2GO: H1 results

8/12/2019 2GO: H1 results

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SEC Registration Number

2 G O G R O U P , I N C .

[ f o r m e r l y A T S C o n s o l i d a t e d

( A T S C ) , I n c . ] A N D S U B S I D I A R I E S

(Companys Full Name)

1 5 t h F l o o r , T i m e s P l a z a B u i l d i n g

U n i t e d N a t i o n s A v E n u e c o r n e r T a f t

A v e n u e , E r m i t a , M a n i l a

(Business Address: No. Street City/Town/Province)

Jeremias E. Cruzabra (02) 528-7540(Contact Person) (Company Telephone Number)

1 2 3 1 1 7 - Q 0 7 2 5

Month Day (Form Type) Month Day(Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

CFD Articles 1, 2 and 3

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

1,932 P=

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.

COVER SHEET


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FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The following Financial Statements are filed as part of this SEC Form 17-Q:

1. Unaudited Consolidated Balance Sheets as of June 30, 2014 and Audited ConsolidatedBalance Sheets as of December 31, 2013 i - ii

2. Unaudited Consolidated Statements of Income for the Six Months Ended June 30, 2014and 2013 iii

3. Unaudited Consolidated Statements of Comprehensive Income for the Six MonthsEnded June 30, 2014 and 2013 iv

4. Unaudited Consolidated Statement of Changes in Equity as of June 30, 2014 andAudited Consolidated Statement of Changes in Equity as of December 31, 2013

v

5.Unaudited Consolidated Cash Flows for the Six Months Ended June 30, 2014 and 2013vi - vii

6. Note to Consolidated Financial Statements 176

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

1. Key Performance Indicators and Results of Operations 7782

2. Company Outlook 82

3. Financial Soundness Indicators 83

4. Map Of The Conglomerate Or Group Of Companies Of The Registrant 84

5. Statements of Retained Earnings Available For Dividend Declaration 85


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2GO GROUP, INC.

AND SUBSIDIARIES

ITEM 1

Unaudited Consolidated Financial Statements


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2GO GROUP, INC.[formerly ATS Consolidated (ATSC), Inc.]

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS(Amounts in Thousands)

June 30, 2014

(Unaudited)

December 31, 2013(Audited)

ASSETS

Current Assets

Cash and cash equivalents (Note 6) P= 937,371 P= 918,645Trade and other receivables (Notes 7 and 23) 3,599,608 3,949,819Inventories (Note 8) 488,195 421,957Other current assets (Note 9) 1,295,374 1,054,409

Total Current Assets 6,320,548 6,344,830

Noncurrent Assets

Property and equipment (Notes 13 and 20) 5,346,606 5,054,932Available-for-sale investments (AFS) (Note 11) 6,907 6,907Investments in associates and joint ventures (Note 12) 188,979 181,977Investment property (Note 14) 9,763 9,763Software development costs (Note 15) 16,706 15,379Deferred income tax assets - net (Note 29) 504,982 477,076Goodwill (Note 5) 250,450 250,450Other noncurrent assets (Note 16) 172,729 180,590

Total Noncurrent Assets 6,497,122 6,177,074

TOTAL ASSETS P= 12,817,670 P= 12,521,904

LIABILITIES AND EQUITY

Current Liabilities

Loans payable (Note 17) P= 1,263,181 P= 1,344,927Trade and other payables (Notes 18 and 23) 4,010,825 4,189,244Income tax payable 10,106 5,772Redeemable preferred shares (Notes 21 and 24) 6,640 6,680Current portions of:

Long-term debts (Note 19) 373Obligations under finance lease (Notes 13 and 20) 24,054 28,592

Total Current Liabilities 5,314,806 5,575,588

Noncurrent Liabilities

Long-term debts - net of current portion (Note 19) 3,600,032 3,597,496

Obligations under finance lease - net of current portion(Notes 13 and 20) 82,894 89,192Accrued retirement benefits (Note 28) 161,734 167,243Deferred income tax liabilities - net (Note 29) Other noncurrent liabilities 9,368 9,369

Total Noncurrent Liabilities 3,854,029 3,863,300

Total Liabilities P= 9,168,835 P=9,438,888

(Forward)

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June 30, 2014

(Unaudited)

December 31, 2013(Audited)

EquityAttributable to the equity holders of the

Parent Company:Share capital (Note 24) P=2,484,653 P=2,484,653Additional paid-in capital 910,901 910,901Acquisitions of non-controlling interests (Note 24) (3,093) (3,243)Excess of cost over net assets of investments (Note 24) (10,912) (9,835)Treasury shares (Note 24) (58,715) (58,715)Other comprehensive loss (86,353) (86,405)Retained Earnings (Deficit) (Note 24) 382,992 (179,314)

3,619,473 3,058,042Non-controlling interests 29,362 24,974

Total Equity 3,648,835 3,083,016

TOTAL LIABILITIES AND EQUITY P= 12,817,670 P=12,521,904

See accompanying Notes to Consolidated Financial Statements.

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME(Amounts in Thousands, Except for Earnings (Loss) Per Common Share)

Six Months Ended June 30 Three Months Ended June 30

2014

(Unaudited)

2013(Unaudited and

restated)

2014

(Unaudited)

2013(Unaudited and

restated)

REVENUESFreight (Note 23) P=2,420,332 P= 2,852,471 P=1,280,706 P= 1,555,385Passage 1,880,716 1,876,477 1,139,639 1,024,235Service fees (Note 23) 1,285,964 1,304,774 672,041 642,764Sale of goods 1,108,314 1,002,936 502,696 496,929

Others 550,548 646,126 331,218 296,2837,245,873 7,682,784 3,926,299 4,015,596

OPERATING COSTS AND EXPENSES(Note 25)

Operating 4,468,227 4,782,725 2,423,067 2,357,353Terminal 628,040 683,386 280,254 357,016Cost of goods sold (Note 8) 924,857 835,162 435,824 409,618Overhead 469,482 600,753 231,553 312,671

6,490,605 6,902,026 3,370,698 3,436,657

OTHER INCOME (CHARGES)Equity in net earnings (losses) of associates

(Note 12) 7,003 24,229 505 12,041Interest and financing charges (Note 26) (160,833) (202,919) (87,279) (98,196)Others - net (Note 26) 18,854 (15,117) (4,374) (31,835)

(134,977) (193,808) (91,149) (117,990)

INCOME BEFORE INCOME TAX 620,291 586,950 464,453 460,948

PROVISION FOR (BENEFIT FROM)INCOME TAX (Note 29) 51,322 77,044 30,470 47,447

NET INCOME P=568,970 P= 509,906 P=433,983 P= 413,502

Attributable to:

Equity holders of the Parent Company P=562,306 P= 501,920 P=430,411 P= 408,230Non-controlling interests 6,664 7,986 3,571 5,272

P=568,970 P= 509,906 P=433,983 P= 413,502

Basic Income Per Common Share (Note 31) P= 0.2299 P=0.2052 P= 0.1760 P= 0.1669


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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Thousands)

June 30, 2014

(Unaudited)

June 30, 2013(Unaudited and

Restated)

NET INCOME (LOSS) P= 568,970 P=509,906

OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income to be reclassified to profit or loss

in subsequent periods: Net changes in unrealized gain on AFS investments

(Note 11) 52 38

52 38

TOTAL COMPREHENSIVE INCOME (LOSS)

FOR THE YEAR P= 569,022 P= 509,944

Attributable to:Equity holders of the Parent Company P= 562,358 P= 494,907Non-controlling interest 6,664 15,037

P= 569,022 P= 509,944


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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Thousands)

Period Ended June 30

2014

(Unaudited)

2013(Unaudited and

restated)

CASH FLOWS FROM OPERATING ACTIVITIES

Income (loss) before income tax P= 620,291 P= 586,950Adjustments for:

Depreciation and amortization of property andequipment and software development cost(Note 13 and 15) 423,462 481,531

Interest and financing charges (Note 26) 163,495 202,919

Interest income (Note 26) (8,693) (12,894)Unrealized foreign exchange gains (losses) -net 3,121 (206)Equity in net loss (earnings) of associates and joint ventures

(Note 12) (7,003) (24,229)Provisions for doubtful accounts 328 (206)Loss (gain) on disposals of:

Property and equipment (Notes 13 and 26) (5,788)Asset held for sale 48,842

Decline in value of assets 11,455

Operating cash flows before working capital changes 1,195,001 1,292,451Decrease (increase) in:

Trade and other receivables (200,697) (510,992)

Inventories (66,238) 3,546Other current assets (240,965) (109,211)Increase (decrease) in trade and other payables (239,589) (17,632)

Net cash from (used in) operations 447,512 658,162Interest received (371)Income taxes paid, including creditable withholding taxes (20,851) (89,841)

Net cash flows from (used in) operating activities 396,190 567,950

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to:Property and equipment and software development cost (716,463) (421,734)

Proceeds from sale of:Other noncurrent assets 9,540Short term investment 1,233

Disposal of asset held for sale 10,080Insurance claims 559,273

Net cash flows from (used in) investing activities (P=157,189)) P=(400,881)

(Forward)

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Period Ended June 30

2014

(Unaudited)

2013(Unaudited and

restated)

CASH FLOWS FROM FINANCING ACTIVITIESNet availments (payments) of:

Loans payable (Note 17) (P=81,746) (P=33,570)Payments of:

Long-term debts (Note 19) (11,334) 5,151Redemption of preferred shares (Note 21) (40)Interest paid (127,155) (201,519)Dividends paid to non-controlling interests

Net cash flows from (used in) financing activities (220,275) (229,938)

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON

CASH AND CASH EQUIVALENTS

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS 18,726 (62,869)


AT BEGINNING OF YEAR 918,645 786,856


AT END OF YEAR (Note 6) P= 937,371 P= 720,865


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AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Amounts in Thousands, Except Number of Shares, Earnings per Common Share,

Exchange Rate Data and When Otherwise Indicated)

1. Corporate Information, Status of Operations and Management Action Plans and Approvalof the Consolidated Financial Statements

Corporate Information2GO Group, Inc. [2GO or the Company, formerly ATS Consolidated (ATSC), Inc.] wasincorporated in the Philippines on May 26, 1949. Its corporate life was renewed on May 12, 1995and will expire on May 25, 2045. The Companys shares of stocks are listed in the Philippine Stock

Exchange (PSE). The Company and its subsidiaries (collectively referred to as the Group) areprimarily engaged in the business of operating vessels, motorboats and other kinds of watercrafts;aircrafts and trucks; and acting as agent for domestic and foreign shipping companies for purposesof transportation of cargoes and passengers by air, land and sea within the waters and territorialjurisdiction of the Philippines. The Companys registered office address is 15thFloor, Times PlazaBuilding, United Nations Avenue corner Taft Avenue, Ermita, Manila.

As of December 31, 2013 and 2012, the Company is 88.3%-owned subsidiary of Negros NavigationCo., Inc (NN or the Parent Company). Its ultimate parent is Negros Holdings & ManagementCorporation (NHMC). NN and NHMC are both incorporated and domiciled in the Philippines.

On December 1, 2010, the Board of Directors (BOD) of Aboitiz Equity Ventures, Inc. (AEV)

and Aboitiz & Company, Inc. (ACO) approved the sale of their shareholdings in the ParentCompany to NN in accordance with the securities and purchase agreements executed among AEV,ACO and NN. On December 28, 2010, the sale was finalized at P=1.8813 per share. AEV sold itsentire shareholdings in the Company comprising of 1,889,489,607 common shares forP=3.6 billion. ACO, on the other hand, sold its entire shareholdings in the Company comprising of390,322,384 common shares for P=734.0 million. This resulted to 93.20% NN ownership of theoutstanding common shares of the Company, along with all the Companysnon-controlling sharesthat may be tendered to NN subsequent to December 31, 2010.

On February 22, 2011, in relation to the tender offer issued by NN for the outstanding commonshares held by public shareholders of the Company, NN acquired 120,330,004 common shares fromthe Companys non-controlling shareholders equivalent to 4.9% additional ownership interest in the

Company for a total purchase price of P=226.8 million. As a result,NNs ownership interest in theCompany increased to 98.12%. On December 21, 2012, NN sold 240,000,000 common shares ofthe Company at a price of P=1.65 per share to the public shareholders. The sale of shares resulted toa reduction in the ownership of NN in the Company from 98.12% to 88.31%.

In February and March 2012, the Philippine SEC approved the application of the Company and itssubsidiaries to amend their Articles of Incorporation and By-laws, which include, among others, thechange in their corporate names to 2GO Group, Inc. (formerly ATSC), 2GO Express, Inc. [formerlyATS Express, Inc. (ATSEI)], and 2GO Logistics, Inc. [formerly ATS Distribution, Inc. (ATSDI)].

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On August 24, 2011, the Philippine SEC also approved the amendment to the Companys secondarypurpose to include rendering technical services requirement to customers for refrigerated marinecontainer vans and related equipment or accessories. This amendment was previously approved bythe BOD on April 28, 2011 and ratified by the stockholders on June 22, 2011.

Status of Operations and Management Action PlansIn 2012 (2nd phase of the integration), NN Group incurred consolidated net loss amounting toP=89.0 million (after non-controlling interest), which is 93.2% lower compared to the consolidatednet loss reported in 2011. This net loss increased the deficit to P=1,591.6 million as ofDecember 31, 2012. Despite the improvement in operations, and higher consolidated net cashinflow from operating activities of P=627.2 million in 2012 and P=625.6 million in 2011, 2GOremained in breach of the maximum debt to equity ratio, including the minimum DSCR andminimum current ratio. This, however, again did not affect the status of the loan because the creditorbank has issued a waiver on the breach of the loan covenants in its letters to 2GO dated December28, 2012.

In 2013, NN Groupsnet loss after tax amounted to P=255.4 million from a loss of P=89.0 million in2012. In June 2013, the Group refinanced its original long-term debt with counter-party bank witha new loan agreement having revised terms and conditions such as: (1) two years grace period, (2)with fixed and variable interest rate components that are based on market and (3) ballooned principalrepayments in 2017 and 2018. With this, the Group was able to meet the minimum current ratio,maximum debt to equity ratio and minimum DSCR as required in the debt covenant.

In 2013, NNs shareholders infused $41.7 million (of which $28.3 million has been remitted in2012) as additional capital to NN primarily to support working capital requirements and to pay offcertain maturing obligations of the Group.

In 2014, the Groupsnet profit after tax increased by 116% to P569 million from P510 million forthe same period last year owing largely to the transformation of the group into a total logisticsenterprise from a generally shipping company. The Groups logistics arm has been rapidlyexpanding, further increasing its percentage to total revenues to 41% from 38% last year.

The Group has metamorphosed its business model into a complete supply chain solutions providercapitalizing on the strengths of its various business units. The Group can carry the lightest parcel tothe heaviest equipment by land, by sea and by air, be it domestic or international. It will continueto undertake serious steps to further solidify our competitive position by rapidly expanding ourlogistics arm with the objective of increasing customer traffic and solidifying our leading positionwithin the areas where we operate.

2. Summary of Significant Accounting and Financial Reporting Policies

Basis of PreparationThe consolidated financial statements of the Group are prepared on a historical cost basis, exceptfor quoted available-for-sale (AFS) investments which are measured at fair value. The consolidatedfinancial statements are presented in Philippine peso (Peso), which is the Parent Companysfunctional and presentation currency. All amounts are presented to the nearest thousands, exceptwhen otherwise indicated.

The consolidated financial statements provide comparative information in respect of the previous

period. In addition, the Group presents an additional consolidated balance sheet at the beginning of theearliest period presented when there is a retrospective application of an accounting policy, aretrospective restatement, or a reclassification of items in the consolidated financial statements. An


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additional consolidated balance sheet as at January 1, 2012 is presented in the consolidated financialstatements due to retrospective application of certain accounting policies (see Changes in AccountingPolicies and Disclosures).

Statement of ComplianceThe consolidated financial statements of the Group are prepared in accordance with PhilippineFinancial Reporting Standards (PFRS).

Changes in Accounting Policies and DisclosuresThe accounting policies adopted are consistent with those of the previous financial year except forthe following new and amended PFRS, Philippine Accounting Standards (PAS) and PhilippineInterpretations based on the Interpretations of the International Financial Reporting StandardsInterpretation Committee (IFRIC) which were adopted as of January 1, 2013.

PFRS 10,Consolidated Financial Statements, replaces the portion of PAS 27, Consolidated andSeparate Financial Statements, that addresses the accounting for consolidated financialstatements. It also includes the issues raised in Standard Interpretations Committee (SIC) 12,Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that appliesto all entities including special purpose entities. The changes introduced by PFRS 10

require management to exercise significant judgment to determine which entities are controlled,and therefore, are required to be consolidated by a parent, compared with the requirements thatwere in PAS 27.

A reassessment of control was performed by the Company on all its subsidiaries, associates andjoint ventures in accordance with the provisions of PFRS 10. Following the reassessment, the

Company determined that there are no additional entities that need to be fully consolidated norare there subsidiaries that need to be deconsolidated.

Amendments to PAS 27,Separate Financial Statements. As a consequence of the issuance ofthe new PFRS 10 and PFRS 12,Disclosure of Interests in Other Entities,what remains ofPAS27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in theseparate financial statements. The adoption of the amended PAS 27 has no significant impacton the separate financial statements of the Company.

PFRS 11, Joint Arrangements, replaces PAS 31,Interests in Joint Ventures, and SIC 13,Jointly-controlled Entities - Non-monetary Contributions by Venturers. PFRS 11 removes the option toaccount for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEsthat meet the definition of a joint venture must be accounted for using the equity method.

Interest in Joint VenturesThe application of PFRS 11 affected the accounting for the Groups interests in KLN Holdings

(KLN). As disclosed in Note 12, the Group entered into an InvestorsAgreement (Agreement)with a third-party to form KLN. Prior to transition to PFRS 11, KLN was classified as a jointlycontrolled entity and the Groups share of the assets, liabilities, revenue, income and expenses

was proportionately consolidated in the consolidated financial statements. Upon adoption ofPFRS 11, the Group has determined that its interest in KLN should be classified as a jointventure under PFRS 11 and it is, therefore, required to be accounted for using the equity method(see Note 12). The transition was applied retrospectively as required by PFRS 11 and the

opening balances at January 1, 2012 and the comparative information for the years endedDecember 31, 2013 and 2012 have been restated.The effect of applying PFRS 11 on the Groups consolidated financial statements is as follows:


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Consolidated Balance Sheets

December 31,

2012January 1,

2012

(In Thousands)

Increase (Decrease) in Assets

Cash and cash equivalents (P=4,100) (P=12,741)Trade and other receivable (58,656) (45,753)Other current assets (2,233) (1,982)Property and equipment (2,811) (1,489)Investment in associates and joint ventures 23,052 20,428Deferred income tax assets - net (1,352) (770)

Total assets (P=46,100) (P=42,307)

(In Thousands)

Decrease in Liabilities

Loans payable (P=4,900) P=Trade and other payables (39,388) (41,285)Accrued retirement benefits (1,812) (1,022)

(P=46,100) (P=42,307)

Consolidated Statements of Income

December 31,

2012January 1,

2012

(In Thousands)

Impact on Profit or LossService fees P=219,105 P=183,053Operating expenses (192,130) (148,642)Overhead expenses (22,467) (22,634)Other income (charges) 569 (449)Equity in net earnings of associates and

joint ventures 2,624 7,934

Income before income tax 2,453 3,394Provision for income tax (2,453) (3,394)

Net income P= P=

Consolidated Statements of Cash Flows

December 31,

2012January 1,

2012

(In Thousands)

Impact on Cash FlowsCash and cash equivalents at beginning of period (P=12,741) (P=2,667)

Operating 10,949 (11,433)Investing 2,314 1,164Financing (4,622) 195

Net effect on cash (P=4,100) (P=12,741)


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The transition did not have a significant impact on the basic/diluted earnings per share for theyears ended December 31, 2012 and 2011.

Interest in Joint OperationsThe Group also assessed its existing ownership in United South Dockhandlers, Inc. (USDI).The Group has a 48% interest in USDI. Prior to transition to PFRS 11, the Group consideredUSDI as an associate and accounted for its ownership in USDI under the equity method. Uponadoption of PFRS 11, the Group has determined that it has control over USDIs specific assetsand liabilities. As a result, the assets and liabilities that were identified as being controlled bythe Group, as well as the resulting revenues and expenses, were consolidated and suchconsolidation have been retrospectively recognized in the consolidated financial statements ofthe Group.

The effect of applying PFRS 11 on the Groups consolidated financial statements is as follows:

Consolidated Balance Sheets

December 31,

2012

January 1,2012

(In Thousands)

Increase (Decrease) in Assets

Cash and cash equivalents P=1,959 P=6,251Trade and other receivables 50,901 23,836Inventories 446 109Other current assets 6,601 3,775Property and equipment 443 680Investment in associates and joint ventures (22,909) (13,623)

37,441 21,028Increase in Liabilities

Trade and other payables 27,148 9,980Accrued retirement benefits 1,041

28,189 9,980

Net Increase in Equity P=9,252 P=11,048

Equity attributable to:

Parent company P=8,170 P=9,757

Non-controlling interest 1,082 1,291

Consolidated Statements of IncomeDecember 31

2012 2011Impact on Profit or Loss (In Thousands)Service fees P=65,325 P=40,055Operating expenses (43,589) (23,278)Overhead expenses (10,815) (9,206)Equity in net earnings of associates and joint ventures (9,286) (2,566)

Net income P=1,635 P=5,005

Net income attributable to:Parent company P=1,443 P=4,420

Non-controlling interest 192 585Increase in basic/diluted earnings per share 0.0005 0.0014


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Consolidated Statements of Cash FlowsDecember 31

2012 2011Impact on Statements of Cash Flows (In Thousands)Operating P=2,160 P=6,556Investing (201) (305)

Net effect on cash and cash equivalents P=1,959 P=6,251

PFRS 12, Disclosure of Interests in Other Entities, sets out the requirements for disclosuresrelating to an entitys interests in subsidiaries, joint arrangements, associates and structuredentities. The requirements in PFRS 12 are more comprehensive than the previously existingdisclosure requirements for subsidiaries (for example, where a subsidiary is controlled with lessthan a majority of voting rights).

The adoption of PFRS 12 affects disclosures only and has no impact on the Groups financial

position or performance. The additional disclosures required are presented in Note 12 to theconsolidated financial statements.

Amendments to PAS 28,Investments in Associates and Joint Ventures. As a consequenceof thenew PFRS 11and PFRS 12, PAS 28, Investment in Associates, hasbeen renamed PAS 28,Investments in Associates and Joint Ventures, and describes the application of the equity methodto investments in joint ventures in addition to associates. The adoption of this amendment hasno impact on the Groups consolidated financial statements.

Amendments to PAS 19,Employee Benefits, requires all actuarial gains and losses for thedefined benefits plan to be recognized in other comprehensive income (OCI) and unvested past

service costs previously recognized over the average vesting period to be recognizedimmediately in the statement of income when incurred.

Prior to adoption of the revised standard, the Group followed a systematic method that resultedin faster recognition of actuarial gains and losses, which were recognized in profit or loss in theperiod they occur. Further, past service cost was recognized as an expense on a straight-linebasis over the average period until the benefits become vested. Upon adoption of the revisedstandard, the Group changed its accounting policy to recognize all actuarial gains and losses inOCI and all past service costs in the consolidated statement of income in the period they occur.

In addition, the Revised PAS 19 replaced the interest cost and expected return on plan assetswith the concept of net interest on defined benefit liability or asset, which is calculated by

multiplying the net defined benefit liability or asset at the beginning of the year by the discountrate used to measure the defined benefit obligation, each at the beginning of the annual period.

The revised standard also amended the definition of short-term employee benefits and requiresemployee benefits to be classified as short-term based on expected timing of settlement ratherthan the employees entitlement to the benefits. It also modifies the timing of recognition fortermination benefits, where termination benefits are recognized at the earlier of when the offercannot be withdrawn or when the related restructuring costs are recognized.

The changes in the definition of short-term employee benefits did not have any impact to theGroups financial position and performance.

The opening balance sheet of the earliest comparative period presented (January 1, 2012) andthe comparative figures have been restated accordingly. The effects of adoption on theconsolidated financial statements follow:


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Consolidated Balance SheetsDecember 31 January 1,

2013 2012 2012

(In Thousands)

Increase (decrease) in:

Accrued retirement benefits P=58,853 P=78,613 P=109,443Deferred income tax assets -net (11,630) 23,716 32,833

(Forward)

December 31 January 1,

2013 2012 2012

(In Thousands)Other comprehensive loss, net

of deferred income taxeffect P=91,884 P=74,420 P=81,322

Deficit (21,401) (19,523) (4,712)

Consolidated Statements of Comprehensive IncomeYears Ended December 31

2013 2012 2011

(In Thousands)

Impact on profit or loss:Operating expenses (P=213) (P=4,228) (P=1,238)Terminal expenses (744) (6,069) (3,088)Overhead expenses (1,727) (10,862) (2,761)

Income before income tax 2,684 21,159 7,087Benefit from income tax 806 6,348 2,126

Increase in net income 1,878 14,811 4,961

Impact on other comprehensive loss:Remeasurement gains (losses) on accrued

retirement benefits (24,949) 9,860 (38,330)Income tax effect 7,485 (2,958) 11,499

Other comprehensive loss for the year, net ofdeferred income tax effect (17,464) 6,902 (26,831)

Increase (decrease) in total comprehensiveincome (P=15,586) P=21,713 (P=21,870)

The transition did not have a significant impact on the consolidated statements of cash flowsand earnings per share for the years ended December 31, 2012 and 2011.

Remeasurement losses on accrued retirement benefits are presented separately under othercomprehensive loss. The Revised PAS 19 also requires more extensive disclosures which arepresented in Note 28 to the consolidated financial statements.

PFRS 13,Fair Value Measurement,establishes a single source of guidance under PFRS for allfair value measurements. PFRS 13 does not change when an entity is required to use fair value,but rather provides guidance on how to measure fair value under PFRS when fair value isrequired or permitted. PFRS 13 also requires additional disclosures.

As a result of the guidance in PFRS 13, the Group reassessed its policies for measuring fairvalues. The Group has assessed that the application of PFRS 13 did not materially impact itsfair value measurement. Additional disclosures, where required, are provided in the individual

notes relating to the assets and liabilities whose fair values were determined.


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PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and FinancialLiabilities, these amendments require an entity to disclose information about rights of set-off andrelated arrangements (such as collateral agreements). The new disclosures are required for allrecognized financial instruments that are set-off in accordance with PAS 32, FinancialInstruments: Presentation and Disclosures. These disclosures also apply to recognized financialinstruments that are subject to an enforceablemaster netting arrangement or similar agreement,irrespective of whether they are set-off in accordance with PAS 32. The amendments requireentities to disclose, in a tabular format unless another format is moreappropriate, the following minimum quantitative information. This is presented separately forfinancial assets and financial liabilities recognized at the end of the reporting period:

a) The gross amounts of those recognized financial assets and recognized financial liabilities;b) The amounts that are set off in accordance with the criteria in PAS 32 when determining

the net amounts presented in the consolidated balance sheet;c) The net amounts presented in the consolidated balance sheet;d) The amounts subject to an enforceable master netting arrangement or similar agreement

that are not otherwise included in (b) above, including:i. Amounts related to recognized financial instruments that do not meet some or all of

the offsetting criteria in PAS 32; andii. Amounts related to financial collateral (including cash collateral); and

e) The net amount after deducting the amounts in (d) from the amounts in (c) above.

The amendment affects disclosures only and has no impact on the Groups financial position orperformance.

Amendments to PAS 1, Financial Statement Presentation - Presentation of Items of OtherComprehensive Income, change the grouping of items presented in OCI. Items that could bereclassified (or recycled) to profit or loss at a future point in time (for example, uponderecognition or settlement) would be presented separately from items that will never bereclassified. The amendments affect presentation only and therefore have no impact on theGroups financial position or performance.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine,applies to waste removal costs that are incurred in surface mining activity during the productionphase of the mine (production stripping costs) and provides guidance on the recognition ofproduction stripping costs as an asset and measurement of the stripping activity asset. Thisinterpretation is not relevant to the Group as the Group is not involved in any mining activities.

Amendments to PFRS 1,First-time Adoption of International Financial Reporting Standard-Government Loans, require first-time adopters to apply the requirements of PAS 20,Accountingfor Government Grants and Disclosure of Government Assistance,prospectively to governmentloans existing at the date of transition of PFRS. However, entities may choose to apply therequirements of PAS 39,Financial Instruments: Recognition and Measurement, and PAS 20 togovernment loans restrospectively if the information needed to do so had been obtained at thetime of initially accounting for those loans. These amendments are not relevant to the Group asthe Group is not a first time adopter of PFRS.

Annual Improvements to PFRSs(2009-2011 cycle)The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessaryamendments to PFRSs. The amendments are effective for annual periods beginning on or afterJanuary 1, 2013 and are applied retrospectively.


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PFRS 1,First-time Adoption of PFRS - Borrowing Costs, clarifies that, upon adoption of PFRS,an entity that capitalized borrowing costs inaccordance with its previous generally acceptedaccounting principle, may carry forward, without any adjustment, the amount previouslycapitalized in its opening statement of financial position at the date of transition. Subsequent tothe adoption of PFRS, borrowing costs are recognized in accordance withPAS 23,Borrowing Cost.The amendment does not apply to the Group as it is not a first-timeadopter of PFRS.

PAS 1, Presentation of Financial Statements - Clarification of the Requirements forComparative Information, clarifies the requirements for comparative information that aredisclosed voluntarily and those that are mandatory due to retrospective application of anaccounting policy, or retrospective restatement or reclassification of items in the financialstatements. An entity must include comparative information in the related notes to the financialstatements when it voluntarily provides comparative information beyond the minimum requiredcomparative period. The additional comparative period does not need to contain a complete setof financial statements. On the other hand, supporting notes for the third balance sheet(mandatory when there is a retrospective application of an accounting policy, or retrospectiverestatement or reclassification of items in the financial statements) are not required. Theamendments affect disclosures only and have no impact on the Groups financial position orperformance.

PAS 16,Property, Plant and Equipment - Classification of Servicing Equipment, clarifies thatspare parts, stand-by equipment and servicing equipment should be recognized as property,plant and equipment when they meet the definition of property, plant and equipment and shouldbe recognized as inventory if otherwise. The amendment has no impact on thr Groups financialposition or performance.

PAS 32,Financial Instruments: Presentation - Tax Effect of Distribution to Holders of EquityInstruments, clarifies that income taxes relating to distributions to equity holders and totransaction costs of an equity transaction are accounted for in accordance withPAS 12,Income Taxes. The Group assessed that this amendment has no impact on its financialposition or performance.

PAS 34,Interim Financial Reporting - Interim Financial Reporting and Segment Informationfor Total Assets and Liabilities, clarifies that the total assets and liabilities for a particularreportable segment need to be disclosed only when the amounts are regularly provided to thechief operating decision maker and there has been a material change from the amount disclosedin the entitys previous annual financial statements for that reportable segment. The amendment

affects the interim financial reporting disclosures only and has no impact on the Groupsfinancial position or performance.

New Accounting Standards, Amendments and Interpretations toExisting Standards Effective Subsequent to December 31, 2013 .The Group will adopt the standards, interpretations and amendments enumerated below when thesebecome effective. The Group continues to assess the impact of the following new and amendedaccounting standards and interpretations. Except as otherwise indicated, the Group does not expectthe adoption of these new and amended PFRSs and Philippine Interpretations to have significantimpact on its consolidated financial statements. The relevant disclosures will be included in thenotes to the consolidated financial statements when these become effective.


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Effective in 2014

Amendments to PFRS 10, PFRS 12 and PAS 27 -Investment Entities, provide an exception tothe consolidation requirement for entities that meet the definition of an investment entity underPFRS 10. The exception to consolidation requires investment entities to account for subsidiariesat fair value through profit or loss. It is not expected that this amendment will be relevant to theGroup since none of the entities in the Group will qualify as an investment entity under PFRS10.

Amendments to PAS 32,Financial Instruments: Presentation - Offsetting Financial Assets andFinancial Liabilities, clarify the meaning of currently has a legally enforceable right to set-offand also clarify the application of the PAS 32 offsetting criteria to settlement systems (such ascentral clearing house systems) which apply gross settlement mechanisms that are notsimultaneous. The amendments will affect presentation only and will have no impact on theGroups financialposition or performance.

Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures forNonfinancial Assets, remove the unintended consequence of PFRS 13 on the disclosuresrequired under PAS 36. In addition, these amendments require disclosure of the recoverableamounts for the assets or cash-generating units (CGUs) for which impairment loss has beenrecognized or reversed during the period. The Group did not early adopt these amendments.These amendments will affect disclosures only and will have no impact on the Groups financialposition or performance.

PAS 39,Financial Instruments: Recognition and Measurement - Novation of Derivatives andContinuation of Hedge Accounting, provides relief from discontinuing hedge accounting whennovation of a derivative designated as a hedging instrument meets certain criteria. These

amendments are effective for annual periods beginning on or after January 1, 2014. Theamendments are not expected to have an impact on the Groups financial position orperformance.

Philippine Interpretation IFRIC 21,Levies, clarifies that an entity recognizes a liability for alevy when the activity that triggers payment, as identified by the relevant legislation, occurs.For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies thatno liability should be anticipated before the specified minimum threshold is reached. The Groupdoes not expect that IFRIC 21 will have a material financial impact on its future financialstatements.

Effective in 2015

Amendments to PAS 19,Employee Benefits - Defined Benefit Plans: Employee Contributions,apply to contributions from employees or third parties to defined benefit plans. Contributionsthat are set out in the formal terms of the plan shall be accounted for as reductions to currentservice costs if they are linked to service or as part of the remeasurements of the net definedbenefit asset or liability if they are not linked to service. Contributions that are discretionaryshall be accounted for as reductions of current service cost upon payment of these contributionsto the plans. The amendments will not have any significant impact on the financial statementsof the Group as majority of its retirement plans are noncontributory. Further, the employeecontributions from the contributory defined benefit plan is currently recognized as reductionagainst total retirement costs.

Annual Improvements to PFRSs (2010-2012 cycle)

The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessaryamendments to the following standards:


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PFRS 2, Share-based Payment - Definition of Vesting Condition, revised the definitions ofvesting condition and market condition and added the definitions of performance condition andservice condition to clarify various issues. This amendment does not apply to the Group as ithas no share-based payments.

PFRS 3, Business Combinations - Accounting for Contingent Consideration in a BusinessCombination, clarifies that a contingent consideration that meets the definition of a financialinstrument should be classified as a financial liability or as equity in accordance with PAS 32.Contingent consideration that is not classified as equity is subsequently measured at fair valuethrough profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9is not yet adopted). The Group shall consider this amendment for future business combinations.

PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of theTotal of the Reportable Segments Assets to the Entitys Assets, requires entities to disclose the

judgment made by management in aggregating two or more operating segments. This disclosureshould include a brief description of the operating segments that have been aggregated in thisway and the economic indicators that have been assessed in determining that the aggregatedoperating segments share similar economic characteristics. The amendments also clarify thatan entity shall provide reconciliations of the total of the reportable segments assets to theentitys assets if such amounts are regularly provided to the chief operating decision maker areapplied retrospectively. The amendments will affect disclosures only and will have no impacton the Groups financial position or performance.

PFRS 13,Fair Value Measurement - Short-term Receivables and Payables,clarifies that short-term receivables and payables with no stated interest rates can be held at invoice amounts whenthe effect of discounting is immaterial. This amendment is effective immediately. The

amendments will have no impact on the Groups financial position and performance.

PAS 16,Property, Plant and Equipment - Revaluation Method - Proportionate Restatement ofAccumulated Depreciation, clarifies that, upon revaluation of an item of property, plant andequipment, the carrying amount of the asset shall be adjusted to the revalued amount, and theasset shall be treated in one of the following ways:

a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation ofthe carrying amount of the asset. The accumulated depreciation at the date of revaluation isadjusted to equal the difference between the gross carrying amount and the carrying amountof the asset after taking into account any accumulated impairment losses.

b. The accumulated depreciation is eliminated against the gross carrying amount of the asset.

The amendments shall apply to all revaluation recognized in annual periods beginning on orafter the date of initial application of this amendment and in the immediately preceding annualperiod. The amendment will have no impact on the Groups financial position or performancesince the Group does not have any related revalued property, plant and equipment.

PAS 24,Related Party Disclosures - Key Management Personnel, clarifies that an entity is arelated party of the reporting entity if the said entity, or any member of a group for which it is apart of, provides key management personnel services to the reporting entity or to the parentcompany of the reporting entity. The amendments also clarify that a reporting entity that obtainsmanagement personnel services from another entity (also referred to as management entity) is

not required to disclose the compensation paid or payable by the management entity to itsemployees or directors. The reporting entity is required to disclose the amounts incurred for the


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key management personnel services provided by a separate management entity. Theamendments will affect disclosures only and will have no impact on the Groups financialposition or performance.

PAS 38,Intangible Assets - Revaluation Method - Proportionate Restatement of AccumulatedAmortization, clarifies that, upon revaluation of an intangible asset, the carrying amount of theasset shall be adjusted to the revalued amount, and the asset shall be treated in one of thefollowing ways:

a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation ofthe carrying amount of the asset. The accumulated amortization at the date of revaluation isadjusted to equal the difference between the gross carrying amount and the carrying amountof the asset after taking into account any accumulated impairment losses.

b. The accumulated amortization is eliminated against the gross carrying amount of the asset.

The amendments also clarify that the amount of the adjustment of the accumulated amortizationshould form part of the increase or decrease in the carrying amount accounted for in accordancewith the standard. The amendments will have no impact on the Groups financial position orperformance.

Annual Improvements to PFRSs (2011-2013 cycle)The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessaryamendments to the following standards:

PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning ofEffective PFRSs, clarifies that an entity may choose to apply either a current standard or a new

standard that is not yet mandatory, but that permits early application, provided either standardis applied consistently throughout the periods presented in the entitys first PFRS financial

statements. This amendment is not applicable to the Group as it is not a first-time adopter ofPFRS.

PFRS 3,Business Combinations - Scope Exceptions for Joint Arrangements, clarifies that PFRS3 does not apply to the accounting for the formation of a joint arrangement in the financialstatements of the joint arrangement itself. This amendment will not have any impact on theGroups financial position or performance.

PFRS 13,Fair Value Measurement - Portfolio Exception, clarifies that the portfolio exceptionin PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The

amendment has no significant impact on the Groups financial position or performance.

PAS 40,Investment Property, clarifies the interrelationship between PFRS 3 and PAS 40 whenclassifying property as investment property or owner-occupied property. The amendment statedthat judgment is needed when determining whether the acquisition of investment property is theacquisition of an asset or a group of assets or a business combination within the scope of PFRS3. This judgment is based on the guidance of PFRS 3. The amendment will have no significantimpact on the Groups financial position or performance.

New Standard with No Mandatory Effective Date

PFRS 9, Financial Instruments, as issued, reflects the first and third phases of the project to

replace PAS 39 and applies to the classification and measurement of financial assets andliabilities and hedge accounting, respectively. Work on the second phase, which relate to


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impairment of financial instruments, and the limited amendments to the classification andmeasurement model is still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9requires all financial assets to be measured at fair value at initial recognition. A debt financialasset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortizedcost if it is held within a business model that has the objective to hold the assets to collect thecontractual cash flows and its contractual terms give rise, on specified dates, to cash flows thatare solely payments of principal and interest on the principal outstanding. All other debtinstruments are subsequently measured at fair value through profit or loss. All equity financialassets are measured at fair value either through OCI or profit or loss. Equity financial assetsheld for trading must be measured at fair value through profit or loss. For liabilities designatedas at FVPL using the FVO, the amount of change in the fair value of a liability that is attributableto changes in credit risk must be presented in OCI. The remainder of the change in fair value ispresented in profit or loss, unless presentation of the fair value change relating to the entitysown credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All

other PAS 39 classification and measurement requirements for financial liabilities have beencarried forward to PFRS 9, including the embedded derivative bifurcation rules and the criteriafor using the FVO. The adoption of the first phase of PFRS 9 will have an effect on theclassification and measurement of the Groups financial assets, but will potentially have noimpact on the classification and measurement of financial liabilities.

On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39 witha more principles-based approach. Changes include replacing the rules-based hedgeeffectiveness test with an objectives-based test that focuses on the economic relationshipbetween the hedged item and the hedging instrument, and the effect of credit risk on thateconomic relationship; allowing risk components to be designated as the hedged item, not onlyfor financial items, but also for nonfinancial items, provided that the risk component is

separately identifiable and reliably measurable; and allowing the time value of an option, theforward element of a forward contract and any foreign currency basis spread to be excludedfrom the designation of a financial instrument as the hedging instrument and accounted for ascosts of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.

PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before thecompletion of the limited amendments to the classification and measurement model andimpairment methodology. The Group will not adopt the standard before the completion of thelimited amendments and the second phase of the project. The Group shall conduct anotherimpact evaluation in early 2014 using the consolidated financial statements for the year endedDecember 31, 2014.

Deferred Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, covers

accounting for revenue and associated expenses by entities that undertake the construction ofreal estate directly or through subcontractors. The Philippine SEC and the Financial ReportingStandards Council (FRSC) have deferred the effectivity of this interpretation until the finalRevenue standard is issued by the International Accounting Standards Board and an evaluationof the requirements of the final Revenue standard against the practices of the Philippine realestate industry is completed. The adoption of the interpretation when it becomes effective willnot have any impact on the consolidated financial statements of the Group.


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Basis of ConsolidationThe consolidated financial statements comprise the financial statements of the Parent Company andthe following wholly-owned and majority-owned subsidiaries, all incorporated in the Philippines,as at December 31 of each year:

Percentage of ownership

Nature of business 2013 2012 2011

Supercat Fast Ferry Corp. (SFFC) Transporting passenger 100.0 100.0 100.0Special Container and Value Added

Services, Inc. (SCVASI)(1) Transportation/logistics 100.0 100.0 2GO Express, Inc. (2GO Express) Transportation/logistics 100.0 100.0 100.0

2GO Logistics, Inc. (2GO Logistics) Transportation/logistics 100.0 100.0 100.0Scanasia Overseas, Inc. (SOI) Distribution 100.0 100.0 100.0Hapag-Lloyd Philippines, Inc. (HLP)(2) Transportation/logistics 100.0 85.0 85.0WRR Trucking Corporation (WTC) Transportation 100.0 100.0 100.0

NN-ATS Logistics Management andHolding Co., Inc. (NALMHCI)(3) Holding and logistics management 100.0 100.0 100.0

J&A Services Corporation (JASC) Vessel support services 100.0 100.0 100.0Red.Dot Corporation (RDC) Manpower services 100.0 100.0 100.0North Harbor Tugs Corporation (NHTC) Tug assistance 58.9 58.9 58.9Super Terminals, Inc. (STI)(4) Passenger terminal operator 50.0 50.0 50.0Sungold Forwarding Corporation (SFC) Transportation/logistics 51.0 51.0 51.0Supersail Services, Inc. (SSI) Manpower provider and vessel support

services 100.0 100.0 100.0Astir Engineering Works, Inc. (AEWI)(5) Engineering services 100.0 100.0 85.0United South Dockhandlers Inc. (USDI)(6) Arrastre and Stevedoring 48.0 48.0 48.0

W G & A Supercommerce, Inc. (WSI)(7) Vessels hotel management 100.0 100.0 100.0

(1) SCVASI was incorporated on March 9, 2012 and started its commercial operation on January 1, 2013.(2) In 2013, 2GO Express acquired additional 15% ownership interest in HLP, thus, making HLP a 100%-owned subsidiary.

(3) On November 22, 2011, NALMHCI, a wholly-owned subsidiary of 2GO, was incorporated to be the holding company of JASC,

RDC, NHTC, STI, SFC and SSI effective December 1, 2011.

(4)

NALMHCI has control over STI since it has the power to cast the majority of votes at the BODs meeting and the power to governthe financial and reporting policies of STI.

(5) In 2013, NN ownership in AEWI was transferred to NALMHCI.(6) In 2013, upon adoption of PFRS 11, USDI being a joint operation with 48% interest is now being consolidated

(7) WSI ceased operations in February 2006.

The financial statements of the subsidiaries are prepared for the same reporting year as the Companyusing consistent accounting policies.

Subsidiaries are all entities over which the Group has control. Control is achieved when the Groupis exposed, or has rights, to variable returns from its involvement with the investee and has theability to affect that return through its power over the investee. Specifically, the Group controls aninvestee if and only if the Group has:

Power over the investee (i.e., existing rights that give it the current ability to direct the relevantactivities of the investee)

Exposure, or rights, to variable returns from its involvement with the investee, and

The ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the Groupconsiders all relevant facts and circumstances in assessing whether it has power over an investee,including:

The contractual arrangement with the other vote holders of the investee

Rights arising from other contractual arrangements

The Groups voting rights and potential voting rights


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The Group re-assesses whether or not it controls an investee if facts and circumstances indicate thatthere are changes to one or more of the three elements of control. Consolidation of a subsidiarybegins when the Group obtains control over the subsidiary and ceases when the Group loses controlof the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed ofduring the year are included or excluded in the consolidated financial statements from the date theGroup gains control or until the date the Group ceases to control the subsidiary.

Non-controlling interest represents a portion of profit or loss and net assets of subsidiaries not heldby the Group, directly or indirectly, and are presented separately in the consolidated statement ofincome and within the equity section in the consolidated balance sheet and consolidated statementof changes in equity, separately from the Companys equity. However, the Group must recognizein the consolidated balance sheet a financial liability (rather than equity) when it has an obligationto pay cash in the future (e.g., acquisition of non-controlling interest is required in the contract orregulation) to purchase the non-controllings shares, even if the payment of that cash is conditional

on the option being exercised by the holder. The Group will reclassify the liability to equity if a putoption expires unexercised.

Non-controlling interest shares in losses, even if the losses exceed the non-controlling equity interestin the subsidiary. Changes in the controlling ownership interest, i.e., acquisition of non-controllinginterest or partial disposal of interest over a subsidiary that do not result in a loss of control, areaccounted for as equity transactions.

Consolidated financial statements are prepared using uniform accounting policies for liketransactions and other events in similar circumstances. All intra-group balances, transactions,income and expenses and profits and losses resulting from intra-group transactions that arerecognized in assets, liabilities and equities, are eliminated in full on consolidation.

A change in ownership interest in a subsidiary without a loss of control is accounted for as an equitytransaction. If the Group loses control over a subsidiary, it:

Derecognizes the assets (including goodwill) and liabilities of the subsidiary

Derecognizes the carrying amount of any non-controlling interest

Derecognizes the related other comprehensive income like cumulative translation differences,recorded in equity

Recognizes the fair value of the consideration received

Recognizes the fair value of any investment retained

Recognizes any surplus or deficit in profit or loss

Reclassifies the parents share of components previously recognized in other comprehensiveincome to profit or loss or retained earnings, as appropriate, as would be required if the Grouphad directly disposed of the related assets or liabilities.

Business Combinations and GoodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisitionis measured as the aggregate of the consideration transferred, measured at acquisition date fair valueand the amount of any non-controlling interest in the acquiree. For each business combination, theGroup elects whether to measure the non-controlling interest in the acquiree either at fair value orat the proportionate share of the acquirees identifiable net assets. Acquisition-related costs areexpensed as incurred and are included in operating expenses.


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When the Group acquires a business, it assesses the financial assets and financial liabilities assumedfor appropriate classification and designation in accordance with the contractual terms, economiccircumstances and pertinent conditions as at the acquisition date. This includes the separation ofembedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirerspreviously held equity interest in the acquiree is remeasured to fair value at the acquisition datethrough profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at theacquisition date. Subsequent changes to the fair value of the contingent consideration, which isdeemed to be an asset or liability, will be recognized in accordance with PAS 39 either in profitor loss or as a change to OCI. If the contingent consideration is not within the scope of PAS 39, itis measured in accordance with the appropriate PFRS. Contingent consideration that is classified as

equity is not re-measured and subsequent settlement is accounted for within equity.

Goodwill acquired in a business combination is initially measured at cost, being the excess of theaggregate of the consideration transferred and the amount recognized for non-controlling interest,and any previous interest held, over the fair values of net identifiable assets acquired and liabilitiesassumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired,the Group reassesses whether it has correctly identified all of the assets acquired and all of theliabilities assumed and reviews the procedures used to measure the amounts to be recognized at theacquisition date. If the re-assessment still results in an excess of the fair value of net assets acquiredover the aggregate consideration transferred, then the gain is recognized in profit or loss. Afterinitial recognition, goodwill is measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Groups cash-generating units (CGU) that are expected tobenefit from the combination, irrespective of whether other assets or liabilities of the acquiree areassigned to those units.

Where goodwill forms part of a CGU or a group of CGUs and part of the operation within that unitis disposed of, the goodwill associated with the operation disposed of is included in the carryingamount of the operation when determining the gain or loss on disposal of the operation. Goodwilldisposed of in this circumstance is measured based on the relative values of the operation disposedof and the portion of the CGU retained.

When subsidiaries are sold, the difference between the selling price and the net assets plus any other

comprehensive income, and fair value of retained interest is recognized in profit or loss.

Where there are business combinations in which all the combining entities within the Group areultimately controlled by the same ultimate parties before and after the business combination and thatthe control is not transitory (business combinations under common control), the Group accountsfor such business combinations under the acquisition method of accounting, if the transaction wasdeemed to have substance from the perspective of the reporting entity. In determining whether thebusiness combination has substance, factors such as the underlying purpose of the businesscombination and the involvement of parties other than the combining entities such as the non-controlling interest, shall be considered.


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In cases where the business combination has no substance, the Group accounts for the transactionsimilar to a pooling of interests. The assets and liabilities of the acquired entities and that of theCompany are reflected at their carrying values. Comparatives shall be restated to include balancesand transactions as if the entities had been acquired at the beginning of the earliest period presentedand as if the companies had always been combined.

Investments in Associates and Joint VenturesThe following are the associates and joint ventures of the Group as at December 31, 2013 and 2012:

Effective percentage ofOwnership

Nature of Business 2013 2012

ssociates:MCC Transport Philippines (MCCP) Container transportation 33.0% 33.0%Hansa-Meyer ATS Projects, Inc. (HATS) Project logistics and

consultancy 50.0% 50.0 %oint Ventures:KLN Holdings (KLN)(1) Holding Company 78.4% 78.4%

Kerry-ATS Logistics, Inc. (KALI) International freight andcargo forwarding 62.5% 62.5%

(1) KLN is 78.4% owned by 2GO Express.

An associate is an entity over which the Group has significant influence. Significant influence isthe power to participate in the financial and operating policy decisions of the investee, but has nocontrol or joint control over those policies.

A joint arrangement is a contractual arrangement whereby two or more parties undertake aneconomic activity that is subject to joint control. A joint venture is a type of joint arrangement

where the parties that have joint control of the arrangement and have rights over the net assets ofthe joint venture.

The considerations made in determining significant influence or joint control are similar to thosenecessary to determine control over subsidiaries.

Investments in associates and joint ventures (investee companies) are accounted for under the equitymethod of accounting. An investment is accounted for using the equity method from the day itbecomes an associate or joint venture. On acquisition of investment, the excess of the cost ofinvestment over the investors share in the net fair value of the investees identifiable assets,liabilities and contingent liabilities is accounted for as goodwill and included in the carrying amountof the investment and not amortized. Any excess of the investors share of the net fair value of the

investees identifiable assets, liabilities and contingent liabilities over the cost of the investment isexcluded from the carrying amount of the investment, and is instead included as income in thedetermination of the share in the earnings of the investees.

Under the equity method, the investments in the investee companies are carried in the consolidatedbalance sheet at cost plus post-acquisition changes in the Groups share in the net assets of theinvestee companies, less any impairment in values. The consolidated statement of income reflectsthe share of the results of the operations of the investee companies. The Groups share of post-acquisition movements in the investees equity reserves is recognized directly in equity. Profits andlosses resulting from transactions between the Group and the investee companies are eliminated tothe extent of the interest in the investee companies and for unrealized losses to the extent that thereis no evidence of impairment of the asset transferred. Dividends received are treated as a reduction

of the carrying value of the investment.


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The Group discontinues applying the equity method when their investments in investee companiesare reduced to zero. Accordingly, additional losses are not recognized unless the Group hasguaranteed certain obligations of the investee companies. When the investee companiessubsequently report net income, the Group will resume applying the equity method but only afterits share of that net income equals the share of net losses not recognized during the period the equitymethod was suspended.

The reporting dates of the investee companies and the Group are identical and the investeecompanies accounting policies conform to those used by the Group for like transactions and eventsin similar circumstances.

Upon loss of significant influence over the associate, the Group measures and recognizes anyretaining investment at its fair value. Any difference between the carrying amount of the associateupon loss of significant influence and the fair value of the retaining investment and proceeds fromdisposal is recognized in the consolidated statement of income.

Interest in a Joint OperationThe Group has an interest in a joint operation which is a jointly controlled entity, whereby the jointventure partners have a contractual arrangement that establishes joint control over the economicactivities of the entity. Upon adoption of PFRS 11, the assets, liabilities, revenues and expensesrelating to its interest in the joint operation have been retrospectively recognized in the consolidatedfinancial statements of the Group.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investmentsthat are readily convertible to known amounts of cash, with original maturities of three months orless, and are subject to an insignificant risk of change in value.

Fair Value MeasurementFair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer the liabilitytakes place either:

In the principal market for the asset or liability, or

In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Company.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in their economicbest interest.

A fair value measurement of a nonfinancial asset takes into account a market participants ability togenerate economic benefits by using the asset in its highest and best use or by selling it to anothermarket participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observable inputsand minimizing the use of unobservable inputs.


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All assets and liabilities for which fair value is measured or disclosed in the consolidated financialstatements are categorized within the fair value hierarchy, described as follows, based on the lowestlevel input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

Level 2 - Valuation techniques for which the lowest level input that is significant to the fairvalue measurement is directly or indirectly observable

Level 3 - Valuation techniques for which the lowest level input that is significant to the fairvalue measurement is unobservable

For assets and liabilities that are recognized in the consolidated financial statements on a recurringbasis, the Group determines whether transfers have occurred between Levels in the hierarchy byreassessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilitieson the basis of the nature, characteristics and risks of the assets or liability and the level of the fairvalue hierarchy.

Financial InstrumentsInitial recognitionFinancial assets and financial liabilities are recognized in the consolidated balance sheet whenthe Group becomes a party to the contractual provisions of the instrument. Purchases or salesof financial assets that require delivery of assets within a time frame established by regulationor convention in the marketplace (regular way purchases or sales) are recognized on the tradedate, i.e., the date that the Group commits to purchase or sell the asset.

Financial instruments are recognized initially at fair value, which is the fair value of theconsideration given (in case of an asset) or received (in case of a liability). If part of considerationgiven or received is for something other than the financial instrument, the fair value of the financialinstrument is estimated using a valuation technique. The initial measurement of financialinstruments, except for those financial assets and liabilities at fair value through profit or loss(FVPL), includes transaction costs.

Classification of financial instrumentsOn initial recognition, the Group classifies its financial assets in the following categories: financialassets at FVPL, loans and receivables, held-to-maturity (HTM) investments and AFS investments.The Group also classifies its financial liabilities into FVPL and other financial liabilities. The

classification depends on the purpose for which the investments are acquired and whether they arequoted in an active market. Management determines the classification of its financial assets andfinancial liabilities at initial recognition and, where allowed and appropriate, reevaluates suchdesignation at the end of each reporting period.

Financial instruments are classified as liabilities or equity in accordance with the substance of thecontractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or acomponent that is a financial liability are reported as expense or income. Distributions to holders offinancial instruments classified as equity are charged directly to equity, net of any related incometax benefits.

The Group has no financial assets classified as FVPL and HTM investments.


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Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable paymentsthat are not quoted in an active market, they are not entered into with the intention of immediateor short-term resale and are not designated as AFS investments or financial assets at FVPL.Loans and receivables are carried at amortized cost using the effective interest method, lessallowance for impairment. Amortized cost is calculated by taking into account any discount orpremium on acquisition and fees that are integral part of the effective interest rate. Gains andlosses are recognized in profit or loss when the loans and receivables are derecognized orimpaired, as well as through the amortization process. Loans and receivables are included incurrent assets if maturity is within 12 months from the end of reporting period.

As of June 30, 2014 and December 31, 2013, financial assets included under this classification arethe Groups cash in banks, cash equivalents, trade and other receivables and refundable deposits(presented as part of Other noncurrent assets in the consolidated balance sheet).

AFS investmentsAFS investments are those non-derivative financial assets which are designated as such or do notqualify to be classified as financial assets designated at FVPL, HTM investments or loans andreceivables. They are purchased and held indefinitely, and may be sold in response to liquidityrequirements or changes in market conditions. After initial measurement, AFS investments aremeasured at fair value with unrealized gains or losses recognized in the consolidated statement ofcomprehensive income and consolidated statement of changes in equity in the Unrealized gain or losson AFS investments until the AFS investments is derecognized, at which time the cumulative gain orloss recorded in equity is recognized in profit or loss. Assets under this category are classified as currentassets if expected to be realized within 12 months from the end of reporting period and as noncurrentassets if maturity date is more than a year from the end of reporting period.

As of June 30, 2014 and December 31, 2013, the Groups AFS investments include investments inquoted and unquoted shares of stock and club shares.

Other financial liabilitiesThis classification pertains to financial liabilities that are not designated as at FVPL upon the inceptionof the liability. Included in this category are liabilities arising from operations or borrowings.

The financial liabilities are recognized initially at fair value and are subsequently carried at amortizedcost, taking into account the impact of applying the effective interest method of amortization (oraccretion) for any related premium (discount) and any directly attributable transaction costs.

As of June 30, 2014 and December 31, 2013, financial liabilities included in this classification arethe Groups loans payable, trade and other payables, long-term debts, obligations under finance lease,restructured debts, redeemable preferred shares of a subsidiary and other noncurrent liabilities.

Classification of Financial Instruments between Debt and EquityFinancial instruments are classified as liabilities or equity in accordance with the substance of thecontractual arrangement. Interest relating to a financial instrument or a component that is a financialliability is reported as expenses.

A financial instrument is classified as debt if it provides for a contractual obligation to:

deliver cash or another financial asset to another entity; or


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exchange financial assets or financial liabilities with another entity under conditions that arepotentially unfavorable to the Group; or

satisfy the obligation other than by the exchange of a fixed amount of cash or another financialasset for a fixed number of own equity shares.

If the Group does not have an unconditional right to avoid delivering cash or another financialassetto settle its contractual obligation, the obligation meets the definition of a financial liability.

The components of issued financial instruments that contain both liability and equity elements areaccounted for separately, with the equity component being assigned the residual amount afterdeducting from the instrument as a whole the amount separately determined as the fair value of theliability component on the date of issue.

Redeemable preferred shares (RPS)

The component of the RPS that exhibits characteristics of a liability is recognized as a liability inthe consolidated balance sheet, net of transaction costs. The corresponding dividends on thoseshares are charged as interest expense in profit or loss. On issuance of the RPS, the fair value of theliability component is determined using a market rate for an equivalent non-convertible bond andthis amount is carried as a long term liability on the amortized cost basis until extinguished onconversion or redemption.

Day 1 DifferenceWhere the transaction price in a non-active market is different from the fair value of other observablecurrent market transactions in the same instrument or based on a valuation technique whosevariables include only data from observable market, the Group recognizes the difference betweenthe transaction price and fair value (a Day 1 profit and loss) in profit or loss unless it qualifies for

recognition as some other type of asset. In cases where use is made of data which is not observable,the difference between the transaction price and model value is only recognized in profit or losswhen the inputs become observable or when the instrument is derecognized. For each transaction,the Group determines the appropriate method of recognizing the Day 1 profit or loss amount.

Offsetting of Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount reported in theconsolidated balance sheet if, and only if, there is a currently enforceable legal right to offsetthe recognized amounts and there is an intention to settle on a net basis, or to realize the assetsand settle the liabilit ies simultaneously. This is not generally the case with master nettingagreements, and the related assets and liabilities are presented at gross amounts in the consolidatedbalance sheet.

Derecognition of Financial Assets and LiabilitiesFinancial assetA financial asset (or, where applicable a part of a financial asset or part of a group of similar financialassets) is derecognized when:

the rights to receive cash flows from the asset have expired; or

the Group has transferred its rights to receive cash flows from the asset or has assumed anobligation to pay them in full without material delay to a third party under a pass-througharrangement; or

the Group has transferred its rights to recline cash flows from the asset and either (a) has

transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor


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retained substantially all the risks and rewards of the asset, but has transferred control of theasset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, and has neither transferred nor retained substantially all the risks andrewards of the asset nor transferred control of the asset, the asset is recognized to the extent of theGroups continuing involvement in the asset. Continuing involvement that takes the form of aguarantee over the transferred asset is measured at the lower of the original carrying amount of theasset and the maximum amount of consideration that the Group could be required to repay.

In such case, the Group also recognizes an associated liability. The transferred asset and theassociated liability are measured on a basis that reflects the rights and obligations that the Grouphas retained.

Financial liability

A financial liability is derecognized when the obligation under the liability is discharged,cancelled or has expired.

When an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantially modified, such an exchange ormodification is treated as a derecognition of the original liability and the recognition of a newliability, and the difference in the respective carrying amounts is recognized in profit or loss.

Impairment of Financial AssetsThe Group assesses at the end of each reporting period whether a financial asset or group of

financial assets is impaired.

Loans and receivablesFor loans and receivables carried at amortized cost, the Group first assesses individually whetherobjective evidence of impairment exists for financial assets that are individually significant, orcollectively for financial assets that are not individually significant. If the Group determines thatno objective evidence of impairment exists for an individually assessed financial asset, whethersignificant or not, the asset is included in a group of financial assets with similar credit riskcharacteristics and that group of financial assets is collectively assessed for impairment. Assets thatare individually assessed for impairment and for which an impairment loss is or continues to berecognized are not included in a collective assessment of impairment.

If there is an objective evidence that an impairment loss has been incurred, the amount of the loss ismeasured as the difference between the assets carrying amount and the present value of estimated

future cash flows (excluding future expected credit losses that have not yet been incurred). Thecarrying amount of the asset is reduced through the use of an allowance account and the amount ofthe loss is recognized in profit or loss. Interest income continues to be accrued on the reducedcarrying amount based on the original effective interest rate of the financial asset. Loans togetherwith the associated allowance are written off when there is no realistic prospect of future recoveryand all collateral has been realized or has been transferred to the Group. If, in a subsequent period,the amount of the impairment loss increases or decreases because of an event occurring after theimpairment was recognized, the previously recognized impairment loss is increased or decreased byadjusting the allowance account. Any subsequent reversal of an impairment loss is recognized inprofit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost atthe reversal date.


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Assets carried at costIf there is an objective evidence that an impairment loss on an unquoted equity instrument that isnot carried at fair value because its fair value cannot be reliably measured, or on a derivative assetthat is linked to and must be settled by delivery of such an unquoted equity instrument has beenincurred, the amount of the loss is measured as the difference between the assets carrying amoun tand the present value of estimated future cash flows discounted at the current market rate of returnfor a similar financial asset.

AFS investmentsFor AFS investments, the Group assesses at the end of each reporting period whether there isobjective evidence that an investment or group of investment is impaired.

In the case of equity investments classified as AFS investments, objective evidence of impairmentwould include a significant or prolonged decline in the fair value of the investments below its cost.

The Group treats significant generally as 20% or more and prolonged as greater than 12 monthsfor quoted equity securities. Where there is evidence of impairment, the cumulative loss (measuredas the difference between the acquisition cost and the current fair value, less any impairment losson that financial asset previously recognized in profit or loss) is removed from equity and recognizedin profit or loss. Impairment losses on equity investments are not reversed through profit or loss.Increases in fair value after impairment are recognized in OCI.

In the case of debt instruments classified as AFS investments, impairment is assessed based on thesame criteria as financial assets carried at amortized cost. Future interest income is based on thereduced carrying amount and is accrued based on the rate of interest used to discount future cashflows for the purpose of measuring impairment loss. Such accrual is recorded as part of Interestincome in profit or loss. If, in subsequent period, the fair value of a debt instrument increased and

the increase can be objectively related to an event occurring after the impairment loss wasrecognized in profit or loss, the impairment loss is reversed through profit or loss.

InventoriesInventories are valued at the lower of cost and net realizable value (NRV). Cost comprises all costof purchase and other costs incurred in bringing the inventories to their present location or condition.Cost is determined using weighted average method for trading goods, moving average method formaterials, parts and supplies, flight equipment, expendable parts and supplies, and the first-in, first-out method for truck and trailer expendable parts, fuel, lubricants and spare parts. NRV of thetrading goods is the estimated selling price in the ordinary course of business, less estimated costsnecessary to make the sale. NRV of materials and supplies is the current replacement cost. Anallowance for inventory obsolescence is provided for damaged goods based on analysis and physical

inspection.

Asset Held for Sale and Discontinued OperationAssets and disposal groups classified as held for sale are measure

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