 28)
Other noncurrent assets - net (Note 13)
Total Noncurrent Assets
37,355
59,431
4,839,693
372,622
424,616
5,733,717
46,915
41,648
6,909,131
242,318
491,460
7,731,472
P
=10,301,966
=
P11,353,611
P
=364,720
3,170,094
=
P477,053
3,311,069
486,441
113,823
2,801
4,137,879
461,164
140,393
4,468
4,394,147
455,037
4,592,916
4,394,147
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Loans payable (Notes 14 and 33)
Accounts payable and other current liabilities (Notes 15 and 20)
Current portion of:
Long-term debt (Notes 11, 16 and 33)
Obligations under finance lease (Notes 11 and 17)
Income tax payable
Liabilities directly associated with noncurrent asset classified as
held for sale (Notes 12 and 16)
Total Current Liabilities
(Forward)
December 31
2005
2006
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 11, 16 and 33)
Obligations under finance lease - net of
current portion (Notes 11 and 17)
Pension liability (Note 27)
Redeemable preferred shares (Notes 18, 19 and 33)
Total Noncurrent Liabilities
Equity Attributable to Equity Holders of the Parent
Common shares (Note 19)
Capital in excess of par value (Note 18)
Unrealized mark-to-market gain on available-for-sale
investments (Note 10)
Cumulative translation adjustments
Acquired minority interest of a subsidiary
Retained earnings (Note 19)
Treasury shares (Note 19)
Minority Interests
Total Stockholders Equity
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
See accompanying Notes to Consolidated Financial Statements.
P
=788,596
=
P2,105,694
81,080
9,890
13,832
893,398
210,490
11,360
200,317
2,527,861
2,484,653
910,901
2,343,966
843,698
19,600
(5,423)
5,000
1,435,847
(58,715)
4,791,863
23,789
4,815,652
2,776
(2,756)
1,238,546
(58,715)
4,367,515
64,088
4,431,603
P
=10,301,966
=
P11,353,611
P
=6,530,199
3,020,013
456,722
564,251
10,571,185
=6,842,248
P
3,672,155
597,309
567,906
11,679,618
=
P4,977,171
3,721,917
789,199
201,730
9,690,017
(8,139,846)
(1,078,672)
(1,482,368)
(10,700,886)
(8,707,737)
(1,225,752)
(1,546,014)
(11,479,503)
(6,614,971)
(1,108,354)
(1,436,009)
(9,159,334)
262,264
226,436
41,171
5,308
(337,763)
29,052
226,468
98,416
29,176
22,527
(375,669)
55,043
(170,507)
211,316
811
(454)
208,659
(362,281)
56,902
114,953
96,767
29,608
645,636
38,033
(133,142)
(95,109)
70,801
(106,883)
(36,082)
92,022
41,101
133,123
P
=191,876
=65,690
P
=
P512,513
P
=197,301
(5,425)
P
=191,876
=41,969
P
23,721
=65,690
P
=
P484,449
28,064
=
P512,513
P
=0.08
=0.02
P
=
P0.22
P
=0.08
=0.02
P
=
P0.22
Conversion of redeemable
preferred shares (Note 18)
140,687
67,203
Acquisition of minority interest
(Note 32)
Treasury
Shares
(Note 19)
Total
=
P2,776
(P
=2,756)
16,824
16,824
(2,667)
(2,667)
16,824
(2,667)
197,301
16,824
(2,667)
197,301
=
P19,600
(P
=5,423)
=
P P
=1,238,546
Total
Minority Stockholders
Interests
Equity
5,000
=
P5,000 =
P1,435,847
(P
=58,715) =
P4,367,515
=
P64,088
=
P4,431,603
146
16,970
(3,484)
(6,151)
14,157
197,301
(3,338)
(5,425)
10,819
191,876
211,458
(8,763)
(26,026)
202,695
(26,026)
207,890
207,890
5,000
(P
=58,715) =
P4,791,863
(5,000)
(510)
=
P23,789
(510)
=
P4,815,652
Total
Minority Stockholders
Equity
Interests
Redeemable
Preferred
Shares
=
P74,904
(74,904)
Capital in
Excess
Common
of Par
Shares
Value
(Note 19)
=
P2,231,488 =
P843,698
Unrealized
Mark-toMarket Gain
on AvailableRetained
for-Sale Cumulative
Earnings
Investments Translation
(Note 19)
(Note 10) Adjustments
(P
=1,346)
P
= P
=1,402,753
2,231,488
843,698
4,122
=
P
112,478
P
=2,343,966
=
P843,698
4,122
=
P2,776
1,536,599
1,661,650
(74,904)
393,246
301,643
=
P74,904 =
P2,231,488
(424,706)
(393,246)
=
P843,698
149,808
(113,938)
1,288,815
41,969
(2,756)
(P
=2,756)
41,969
(92,238)
P
=1,238,546
1,089,796
484,449
(1,346)
(P
=1,346)
=
P
(171,492)
P
=1,402,753
Treasury
Shares
(Note 19)
Total
(P
=58,715) =
P4,492,782
(58,715)
(188,842)
4,303,940
4,122
41,969
=
P37,343 =
P4,530,125
(6,350)
30,993
23,721
(195,192)
4,334,933
4,122
65,690
46,091
17,484
(P
=58,715) =
P4,367,515
23,721
69,812
17,484
9,374
9,374
=
P64,088 =
P4,431,603
(558,325)
(278)
28,064
3,879,528
484,449
499,610
128,805
(P
=58,715) =
P4,492,782
3,879,250
512,513
9,232
138,037
325
325
=
P37,343 =
P4,530,125
P
=96,767
=29,608
P
=
P645,636
1,275,290
353,049
13,590
1,294,419
383,406
1,258,353
382,043
76,927
1,594
268
(5,308)
(7,862)
(17,362)
(18,298)
(33,594)
71,796
6,600
(22,527)
(27,474)
(26,166)
(3,100)
112,928
454
9,506
(33,865)
(1,170)
(226,436)
(262,264)
1,246,361
(98,416)
1,608,146
(128,984)
(208,659)
2,036,242
(130,716)
53,047
(28,679)
279,782
(65,189)
(116,961)
(149,795)
(46,090)
(89,347)
(267,982)
872,031
19,924
(37,263)
854,692
44,001
1,749,779
25,742
(76,440)
1,699,081
159,282
1,910,292
33,979
(50,731)
1,893,540
(538,475)
(937,566)
308,750
(2,392,522)
935,003
303,374
14,868
174,175
636,871
153
618,845
(19,309)
(42,336)
33,594
686,719
(107,991)
(2,150)
(1,065)
7,437
(558,410)
(171,094)
(1,954)
7,980
(1,301,721)
-2-
P
=437,115
=279,490
P
700,000
=
P483,255
557,985
11,087
(335,183)
(549,448)
(388,491)
(912,262)
(384,588)
(241,961)
(992,764)
18,621
(1,421,659)
(499,500)
(8,674)
(829,437)
(1,267,172)
(325)
(841,719)
119,752
311,234
(249,900)
872,848
561,614
811,514
P
=992,600
=872,848
P
=
P561,614
1. Corporate Information
Aboitiz Transport System (ATSC) Corporation (Parent Company) and its subsidiaries
(collectively referred to as the Group) are primarily engaged in the business of operating
steamships, motorboats and other kinds of watercrafts; operating flight equipment and trucks; and
acting as agent for domestic and foreign shipping companies for purposes of transportation of
cargoes and passengers by air, land and sea within the waters and territorial jurisdiction of the
Philippines. The Parent Companys registered office address is 12th Floor, Times Plaza Building,
United Nations Avenue corner Taft Avenue, Ermita, Manila.
The Groups parent is Aboitiz Equity Ventures, Inc., a publicly-listed company incorporated in the
Philippines, and the ultimate holding company is Aboitiz & Company, Inc. (ACO), also
incorporated in the Philippines.
The accompanying consolidated financial statements were authorized for issue by the Board of
Directors (BOD) on February 22, 2007.
Basis of Consolidation
The consolidated financial statements include the financial statements of the Parent Company and
the following subsidiaries:
Country of
Incorporation
Subsidiaries
Cebu Ferries Corporation
Philippines
(CFC)*
W G & A Supercommerce, Inc. Philippines
(WSI)**
Zoom In Packages, Inc.
(ZIP)***
Philippines
Aboitiz One, Inc. (AOI) and Philippines
Subsidiaries
Aboitiz Jebsen Bulk Transport Philippines
Corporation (AJBTC) and
Subsidiaries
Aboitiz Jebsen Manpower
Philippines
Solutions, Inc. (AJMSI)
Jebsen Maritime, Inc. (JMI)
Philippines
Jebsen Management (JMBVI)
Limited and
British Virgin Islands
Subsidiaries****
**
***
****
****
Nature of Business
Shipping
Ships hotel
management
Transportation/logistic
s
Transportation/logistic
s
Percentage of
Ownership
100.00
100.00
100.00
100.00
Ship management
62.50
Manpower services
Manpower services
62.50
62.50
Shipping
50.00
Parent Company has taken over CFCs shipping operations since 2003.
Ceased operations in February 2006.
Started commercial operations on January 1, 2006.
Parent Company exercises power to govern the financial and operating policies.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease
to be consolidated from the date on which control is transferred out of the Group. Consolidated
financial statements are prepared using uniform accounting policies for like transactions and other
events in similar circumstances. All significant intra-group balances, transactions, income and
expenses, and profits and losses resulting from intra-group transactions are eliminated in the
consolidation.
The consolidated financial statements are presented in Philippine peso, which is the Parent
Companys functional and presentation currency. Items included in the financial statements of
each entity are measured using the currency that best reflects the economic substance of the
underlying events and circumstances relevant to that entity.
Minority interests represent the portion of profit or loss and net assets in the subsidiaries not held
by the Group and are presented separately in the consolidated statement of income and within
stockholders equity in the consolidated balance sheet, separately from the equity attributable to
equity holders of the parent. Acquisitions of minority interests are accounted for using the entity
concept method, whereby, the difference between the consideration and the book value of the
share of the net assets is reflected as an equity transaction.
Amendment for hedges of forecast intra-group transactions (issued April 2005) - amended
PAS 39 to permit the foreign currency risk of a highly probable intra-group forecast transaction to
qualify as the hedged item in a cash flow hedge, provided that the transaction is denominated in a
currency other than the functional currency of the entity entering into that transaction and that the
foreign currency risk will affect the consolidated income statement. As the Group currently has no
such transactions, the amendment did not have an effect on the consolidated financial statements.
Amendment for the fair value option (issued June 2005) amendments to PAS 39 prescribe the
conditions under which the fair value option on classification of financial instruments at fair value
through profit or loss (FVPL) may be used. As the Group currently has no financial instruments
classified as FVPL, the amendment did not have an effect on the consolidated financial statements.
Philippine Interpretation IFRIC 4, Determining Whether an Arrangement contains a Lease
This interpretation provides guidance in determining whether arrangements contain a lease to
which lease accounting must be applied. This change in accounting policy has no significant
impact on the consolidated financial statements.
Philippine Interpretation IFRIC 5, Rights to Interests Arising from Decommissioning, Restoration
and Environmental Rehabilitation Funds
This interpretation establishes the accounting treatment for funds established to help finance
decommissioning for companies assets. As the Group does not currently operate in a country
where such funds exist, this interpretation has no impact on the consolidated financial statements.
Philippine Interpretation IFRIC 6, Liabilities Arising from Participating in a Specific Market Waste Electrical and Electronic Equipment
This interpretation establishes the recognition date for liabilities arising from the EU Directive
relating to the disposal of Waste Electrical and Electronic Equipment. This Interpretation is not
applicable to the Group as it has no operations in countries covered by the EU Directive.
Philippine Interpretation IFRIC 8, Scope of PFRS 2
This interpretation requires IFRS 2 to be applied to any arrangements where equity instruments
are issued for consideration which appears to be less than fair value. The interpretation has no
impact on the financial position of the Group.
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
This interpretation was issued in March 2006 and becomes effective for financial years beginning
on or after June 1, 2006. This interpretation establishes that the date to assess the existence of an
embedded derivative is the date an entity first becomes a party to the contract, with reassessment
only if there is a change to the contract that significantly modifies the cash flows. The Group
assessed that adoption of this interpretation has no impact on the consolidated financial
statements.
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment
The Group early adopted Philippine IFRIC Interpretation 10 as of January 1, 2006 which provides
that the frequency of financial reporting does affect the amount of impairment charge to be
recognized in the annual financial reporting with respect to goodwill and available-for-sale (AFS)
equity investments. It prohibits the reversal of impairment losses on goodwill and AFS equity
investments recognized in the interim financial reports even if impairment is no longer present at
the annual balance sheet date. This interpretation has no significant impact to the consolidated
financial statements of the Group.
accounting policies have been changed where necessary to ensure consistency with the policies
adopted by the Group.
Property and Equipment
Property and equipment is stated at cost, excluding the costs of day-to-day servicing, less
accumulated depreciation and accumulated impairment in value except land. Such cost includes
the cost of replacing part of the property and equipment when that cost is incurred, if the
recognition criteria are met. Land is carried at cost.
Depreciation is calculated on a straight-line basis over the useful lives of the property and
equipment, or the terms of the lease in case of leasehold improvements, whichever is shorter.
Ships in operation, excluding drydocking costs and
vessel equipment and improvements
Containers
Handling equipment
Furniture and equipment
Land improvements
Buildings and warehouses
Leasehold improvements
Transportation equipment
15-30 years
5-7 years
5-7 years
3-5 years
5-10 years
5-20 years
5-12 years
5-10 years
reversed only if there has been a change in the estimates used to determine the assets recoverable
amount since the last impairment loss was recognized. If that is the case, the carrying amount of
the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying
amount that would have been determined, net of depreciation, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in the consolidated statement
of income unless the asset is carried at revalued amount, in which case the reversal is treated as a
revaluation increase.
Intangible assets with indefinite useful lives are tested for impairment annually at each balance
sheet date either individually or at the cash generating unit level, as appropriate.
Treasury Shares
The Companys own equity instruments which are reacquired (treasury shares) are deducted from
equity. No gain or loss is recognized in the consolidated statement of income on the purchase,
sale, issue or cancellation of the Companys own equity instruments.
Financial Assets
Financial assets are classified as either financial assets at fair value through profit or loss, loans
and receivables, held-to-maturity investments, and available-for-sale financial assets, as
appropriate. When financial assets are recognized initially, they are measured at fair value, plus,
in the case of investments not at fair value through profit or loss, directly attributable transaction
costs. The Group considers whether a contract contains an embedded derivative when the entity
first becomes a party to it. The embedded derivatives are separated from the host contract which
is not measured at fair value through profit or loss when the analysis shows that the economic
characteristics and risks of embedded derivatives are not closely related to those of the host
contract.
The Group determines the classification of its financial assets after initial recognition and, where
allowed and appropriate, re-evaluates this designation at each financial year-end.
All regular way purchases and sales of financial assets are recognized on trade date, which is the
date that the Group commits to purchase the asset. Regular way purchases or sales of financial
assets that require delivery of assets within the period generally established by regulation or
convention in the marketplace.
Financial Assets at Fair Value through Profit or Loss (FVPL)
Financial assets at fair value through profit or loss includes financial assets held for trading and
financial assets designated upon initial recognition as fair value through profit or loss.
Financial assets are classified as held for trading if they are acquired for the purpose of selling in
the near term. Derivatives, including separated embedded derivatives, are also classified as held
for trading unless they are designated as effective hedging instruments or a financial guarantee
contract. Gains or losses on investments held for trading are recognized in the consolidated
statement of income.
When a contract contains one or more embedded derivatives, the entire hybrid contract may be
designated as a financial asset at fair value through profit or loss, except when the embedded
derivative does not significantly modify the cash flows or it is clear that separation of the
embedded derivative is prohibited.
Financial assets may be designated at initial recognition as at fair value through profit or loss if the
following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent
treatment that would otherwise arise from measuring the assets or recognizing the gains or losses
on them on a different basis; or (ii) the assets are part of a group of financial assets which are
managed and their performance evaluated on fair value basis, in accordance with a documented
risk management strategy; or (iii) the financial asset contains an embedded derivative that would
need to be separately recorded.
As of December 31, 2006 and 2005, the Group has no financial assets at FVPL.
Held-to-Maturity (HTM) Investments
Held-to-maturity investments are non-derivative financial assets which carry fixed or determinable
payments and fixed maturities and which the Group has the positive intention and ability to hold
to maturity. After the initial measurement, held to maturity investments are measured at amortized
cost. This cost is computed as the amount initially recognized less principal repayments, plus or
minus the cumulative amortization using the effective interest method of any difference between
the initially recognized amount and the maturity amount, less allowance for impairment. This
calculation includes all fees and points paid or received between the parties to the contract that are
integral part of the effective interest rate, transaction costs and all other premiums and discounts.
Gains and losses are recognized in the consolidated statement of income when the investments are
derecognized or impaired, as well as through the amortization process. As of December 31, 2006
and 2005, the Group has no HTM investments.
Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. After initial measurement, loans and receivables are
subsequently carried at amortized cost using the effective interest method less any allowance for
impairment. Amortized cost is calculated taking into account any discount or premium on
acquisition and includes fees that are an integral part of the effective interest rate and transaction
costs. 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.
Available-for-Sale (AFS) Investments
Available-for-sale investments are those non-derivative financial assets that are designated as
available-for-sale or are not classified in any of the three preceding categories. After initial
recognition, available-for-sale financial assets are measured at fair value with unrealized gains or
losses being recognized directly in stockholders equity in the net unrealized gains reserve. When
the investment is disposed of, the cumulative gains or loss previously recorded in stockholders
equity is recognized in the consolidated statement of income. Interest earned or paid on the
investments is reported as interest income or expense using the effective interest rate.
Determination of Fair Value
The fair value of investments that are actively traded in organized financial markets is determined
by reference to quoted market bid prices at the close of business on the balance sheet date. For
investments where there is no active market, fair value is determined using valuation techniques.
Such techniques include using recent arms length market transactions; reference to the current
market value of another instrument, which is substantially the same; discounted cash flow analysis
and other valuation models.
Impairment of Financial Assets
The Group assesses at each balance sheet date whether a financial asset or group of financial
assets is impaired.
Assets Carried at Amortized Cost
If there is objective evidence that an impairment loss on loans and receivables carried at amortized
cost has been incurred, the amount of the loss is measured as the difference between the assets
carrying amount and the present value of estimated future cash flows (excluding future credit
losses that have not been incurred) discounted at the financial assets original effective interest rate
(i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset
shall be reduced either directly or through use of an allowance account. The amount of the loss
shall be recognized in consolidated statement of income.
The Group first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the asset
is included in a group of financial assets with similar credit risk characteristics and that group of
financial assets is collectively assessed for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is or continues to be recognized are not included in
a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in the consolidated statement of income, to the extent that the carrying value of the
asset does not exceed its amortized cost at the reversal date.
In relation to trade receivables, a provision for impairment loss is made when there is objective
evidence (such as the probability of insolvency or significant financial difficulties of the debtor)
that the Company will not be able to collect all the amounts due under the original terms of the
invoice. The carrying amount of the receivables is reduced through use of an allowance account.
Impaired debts are derecognized when they are assessed as uncollectible.
Assets Carried at Cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not
carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that
is linked to and must be settled by delivery of such an unquoted equity instrument has been
incurred, the amount of the loss is measured as the difference between the assets carrying amount
and the present value of estimated future cash flows discounted at the current market rate of return
for a similar financial asset.
AFS Investments
If an AFS investment is impaired, an amount comprising the difference between its cost (net of
any principal payment and amortization) and its current fair value, less any impairment loss
previously recognized in the consolidated statement of income, is transferred from stockholders
equity to the consolidated statement of income. Reversals in respect of equity instruments
classified as available-for-sale are not recognized in the consolidated statement of income.
Reversals of impairment losses on debt instruments are reversed through the consolidated
statement of income, if the increase in fair value of the instrument can be objectively related to an
event occurring after the impairment loss was recognized in consolidated statement of income.
In case of equity investments classified as AFS, objective evidence of impairment would include a
significant or prolonged decline in the fair value of the investments below its cost. Where there is
evidence of impairment, the cumulative loss (measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that financial asset previously
recognized in the consolidated statement of income) is removed from equity and recognized in the
consolidated statement of income. Impairment losses on equity investments are not reversed
through the consolidated statement of income. Increases in fair value after impairment are
recognized directly in stockholders equity.
Financial Liabilities
Financial liabilities consist of financial liabilities at fair value through profit or loss and other
financial liabilities. Financial liabilities at fair value through profit or loss include financial
liabilities held for trading and financial liabilities designated upon initial recognition as at fair
value through profit and loss. Financial liabilities are classified as held for trading if they are
acquired for the purpose of selling in the near term. Derivatives, including separated embedded
derivatives are also classified as held for trading unless they are designated as effective hedging
instruments. Gains or losses on liabilities held for trading are recognized in the consolidated
statement of income.
Where a contract contains one or more embedded derivatives, the entire hybrid contract may be
designated as a financial liability at fair value through profit or loss, except where the embedded
derivatives do not significantly modify the cash flows or it is clear that separation of the embedded
derivative is prohibited.
Financial liabilities may be designated at initial recognition as at fair value through profit or loss if
the following criteria are met: (i) the designation eliminates or significantly reduces the
inconsistent treatment that would otherwise arise from measuring the liabilities or recognizing
gains or losses on them on a different basis; (ii) or the liabilities are part of a group of financial
liabilities which are managed and their performance evaluated on a fair value basis, in accordance
with a documented risk management strategy; (iii) or the financial liability contains an embedded
derivative that would need to be separately recorded.
As of December 31, 2006 and 2005, the Company has no financial liabilities at FVPL.
Other Financial Liabilities
Other financial liabilities are initially recorded art fair value, less directly attributable transaction
costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured
at amortized cost using the effective interest method. Amortized cost is calculated by taking into
account any issue costs, and any discount or premium on settlement. Gains and losses are
recognized in the consolidated statement of income when the liabilities are derecognized as well as
through the amortization process.
Included in other financial liabilities are Companys debt and other borrowings (loans payable and
long term debt), accounts payable, obligation under finance lease, and redeemable preferred
shares.
Redeemable Preferred Shares (RPS)
The component of the RPS that exhibits characteristics of a liability is recognized as a liability in
the consolidated balance sheet, net of transaction costs. The corresponding dividends on those
shares are charged as interest expense in the consolidated statement of income. On issuance of
the redeemable preference shares, the fair value of the liability component is determined using a
market rate for an equivalent non-convertible bond; and this amount is carried as a long term
liability on the amortized cost basis until extinguished on conversion or redemption.
The remainder of the proceeds is allocated to the conversion option that is recognized and
included in consolidated statement of changes in stockholders equity, net of transaction costs.
The carrying amount of the conversion option is not remeasured in subsequent years.
Transaction costs are apportioned between the liability and equity components of the convertible
preference shares based on the allocation of proceeds to the liability and equity components when
the instruments are first recognized.
Derecognition of Financial Assets and Liabilities
Financial Assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar
financial assets) is derecognized when:
the rights to receive cash flows from the asset have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a pass-through arrangement;
or
the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.
Where the Group has transferred its rights to receive cash flows from an asset and has neither
transferred nor retained substantially all the risks and rewards of the asset nor transferred control
of the asset, the asset is recognized to the extent of the Groups continuing involvement in the
asset.
Financial Liabilities
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 consolidated
statement of income.
Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. The following specific recognition criteria must
also be met before revenue is recognized:
Freight and passage services
Freight and passage revenues are recognized when the related services are rendered. Customer
payments for services which have not yet been rendered are classified as unearned revenue under
Accounts payable and other current liabilities in the consolidated balance sheet.
the current period and past service cost of the current period are recognized immediately.
Similarly, net actuarial gains of the current period after the deduction of past service cost of the
current period exceeding any increase in the present value of the economic benefits stated above
are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized
net actuarial losses and past service cost and the present value of any economic benefits available
in the form of refunds from the plan or reductions in the future contributions to the plan. If there
is no change or there is a decrease in the present value of the economic benefits, the entire net
actuarial gains of the current period after the deduction of past service cost of the current period
are recognized immediately.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of
the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a
right to use the asset. A reassessment is made after the inception of the lease only if one of the
following applies:
(a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) A renewal option is exercised and extension granted, unless the term of the renewal or
extension was initially included in the lease term;
(c) There is a change in the determination of whether fulfillment is dependent on a specified asset;
or
(d) There is a substantial change to the asset.
When a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances give rise to the reassessment for scenarios (a), (c) or (d) and at the date of
renewal or extension period for scenario (b).
For arrangements entered into prior to January 1, 2005, the date of inception is deemed to be
January 1, 2005 in accordance with the transitional requirements of Philippine Interpretation
IFRIC 4.
Group as a lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to
ownership of the leased item, are capitalized at the inception of the lease at the fair value of the
leased property or, if lower, at the present value of the minimum lease payments. Lease payments
are apportioned between the finance charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance charges are reflected in
the consolidated statement of income.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as expense in the
statement of income on a straight-line basis over the lease term.
Group as a lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of
the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating
lease are added to the carrying amount of the leased asset and recognized over the lease term on
the same bases as rental income. Contingent rents are recognized as revenue in the period in
which they are earned.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. Where the Company expects some or all of a provision to be reimbursed, for example
under an insurance contract, the reimbursement is recognized as a separate asset but only when the
reimbursement is virtually certain. The expense relating to any provision is presented in the
statements of income net of any reimbursement. If the effect of the time value of money is
material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the
risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as a finance cost.
Foreign Currency Transactions
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 on the balance sheet date. All
differences are taken to the consolidated statement of income, except for foreign exchange
differences arising from the translation of assets and liabilities and profit and loss accounts of
JMBVI and subsidiaries which are taken directly to a separate component of stockholders equity.
The functional currency of JMBVI and Subsidiaries is US dollars.
At the reporting date, the assets and liabilities of JMBVI and Subsidiaries are translated into the
presentation currency of the Parent Company using the Philippine Dealing System (PDS) closing
rate on the balance sheet date and their statements of income are translated at the PDS weighted
average exchange rates for the year. The exchange differences arising from the translation are
taken directly to a separate component of stockholders equity, under the Cumulative translation
adjustments account. On disposal of a foreign entity, the deferred cumulative amount recognized
in stockholders equity relating to that particular foreign operation is recognized in the
consolidated statement of income.
Income Taxes
Current Income Tax
Current income tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the tax authority. The tax rates and tax laws used
to compute the amount are those that are enacted or substantively enacted at the balance sheet
date.
Deferred Income Tax
Deferred income tax is provided using the balance sheet liability method on temporary differences
on the balance sheet date between the tax bases of assets and liabilities and their carrying amounts
for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable
temporary differences, except:
where the deferred income tax liability arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
differences can be controlled and it is probable that the temporary differences will not reverse
in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, carryforward
of unused tax credits and unused tax losses, to the extent that it is probable that future taxable
profit will be available against which the deductible temporary differences and the carryforward of
unused tax credits and unused tax losses can be utilized except:
where the deferred income tax asset relating to the deductible temporary difference arises from
the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting profit nor taxable profit or
loss; and
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient future taxable profit will be
available to allow all or part of the deferred income tax asset to be utilized. Unrecognized
deferred income tax assets are reassessed at each balance sheet date and are recognized to the
extent that it has become probable that future taxable profit will allow the deferred income tax
asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply
in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted on the balance sheet date.
Income tax relating to items recognized directly in equity is recognized in consolidated statement
of changes in stockholders equity and not in the consolidated statement of income.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable
right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to
the same taxable entity and the same taxation authority.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized in the consolidated financial statements but are
disclosed in the notes to consolidated financial statements when an inflow of economic benefits is
probable.
Business Segments
The Groups operating business 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.
Segment Assets and Liabilities. Segment assets include all operating assets used by a segment and
consist principally of operating cash, receivables, inventories and property and equipment, net of
allowances and provisions. Segment liabilities include all operating liabilities and consist
principally of accounts payable and other current liabilities. Segment assets and liabilities do not
include deferred income taxes.
Inter-segment Transactions. Segment revenue, segment expenses and segment performance
include transfers among business segments. The transfers are accounted for at competitive market
prices charged to unaffiliated customers for similar products. Such transfers are eliminated in
consolidation.
Events After Balance Sheet Date
Post year events that provide evidence of conditions that existed on the balance sheet date are
reflected in the consolidated financial statements. Subsequent events that are indicative of
conditions that arose after balance sheet date are disclosed in the notes to consolidated financial
statements when material.
Earnings Per Common Share
Basic earnings per common share are determined by dividing net income by the weighted average
number of common shares outstanding, after retroactive adjustment for any stock dividends and
stock splits declared during the year.
Diluted earnings per common share amounts are calculated by dividing the net income for the year
attributable to the ordinary equity holders of the parent by the weighted average number of
common shares outstanding during the year plus the weighted average number of ordinary shares
that would be issued for outstanding common stock equivalents.
future operations will generate sufficient taxable profit that will allow all or part of the deferred
income tax assets to be utilized. The Groups net deferred income tax assets amounted to
=372,622 and =
P
P242,318 as of December 31, 2006 and 2005, respectively (see Note 28).
Impairment of available-for-sale financial assets
The Group follows the guidance of PAS 39 in determining when an investment is other-thantemporarily impaired. This determination requires significant judgment. In making this judgment,
the Group evaluates, among other factors, the duration and extent to which the fair value of an
investment is less than its cost; and the financial health and near-term business outlook of the
investee, including factors such as industry and sector performance, changes in technology and
operational and financing cash flow.
The carrying value of available-for-sale investments amounted to =
P59,431 and =
P41,648 as of
December 31, 2006 and 2005, respectively (see Note 10).
Financial assets and liabilities
PFRS requires certain financial assets and liabilities to be carried at fair value, which requires the
use of accounting estimates and judgments. While significant components of fair value
measurement were determined using verifiable objective evidence (i.e., foreign exchange rates,
interest rates, volatility rates), the amount of changes in fair value would differ if the Company
utilized a different valuation methodology. Any changes in fair value of these financial assets and
liabilities (including derivative instruments) would directly affect the consolidated statement of
income and consolidated statement of changes in stockholders equity.
Total carrying value of financial assets and liabilities as of December 31, 2006 amounted to
=3,156,863 and =
P
P5,473,623, respectively (see Note 33).
Asset Impairment
PFRS requires that an impairment review be performed when certain impairment indicators are
present. Determining the value of property and equipment, investments in associates and software
development costs and other noncurrent assets, which require the determination of future cash
flows expected to be generated from the continued use and ultimate disposition of such assets,
requires the Group to make estimates and assumptions that can materially affect its consolidated
financial statements. Future events could cause the Group to conclude that the property and
equipment, investments in associates, software development costs and other noncurrent assets are
impaired. Any resulting impairment loss could have a material adverse impact on the Groups
financial condition and results of operations.
The carrying value of property and equipment, investments in associates, software development
costs and other noncurrent assets amounted to =
P5,301,664 and =
P7,447,506 as of December 31,
2006 and 2005, respectively (see Notes 9, 11 and 13).
Pension Cost
The determination of the obligation and cost for pension and other retirement benefits is dependent
on the selection of certain assumptions used by actuaries in calculating such amounts. Those
assumptions were described in Note 27 and include among others, discount rate, expected return
on plan assets and rate of compensation increase. In accordance with PFRS, actual results that
differ from the Groups assumptions are accumulated and amortized over future periods and
therefore, generally affect the recognized expense and recorded obligation in such future periods.
While it is believed that the Groups assumptions are reasonable and appropriate, significant
differences in actual experience or significant changes in assumptions may materially affect the
Groups pension and other retirement obligations.
The Groups pension liability and pension asset as of December 31, 2006 amounted to =
P9,890 and
=37,855, respectively (see Note 27).
P
Contingencies
The Group is currently involved in legal and administrative proceedings. The Groups estimate of
the probable costs for the resolution of these claims has been developed in consultation with
outside counsels handling defense in these matters and is based upon an analysis of potential
results. The Group and its legal counsels currently do not believe these proceedings will have a
material adverse effect on its financial position and results of operations. It is possible, however,
that future results of operations could be materially affected by changes in the estimates or in the
effectiveness of strategies relating to these proceedings (see Note 29).
4. Segment Information
The segment reporting format is determined to be business segments as the Groups risks and rates
of return are affected predominantly by differences in the products and services produced. The
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.
The Group is in the business of transporting of cargoes and passengers and providing manpower
services to foreign shipping principals, among others.
Subsidiaries under the shipping and transportation segment render passage transportation and
cargo freight services.
Subsidiaries under the manpower services render manning and personnel, particularly crew
management services.
Financial information about business segments follow:
Net revenue
Segment results/net income
Other information
Segment assets
Segment liabilities
Other information:
Capital expenditures
Depreciation and
amortization
Shipping and
Transportation
P
=10,968,662
248,729
2006
Manpower
Services Elimination Consolidated
P
=287,852
(P
=685,329) P
=10,571,185
29,996
(86,849)
191,876
10,492,357
5,299,351
494,736
428,041
(685,127)
(241,078)
10,301,966
5,486,314
580,493
4,676
585,169
1,263,564
11,726
1,275,290
Net revenue
Segment results/net income
Other information
Segment assets
Segment liabilities
Other information:
Capital expenditures
Depreciation and
amortization
Net revenue
Segment results/net income
Other information
Segment assets
Segment liabilities
Other information:
Capital expenditures
Depreciation and
amortization
Shipping and
Transportation
=
P11,599,386
100,811
11,249,420
6,713,314
(884,371)
1,283,162
Shipping and
Transportation
=
P9,528,629
630,719
2005
Manpower
Elimination Consolidated
Services
=
P356,250
(P
=276,018) =
P11,679,618
70,757
(105,878)
65,690
410,270
316,278
(306,079)
(107,584)
(11,704)
11,257
11,353,611
6,922,008
(896,075)
1,294,419
2004
Manpower
Elimination Consolidated
Services
=
P359,132
(P
=197,744)
=
P9,690,017
62,955
(181,161)
512,513
10,967,430
6,291,944
551,969
502,286
(426,184)
(85,705)
11,093,215
6,708,525
(2,381,660)
(10,862)
(2,392,522)
1,247,617
10,736
1,258,353
2006
P
=638,701
353,899
P
=992,600
2005
=572,416
P
300,432
=872,848
P
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are made for
varying periods of up to three months depending on the immediate cash requirements of the
Group, and earn interest at the respective short-term investment rates.
6. Receivables
Trade (see Note 20)
Nontrade (see Note 20)
Advances to officers and employees
Insurance and other claims
Less allowance for probable losses
2006
P
=1,652,717
712,968
36,718
23,712
2,426,115
321,283
P
=2,104,832
2005
=1,672,869
P
417,784
52,768
35,021
2,178,442
277,965
=1,900,477
P
Insurance claims pertain to the Groups claims for reimbursement of losses against insurance
coverage for hull and machinery, cargo, and personal accidents.
7. Inventories
2006
P
=78,238
2005
=165,808
P
177,361
203,847
153,107
269,034
P
=255,599
=318,915
P
2006
P
=509,141
71,631
4,874
585,646
29,938
P
=555,708
2005
=477,918
P
61,093
20,826
559,837
29,938
=529,899
P
2006
2005
P
=18,486
18,486
=16,336
P
2,150
18,486
28,429
5,308
(14,868)
18,869
P
=37,355
5,902
22,527
28,429
=46,915
P
9. Investments in Associates
Acquisition cost:
Balances at beginning of year
Additions during the year
Balances at end of year
Accumulated
(Forward) equity in net earnings:
Balances at beginning of year
Equity in net earnings during the year
Disposal during the year
Balances at end of year
The details of investments of the Groups associates which are accounted for under the equity
method follow:
Associates
Refrigerated Transport
Services, Inc. (RTSI)
Reefer Van Specialist, Inc.
(RVSI)
Aboitiz Project/T.S.
Corporation (APTSC)
WG & A Jebsen Ship
Management, Inc.
Country of
Incorporation
Philippines
Philippines
Philippines
Philippines
Nature of Business
Refrigerated transport
services
Refrigerated transport
services
Project logistics and
consultancy
Ship management
Percentage of
Ownership
50%
50%
50%
40%
2006
P
=155,327
28,715
123,963
4,712
199,956
5,647
2005
=139,216
P
33,332
110,436
2,866
1,127,333
38,295
2006
P
=33,401
23,430
2,600
P
=59,431
2005
=19,409
P
20,039
2,200
=41,648
P
Listed shares of stock and club shares are carried at market value. Unrealized gains on availablefor-sale investments are included in the Stockholders Equity section of the consolidated balance
sheets. Impairment loss arising from permanent decline in market value of certain available-forsale investments amounting to P
=6,600 was charged to 2005 consolidated statement of income (see
Note 3).
Unlisted shares of stock that do not have market values and there are no other reliable sources of
their fair values are stated at cost.
Ships in
Operation
Cost
At January 1
Additions
Disposals
Reclassifications (Note 12)
At December 31
Accumulated
Depreciation,
Amortization and
Impairment Loss
At January 1
Depreciation and
amortization for
the year
Disposals
Reclassifications (Note 12)
At December 31
Net Book Value
Containers
Handling
Equipment
P
=1,301,341
12,800
(70,488)
(2,698)
1,240,955
Flight
Equipment
Furniture and
Equipment
=165,482
P
6,146
(15,296)
156,332
=583,443
P
60,991
(22,314)
181
622,301
P
=8,972,271
249,581
(1,132,526)
(2,783,953)
5,305,373
=
P1,976,604
16,363
(74,251)
(151,231)
1,767,485
3,518,105
1,601,102
973,773
100,693
434,926
765,678
(422,504)
(2,122,153)
1,739,126
P
=3,566,247
139,978
(74,045)
(151,251)
1,515,784
P
=251,701
106,542
(68,047)
(2,642)
1,009,626
P
=231,329
11,244
(1,706)
110,231
P
=46,101
73,798
(15,771)
772
493,725
P
=128,576
Land and
Improvements
=241,809
P
113,835
17,506
373,150
48,181
9,448
(1)
57,628
P
=315,522
Buildings and
Warehouses
Leasehold
Improvements
Transportation
Equipment
=230,187
P
9,356
(701)
238,842
P
=291,502
40,300
(26,172)
709
306,339
P
=247,449
28,917
(18,760)
257,606
147,851
134,721
161,020
19,475
(583)
166,743
P
=72,099
26,638
(4,547)
1,228
158,040
P
=148,299
31,625
(13,594)
805
179,856
P
=77,750
Ships Under
Refurbishment
and
Construction
in Progress
P
=19,415
186
(17,532)
2,069
P
=2,069
Total
P
=14,029,503
538,475
(1,359,807)
(2,937,719)
10,270,452
7,120,372
1,184,426
(600,214)
(2,273,825)
5,430,759
P
=4,839,693
Cost
At January 1
Additions
Disposals
Reclassifications
At December 31
Accumulated
Depreciation,
Amortization and
Impairment Loss
At January 1
Depreciation and
amortization for
the year
Disposals
At December 31
Net Book Value
Ships in
Operation
Containers
Handling
Equipment
Flight
Equipment
P
=8,791,429
425,430
(244,588)
8,972,271
=
P1,991,900
843
(16,139)
1,976,604
P
=1,149,957
177,732
(26,348)
1,301,341
2,918,850
1,475,053
895,346
92,187
365,195
824,070
(224,815)
3,518,105
=5,454,166
P
140,823
(14,774)
1,601,102
=
P375,502
103,458
(25,031)
973,773
P
=327,568
8,552
(46)
100,693
P
=64,789
88,695
(18,964)
434,926
P
=148,517
=138,547
P
26,981
(46)
165,482
Furniture and
Equipment
=455,135
P
156,940
(28,632)
583,443
Land and
Improvements
=240,147
P
10,322
(8,660)
241,809
45,274
11,567
(8,660)
48,181
=193,628
P
Buildings and
Warehouses
Leasehold
Improvements
Transportation
Equipment
=220,387
P
11,148
(4,536)
3,188
230,187
P
=206,214
47,541
(4)
37,751
291,502
P
=231,803
33,190
(17,544)
247,449
133,867
117,798
135,484
18,520
(4,536)
147,851
=82,336
P
16,927
(4)
134,721
P
=156,781
33,940
(8,404)
161,020
P
=86,429
Ships Under
Refurbishment
and
Construction
in Progress
P
=12,915
47,439
(40,939)
19,415
P
=19,415
Total
P
=13,438,434
937,566
(346,497)
14,029,503
6,179,054
1,246,552
(305,234)
7,120,372
P
=6,909,131
2005
P
=191,909
119,955
37,855
74,897
P
=424,616
=148,359
P
258,420
24,726
59,955
=491,460
P
Under
Development
Total
P
=289,657
25,772
78,905
394,334
P
=258,420
19,285
(78,905)
(78,845)
119,955
P
=548,077
45,057
(78,845)
514,289
Accumulated amortization:
Balances at beginning of year
Amortization for the year
Balances at end of year
Net book values
141,298
61,127
202,425
P
=191,909
P
=119,955
141,298
61,127
202,425
P
=311,864
Under
Development
Total
Cost:
Balances at beginning of year
Additions
Balances at end of year
=
P197,976
91,681
289,657
=
P231,060
27,360
258,420
=
P429,036
119,041
548,077
Accumulated amortization:
Balances at beginning of year
Amortization for the year
Balances at end of year
Net book values
93,431
47,867
141,298
=148,359
P
=
P258,420
93,431
47,867
141,298
=
P406,779
2006
P
=114,400
144,639
105,681
P
=364,720
2005
=338,950
P
76,981
61,122
=477,053
P
The peso loans pertain to unsecured short-term notes payable obtained by the Parent Company and
AOI from local banks with annual interest rates ranging from 7.08% to 10.25% in 2006 and 7.22%
to 10.60% in 2005.
The US dollar loans pertain to unsecured short-term notes payable obtained by AJBTC and JMI
from foreign and local banks and have outstanding balances amounting to US$2.95 million and
US$2.55 million as of December 31, 2006 and 2005, respectively. These loans bear interest rates of
6.00% in 2006 and 6.07% to 5.00% in 2005.
The US dollar overdraft facility pertains to a loan obtained from a foreign bank by Jebsens Orient
Shipping AS, a wholly owned subsidiary of JMBVI based in Norway, with interest at the aggregate
of London Inter-bank Offered Rate (LIBOR) plus a margin of 1.50% per year. This loan is secured
by an assignment of borrowers earnings and a guarantee of JMBVI shareholder.
2006
P
=1,130,651
1,474,362
460,733
104,348
P
=3,170,094
2005
=1,587,070
P
1,042,120
566,536
115,343
=3,311,069
P
2006
2005
7.73% to 10.70%
P
=1,711,859
P
=2,529,231
LIBOR + 1.75%
18,215
1,730,074
486,441
1,243,633
37,627
2,566,858
461,164
2,105,694
455,037
P
=788,596
P
=2,105,694
Repayments of long-term debt outstanding as of December 31, 2006 are scheduled as follows:
2007
2008
2009
2010
P
=486,441
489,466
358,333
395,834
=1,730,074
P
Bank loans denominated in Philippine peso were obtained by the Parent Company and are
collateralized by certain parcels of land and vessels of the Parent Company with carrying value of =
P
3,609,606 in 2006 and =
P4,937,342 in 2005. The pledged assets have an aggregate appraised value
of P
=5,870,480 and =
P7,566,513 as of December 31, 2006 and 2005, respectively.
Some agreements covering bank loans provide for certain restrictions and requirements that include,
among others, maintenance of favorable financial ratios such as current ratio, debt to tangible net
worth ratio and debt service coverage ratio. As of December 31, 2006 and 2005, the Parent
Company was not able to meet the required current ratio of 1:1 and debt service coverage ratio of
1.5:1. However, the Parent Company has obtained waivers from the creditor banks which are valid
for one year from December 31, 2005 and 2006.
The AU dollar-denominated loan pertains to unsecured 5-year term loan obtained by International
Marketing and Logistics PTY Ltd (IML), a subsidiary of JMBVI based in Australia. This loan
requires IML to ensure that during the term of the loan, dividend payments will be restricted to
ensure that cash and cash equivalents reduced by the dividend payments exceed the debt service of
the following half year.
2006
P
=1,032,033
799,276
P
=237,757
2005
=1,113,424
P
743,709
=369,715
P
Future minimum lease payments under finance lease, together with the present value of minimum
lease payments, are as follows:
2006
2007
2008 to 2009
Total minimum lease obligation
Less amount representing interest
Present value of minimum lease payments
Less current portion
2006
P
=
129,623
90,135
219,758
24,855
194,903
113,823
P
=81,080
2005
=165,636
P
139,992
97,344
402,972
52,089
350,883
140,393
=210,490
P
non-voting;
redeemable at any time, in whole or in part, as may be determined by the BOD within a period
not exceeding 10 years from the date of issuance at a price of not lower than =
P6 per share as
may be determined by the BOD. The shares must be redeemed in the amount of at least
=250,000 per calendar year;
P
if not redeemed in accordance with the foregoing, the RPS may be converted to a bond bearing
interest at 4% over prevailing treasury bill rate to be issued by the Parent Company; and,
As required by PAS 39, the excess of mandatory redemption price over the remaining issue price of
unredeemed preferred shares as of January 1, 2005 amounting to P
=374,520 was discounted up to
January 1, 2005 to determine its present value. The present value was determined using an effective
interest rate of 13.4% which is comparable to the interest rate of a 10-year Philippine peso bond at
the date of issuance. Present value of redemption price amounted to =
P176,630 as of January 1,
2005. The difference between the present value at January 1, 2005 and issue price amounted to =
P
101,725. This was charged against retained earnings as of January 1, 2005. Accretion of premium
amounted to P
=21,404 and =
P23,688 in 2006 and 2005, respectively, and was charged to interest
expense in the consolidated statement of income. The carrying value of the RPS is shown under
Noncurrent Liabilities account in the consolidated balance sheets.
On May 25, 2006, the Parent Companys stockholders approved the Amendment of Article 7 of the
Articles of Incorporation to add a convertibility feature to the RPS so as to allow holders of
redeemable preferred shares, at their option, to convert every RPS into two (2) common shares of
the Company, which conversion must be exercised on or before December 29, 2006 or within 120
days from the approval by the SEC of such amendment, whichever occurs earlier.
On June 15, 2006, the SEC approved the Parent Companys application for the amendment of its
Articles of Incorporation for the addition of this convertibility feature on the redeemable preferred
shares.
On July 27, 2006, the BOD approved the call to all preferred shareholders to convert at their option
preferred shares into common shares at the stipulated conversion price of P3.20 for one (1) preferred
share or two common shares for every one (1) RPS held. During the Conversion Period from
September 1 to October 13, 2006, a total of 70,343,670 preferred shares or 93.91% were converted
to common shares. Consequently, the Parent Company issued a total of 140,687,340 new common
shares to those RPS holders who opted to convert their preferred shares.
As a result of the conversion, the carrying value of the RPS as shown under Noncurrent Liabilities
section of the balance sheet was decreased from =
P200,317 in 2005 to P
=13,832 in 2006. Likewise,
the capital stock was increased by =
P140,687 representing the issuance of new common shares. The
excess between the carrying value of the preferred shares converted over the par value of the
common stock issued was credited to Capital in excess of par value amounting to
=67,203.
P
Number of Shares
2005
4,000,000,000
4,000,000,000
2,375,000,000
1,625,000,000
4,000,000,000
2,343,965,560
140,687,340
2,484,652,900
38,516,500
2,446,136,400
1,929,844,437
414,121,123
2,343,965,560
38,516,500
2,305,449,060
b. Retained earnings
Retained earnings include undistributed earnings amounting to =
P284,533 in 2006 and
=227,207 in 2005 representing accumulated equity in net earnings of subsidiaries and associates,
P
which are not available for dividend declaration until received in the form of dividends from
such subsidiaries and associates. Retained earnings are further restricted for the payment of
dividends to the extent of the cost of the shares held in treasury.
2005
2006
RVSI
Pilmico Foods Corporation (PFC)
Fil-am Foods, Inc, (FFI)
APTSC
Abotrans Brokerage Corporation
(ABC)
Aboitiz Construction Group, Inc.
(ACGI)
Pilmico-Mauri Foods Corporation
(PMFC)
Aboitiz Equity Ventures (AEV)
RTSI
Aboitiz & Co. (ACO)
J&A Services
Total Distribution
Logistics Systems, Inc. (TDLSI)
Others
Revenue
P
=150,806
90,138
63,347
8,298
Purchases/
Expenses
P
=263
13
553
Revenue
=140,286
P
41,726
45,053
6,804
Purchases/
Expenses
=
P427
225
412
8,282
2,594
28
4,915
298,382
1,075
421
418
51
27,551
13,628
5,222
33,770
1,107
447
8,994
41,336
77,721
P
=403,151
75,426
45,949
P
=202,403
50,047
=289,938
P
77,147
24,833
=
P452,203
The consolidated balance sheets include the following amounts with respect to the transactions with
the above related parties:
2006
RVSI
Supercat Fast Ferry Corporation
PFC
FFI
APTSC
PMFC
TDLSI
RTSI
ACO
Others
Receivables/
Advances
P
=41,705
35,613
21,012
13,114
5,226
567
375
207
17,262
P
=135,081
Accounts
Payable and
Other Current
Liabilities
P
=2,444
17,112
85
567
2,475
3,309
2,222
45,010
P
=73,224
2005
Receivables/
Advances
=33,771
P
1,218
2,902
20,563
26,005
4,313
34,041
=122,814
P
Accounts
Payable and
Other Current
Liabilities
=
P2,302
217
96
6,357
1,810
10,359
76,505
=
P97,646
2006
P
=3,367,745
1,331,950
2005
=3,254,582
P
1,890,139
2004
=
P2,651,604
863,766
604,343
526,585
375,671
239,566
229,222
134,381
94,003
372,614
P
=8,139,846
865,746
641,499
531,048
368,917
295,649
273,987
204,634
123,584
257,952
=8,707,737
P
891,828
586,980
559,908
569,315
359,673
316,308
199,191
138,674
341,490
=
P6,614,971
2006
P
=320,974
256,191
170,527
97,014
89,654
42,402
41,097
60,813
P
=1,078,672
2005
=460,654
P
254,994
173,067
61,098
112,667
48,957
47,112
67,203
=1,225,752
P
2004
=
P462,746
237,144
109,801
36,356
124,028
34,217
27,866
76,196
=
P1,108,354
2006
P
=442,567
2005
=504,509
P
2004
=
P516,060
155,333
133,365
91,952
77,667
76,074
173,679
120,339
111,396
83,874
100,874
129,381
150,683
119,117
65,780
120,029
56,042
22,473
426,895
P
=1,482,368
71,796
29,296
350,251
=1,546,014
P
112,928
33,637
188,394
=
P1,436,009
2006
2005
2004
P
=813,280
=824,070
P
=
P860,053
400,883
422,482
370,747
61,127
P
=1,275,290
47,867
=1,294,419
P
27,553
=
P1,258,353
2006
P
=706,874
243,094
10,779
105,419
P
=1,066,166
2005
=666,868
P
237,455
19,832
172,500
=1,096,655
P
2004
=
P600,960
288,386
22,064
200,914
=
P1,112,324
2006
2005
2004
Interest expense
(see Notes 14, 16 and 17)
Other financing costs
Interest income
P
=353,049
3,012
356,061
(18,298)
P
=337,763
=383,406
P
18,429
401,835
(26,166)
=375,669
P
=
P382,043
14,103
396,146
(33,865)
=
P362,281
included in the consolidated statements of income and the funded status and amounts as included in
the consolidated balance sheets.
Net Benefit Expense (recognized in costs and expenses)
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial loss
Net benefit expense
2006
P
=5,025
5,743
(2,686)
165
P
=8,247
2005
=2,876
P
4,538
(2,049)
1,785
=7,150
P
2004
=
P3,045
3,456
(1,775)
=
P4,726
Benefit Liability
Defined benefit obligation
Fair value of plan assets
Unrecognized net actuarial losses
2006
P
=97,909
(38,904)
59,005
(49,115)
P
=9,890
2005
=47,826
P
(28,060)
19,766
(8,406)
=11,360
P
Changes in the present value of the defined benefit obligation are as follows:
Defined benefit obligation at beginning
of year
Interest cost
Current service cost
Actuarial loss on obligations
Benefits paid
Defined benefit obligation at end of year
2006
2005
P
=47,826
5,743
5,025
46,509
(7,194)
P
=97,909
=36,872
P
4,538
2,876
3,540
=47,826
P
2006
2005
P
=28,060
2,686
9,717
(7,194)
5,635
P
=38,904
=20,788
P
2,049
2,455
2,768
=28,060
P
2006
2005
2004
P
=8,406
(5,635)
46,509
(165)
=9,419
P
(2,768)
3,540
(1,785)
=
P6,766
(163)
2,816
P
=49,115
=8,406
P
=
P9,419
The Parent Company and AOI have defined benefit asset as of December 31, 2006 and 2005. The
following tables summarize the components of net benefit expense recognized by them as included
in the consolidated statements of income and the funded status and amounts as included in the
consolidated balance sheets.
Net Benefit Expense (recognized in costs and expenses)
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Recognized actuarial loss (gain)
Net benefit expense
2006
P
=8,936
9,539
(18,219)
2,276
P
=2,532
2005
=13,713
P
11,356
(11,703)
(684)
=12,682
P
2004
=
P15,049
11,446
(9,157)
=
P17,338
Pension Asset
2006
P
=154,299
(103,684)
50,615
(12,760)
P
=37,855
2005
=146,463
P
(81,939)
64,524
(39,798)
=24,726
P
Changes in the present value of the defined benefit obligation are as follows:
2006
Defined benefit obligation at beginning
of year
Interest cost
Current service cost
Actuarial loss (gain) on obligations
Benefits paid
Defined benefit obligation at end of year
P
=81,939
9,539
8,936
32,894
(29,624)
P
=103,684
2005
=81,113
P
11,356
13,713
(18,783)
(5,460)
=81,939
P
2006
Fair value of plan assets at beginning
of year
Expected return
Actual contributions
Benefits paid
Actuarial loss (gain) on plan assets
Fair value of plan assets at end of year
P
=146,463
18,219
15,661
(29,624)
3,580
P
=154,299
=130,028
P
11,703
25,535
(5,460)
(15,343)
=146,463
P
2005
2004
P
=39,798
(32,894)
3,580
2,276
=37,042
P
18,783
(15,343)
(684)
=
P
29,970
7,072
P
=12,760
=39,798
P
=
P37,042
The principal assumptions used in determining pension benefit obligations for the Groups plans are
shown below:
Discount rate
Expected rate of return on assets
Future salary increases
2006
8%
15%
5%
2005
14%
9%
8%
2004
=12%
P
9%
8%
The major categories of plan assets as a percentage of the fair value of total plan assets are as
follows:
2006
Investments in:
Common trust fund
Notes receivable
Shares of stock
Government securities and other
debt securities
Others
2005
2004
3%
1
19
1%
14
17
1%
13
15
74
3
100%
66
2
100%
63
8
100%
Experience adjustments on plan liabilities as of December 31, 2006 and 2005 amounted to
=
P7.4 million and =
P0.5 million, respectively. While experience adjustments on plan assets as of
December 31, 2006 and 2005 amounted to =
P2.7 million and (P
=1.0) million, respectively.
2006
P
=212,165
NOLCO
Allowances for:
Probable losses
Inventory obsolescence
MCIT
Unrealized foreign exchange gain
Accrued pension benefits and others
65,579
40,211
40,215
(1,156)
4,843
102,619
41,132
20,294
(1,479)
(2,109)
P
=372,622
=242,318
P
In computing deferred income tax assets and liability in 2006, the rate used was 35% which is the
rate expected to apply to taxable income in the years in which the deferred income tax assets and
liability are expected to be recovered or settled.
The reconciliation of provision for income tax computed at the statutory tax rate to provision for
income tax as shown in the consolidated statements of income is summarized as follows:
2006
2005
2004
P
=75,845
=8,823
P
=
P205,836
(91,793)
(62,482)
(52,256)
(43,584)
(45,032)
30,109
(4,233)
(6,116)
(1,756)
(P
=95,109)
11,584
(P
=36,082)
(23,013)
=
P133,123
As of December 31, 2006, details of the Groups NOLCO and MCIT which can be carried forward
and claimed as deduction from regular taxable income and tax credit against regular income tax due,
respectively, are as follows:
NOLCO
Year
Incurred
2006
2005
2004
2003
Availment
Period
2007-2009
2006-2008
2005-2007
2004-2006
MCIT
Year
Incurred
2006
2005
2004
2003
Availment
Period
2007-2009
2006-2008
2005-2007
2004-2006
Amount
P
=346,757
259,027
438
2,000
=618,348
P
Applied
=
P
=
P
Expired
=
P
(2,000)
(P
=2,000)
Balance
=
P346,757
259,027
438
P
=606,222
Amount
P
=10,188
10,094
12
30,109
=50,403
P
Applied
=
P
=
P
Expired
=
P
(30,109)
(P
=30,109)
Balance
P10,188
=
10,094
12
=
P20,294
29. Contingencies
There are certain legal cases filed against the Group in the normal course of business. Management
and its legal counsel believe that the Group has substantial legal and factual bases for its position
and are of the opinion that losses arising from these cases, if any, will not have a material adverse
impact on the consolidated financial statements.
30. Earnings Per Common Share
Earnings per common share were computed as follows:
2006
2005
2004
P
=197,301
=41,969
P
=
P484,449
=0.02
P
=
P0.22
BOI Registration
MV SuperFerry 19
MV SuperFerry 12
AOI is also registered with the BOI as an Expanding Operator of Air Transport Facility (Passenger
and Cargo) on a non-pioneer status with a capacity of 2 aircrafts, subject to specific and general
terms and conditions set forth in the registration. As a BOI registered enterprise, AOI is entitled to
certain tax and nontax incentives such as income tax holiday for 3 years (starting from November
1998 or from the actual start of commercial operations whichever is earlier but in no case earlier
than the date of registration), unrestricted use of consigned equipment, employment of foreign
nationals, and others. All the fiscal and non-fiscal incentives set forth in the registration which do
not contain a specific period for enjoyment shall terminate after a period of not more than ten years
from the date of registration or actual start of commercial operations.
Income tax holiday incentive availed by the Group amounted to =
P62,482 in 2006 and =
P52,256 in
2005.
32. Commitments and Other Matters
a.
In 2002, the Parent Company entered into a Memorandum of Agreement (Agreement) with
Asian Terminals, Inc. (ATI) for the use of the latters facilities and services at the South Harbor
for the embarkation and disembarkation of the Parent Companys domestic passengers, as well
as loading, unloading and storage of cargoes. The Agreement shall be for a period of five years,
which shall commence from the first scheduled service of the Parent Company at the South
Harbor. The Agreement is renewable for another five years under such terms as may be agreed
by the parties in writing. If the total term of the Agreement is less than ten years, then the
Parent Company shall pay the penalty equivalent to unamortized reimbursement of capital
expenditures and other related costs incurred by ATI in the development of South Harbor. The
Agreement became effective on January 14, 2003.
Under the terms and conditions of the Agreement, the Parent Company shall avail of the
terminal services of ATI, which include, among others, stevedoring, arrastre, storage,
warehousing and passenger terminal. Domestic tariff for such services (at various rates per type
of service as enumerated in the Agreement) shall be subject to an escalation of 5% every year.
AJBTC, JMI and AJMSI (Agents) have outstanding agreements with foreign shipping
principals, wherein the Agents render manning and crew management services consisting
primarily of the employment of crew for the principals vessels. As such, the principals have
authorized the Agents to act on their behalf with respect to all matters relating to the manning of
the vessels. Total service fees recognized in the consolidated statements of income amounted to
=274,518 in 2006, P
P
=342,839 in 2005 and =
P321,858 in 2004.
c.
JMBVI and Subsidiaries have outstanding Charter Party Agreements with vessels owners for
the use of the vessels or for sublease to third parties within the specified periods of 1 to 3 years
under the terms and conditions covered in the agreements. In consideration thereof, JMBVI
recognized charter hire expense amounted to =
P1,331,950 and =
P1,890,139 in 2006 and 2005,
respectively.
d.
The Group has entered into various operating lease agreements for its office spaces. As of
December 31, 2006, the future minimum rentals payable under the noncancellable operating
leases are as follows:
Within one year
After one year but not more than five years
More than five years
P35,518
=
165,762
64,469
=265,749
P
e. The Parent Company disposed of its investment in a cargo-handling unit, Davao Integrated Port
and Stevedoring Services Corporation, during the year. The disposal resulted in a net gain of =
P
262,264.
f.
On September 15, 2006, the Group acquired an additional 5.71% of the voting shares of its
minority interest, taking its ownership to 100%. Cash consideration of =
P869,000 was paid. The
acquisition was accounted for as an equity transaction under the entity concept method.
<1 year
=
P479,872
113,823
=593,695
P
1-5 years
=
P1,081,987
168,215
81,080
=
P1,331,282
Total
=
P1,561,859
168,215
194,903
=
P1,924,977
Credit risk
The Group trades only with recognized, creditworthy third parties and the exposure to credit risk is
monitored on an ongoing basis with the result that the Groups exposure to bad debts is not
significant. Since the Group trades only with the recognized third parties, collateral is not required
in respect of financial assets.
For its cash investments, the Groups credit risk is generally concentrated on possible default of the
counter-party, with a maximum exposure equal to the carrying amount of these investments (see
Note 34). The risk is mitigated by the short-term and/or liquid nature of its cash investments mainly
in bank deposits and placements, which are placed with financial institutions of high credit standing.
Liquidity risk
The Group maintains sufficient cash and cash equivalents to finance its operations. Any excess cash
is invested in short-term money market placements. These placements are maintained to meet
maturing obligations and pay dividend declarations. The Group, in general, matches the appropriate
long-term funding instruments with the general nature of its equity investments.
The Groups policy is that not more than 35% of borrowings should mature in any 12-month period.
As of December 31, 2006, 28% of its long-term debt will mature in less than one year.
Foreign Exchange
The foreign exchange risk of the Group is mainly with respect to its foreign currency-denominated
bank loans and obligation under capital lease. To mitigate the risk of incurring foreign exchange
losses, foreign currency holdings are matched against the potential need for foreign currency in
financing equity investments and new projects.
2006
Financial assets:
Cash and cash equivalents
Receivables
Available-for-sale investments
Financial liabilities:
Loans payable
Accounts payable and other
current liabilities
Long-term debt
Obligations under finance lease
Redeemable preferred shares
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
P
=992,600
2,104,832
59,431
P
=3,156,863
P
=992,600
2,104,832
59,431
P
=3,156,863
=872,848
P
1,900,477
41,648
=2,814,973
P
=
P872,848
1,900,477
41,648
=
P2,814,973
P
=364,720
P
=364,720
=477,053
P
=
P477,053
3,170,094
1,730,074
194,903
13,832
P
=5,473,623
3,170,094
1,772,988
201,872
14,178
P
=5,523,852
3,311,069
2,566,858
350,883
200,317
=6,906,180
P
3,311,069
2,496,713
369,854
194,554
=
P6,849,243
Fair value is defined as the amount at which the financial instrument could be exchanged in a
current transaction between knowledgeable willing parties in an arms-length transaction, other than
in a forced liquidation or sale. Fair values are obtained from quoted market prices, discounted cash
flow models and option pricing models, as appropriate.
The following methods and assumptions are used to estimate the fair value of each class of financial
instruments:
Cash and cash equivalents and other financial assets and financial liabilities
The carrying amount of cash and cash equivalents and other financial assets and financial liabilities
approximates fair value due to the relatively short-term maturity of these financial instruments.
Long-term borrowings, obligations under finance lease and redeemable preferred shares
The fair value of borrowings with variable interest rates approximates their carrying amounts due to
quarterly repricing of interest. The fair values of borrowings with fixed interest rate and obligations
under finance lease are based on the discounted net present value of cash flows using an effective
discount rate of 8.2% to 12.6% and 9.9% to10.7% respectively, as of December 31, 2006 and 2005.
SGV & CO
1
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46
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Name
Jurisdiction
Philippines
Philippines
Philippines
Philippines
Philippines
Philippines
Philippines