COVER SHEET - Lorenzo Shipping Corp....Container Lines, Inc. ATSC, Negros Navigation and Sulpicio Lines, Inc. cater to both passenger and cargo market while Solid Shipping , Oceanic

COVER SHEET

0 0 0 0 0 4 8 9 0 9

S.E.C. Registration Number

L O R E N Z O S H I P P I N G

C O R P O R A T I O N

(Company's Full Name)

2 0 T H F L O O R , T I M E S P L A Z A B L D G . ,

U N I T E D N A T I O N S 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)

ROBERTO A. UMALI 567-2180

Contact Person Company Telephone Number

1 2 3 1 2 0 1 3 1 7 A 0 6 2 6 2 0 1 4

Month Day Year FORM TYPE Month Day Year

Fiscal Year Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Php 943.6 million $ 3.68 million

Total no. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document I.D. Cashier

S T A M P S

Remarks = please use black ink for scanning purposes

1

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141

OF THE CORPORATION CODE OF THE PHILIPPINES

1.. For the year ended December 31, 2013

2.. SEC Identification Number 48909

3. BIR Tax Identification No. 000-628-958-000

4. Exact name of issuer as specified in its charter LORENZO SHIPPING CORPORATION

5.. Metro Manila, Philippines 6. (SEC

Province, Country or other jurisdiction of

Incorporation or organization

7.. 20th

Floor, Times Plaza Bldg.

United Nations Avenue

Ermita, Manila 1000

Address of principal office Postal Code

8. (632) 567 21 71 to 80 Issuer’s telephone number, including area code 9. Pier 6/10, North Harbor, Tondo, Manila 1012

Former name, former address and former fiscal year, if

changed since last report. 10. Securities registered pursuant to Sections * and 12 of the SRC, or Sec. 4 and 8 of the RSA

Title of Each Class Number of Shares Of Common Stock Outstanding and Amount of Debt Outstanding

Common Stock – Class U 554,642,251 Total Liabilities Php 1,703 Million

11. Are any or all of these securities listed on a Stock Exchange.

Yes (x) No ( )

If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Common Stock – Class U

12. Check whether the issuer:

(a) has filed all reports required to be filed by section 17 of the SRC and SRC Rule 17

hereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of

The Corporation Code of the Philippines during the preceding twelve (12) months (or for such

shorter period that the registrant was required to file such reports);

Yes (x) No ( )

(b) has been subject to such filing requirements for the past ninety (90) days

Yes (x) No ( )

2

13. The aggregate market value of the voting stock held by non-affiliates of the registrant is Php45.884M as

of December 31, 2009. APPLICABLE ONLY TO ISSUERS INVOLVED IN INSOLVENCY/SUSPENSION OF PAYMENTS

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of the

Code subsequent to the distribution of securities under a plan confirmed by a court or the Commission.

Yes ( ) No ( ) N/A

DOCUMENTS INCORPORATED BY REFERENCE

15. If any of the following documents are incorporated by reference, briefly describe them and identify the

part of SEC Form 17-A into which the document is incorporated.

N/A

3

PART 1- BUSINESS AND GENERAL INFORMATION Item 1. Business (a) Description of Business

(1) Business Development

(A) Form and year of organization

Lorenzo Shipping Corporation (LSC) was incorporated on 17 October 1972 by the Go

Family headed by Jose D. Go, Sr., primarily to engage in domestic inter-island cargo

handling business. The Company has been an active participant in containerized cargo

business and has played a significant role in the domestic shipping industry. (B) The Company has no record of any bankruptcy, receivership or similar proceedings during

the past three years. (C) Material reclassification, merger or purchase or sale of significant amount of assets.

The Company has not undergone any material reclassification, merger, consolidation or

purchase or sale of a significant amount of its assets that are not in the ordinary course of

business.

(2) Business of Issuer

(A) Description of Registrant

(i) Lorenzo Shipping Corporation was founded and incorporated in 1972. The Company

owns and operates vessels with which it provides domestic inter-island cargo liner

services to the general public. The Company’s business focus has evolved from that

of being a break-bulk cargo carrier to a fully containerized cargo shipping company. Lorenzo Shipping Corporation owns and operates a fleet of seven (7) vessels deployed

to the key ports in Manila, Visayas and Mindanao. The Company’s vessels have a

capacity ranging from 200 TEUs to 426 TEUs with speed of 11 knots to 15 knots. LSC

owns various equipment and facilities to efficiently handle customer’s cargoes

including a) land-based equipment such as forklifts, toplifts and trucks and b)

container yards and warehouses in its branches and agencies. (ii) The Company is engaged solely in domestic inter-island cargo liner services, thus, the

foreign sales requirement is inapplicable. (iii) Lorenzo Shipping Corporation markets its services through a network of branches and

agencies nationwide. The network is comprised of six branches: Cebu, Davao, General

Santos, Cotabato, Iloilo, Cagayan and three agencies: Zamboanga, Dumaguete and

Bacolod. Manila operations, under the Corporate Office, handles all inbound and

outbound volume in Manila. LSC provides 20-foot and 40-foot dry containers to its customers in which they can

load their cargoes to various ports. LSC also carries rolling cargoes such as heavy

equipment, trucks and vehicles as well as uncontainerized cargoes such as steel

products and bridging materials. Livestock cargoes are also carried by LSC using

special vans. (iv) Competitive business conditions and the registrant’s competitive position in the

industry and methods of competition:

4

Lorenzo Shipping Corporation is one of the key players in the domestic containerized

cargo shipping industry. It operates in the major ports in the country and maintains a

fleet of seven vessels. LSC considers other containerized cargo shipping companies as its competitors such

as Aboitiz Transport Systems Corp. (ATSC), Negros Navigation Corp., Sulpicio

Lines Inc., Solid Shipping Inc., NMC Container Lines, Inc. (NMCCLI) and Oceanic

Container Lines, Inc. ATSC, Negros Navigation and Sulpicio Lines, Inc. cater to

both passenger and cargo market while Solid Shipping , Oceanic and NMCCLI are

purely cargo carriers. Competition among domestic lines is strong in the diversity and quality of service

provided to its customers. The industry is also governed by the rules and regulations

of the Maritime Industry Authority (MARINA). LSC is also a member of the Philippine Liner Shipping Association (PLSA) where its

competitors are also members. The PLSA is a venue for all the member shipping lines

to discuss issues and solutions to these issues which affect the domestic shipping

industry.

(v) Sources and availability of raw materials and the names of principal suppliers:

Major suppliers of fuel, spare parts, container vans and others.

Name of Supplier Items Supplied

Petron Corporation Fuel

Manila North Harbor Port Inc. Stevedoring and hauling Services

Chevron Philippines I Fuel

Magsaysay Shipmanagement Management Fee & Reimbursables

Tao Commodity Fuel

NMC Container Lines Inc. Co-loading, rental & reimbursables

Magsaysay Marine Services, Inc. Fabrication of container van/repair

Mindanao International Container Terminal Arrastre, Stevedoring and storage

Keppel Subic Shipyard Inc. Vessel repairs

Asiaport Equipment and Logistics Corp. Hauling Services

Pilipinas Shell Petroleum Fuel

Seven Star Logistics Solutions Hauling Services

ACRO Distribution Network Hauling Services

TOMS Extreme Wheels Services Hauling Services

Pioneer Insurance and Surety Insurance

Filipinas Port Services Arrastre, Stevedoring and Storage

Central Inter-Transport Logistics Arrastre, Stevedoring

Antonio Victoriano Trucking Corporation Hauling Services

ZC Integrated Port Services Arrastre, Stevedoring

Chesteel Marine Industrial Vessel Repair

(vi)

Major customers/clients of LSC

2013 Top 20 Accounts

Coca-Cola Bottlers Philippines, Inc.

Pepsi-Cola Products Phils.

NMC Containers Lines Inc. URC / Robinsons Group

DJ Cargo

Lamsan Inc. SMC Group

Asia Brewery Inc.

All Asian Countertrade Inc. Tanduay Distillers

Icebox Logistics Services Inc.

Greenfield Trucking

Gaisano Grand Group of Companies Philipppines Foremost Milling Corp.

Yan An Cargo Forwarders

IFP Manufacturing Corp. Prifood Corporation

Icon Reefer Corporation

Century Canning Corp. ACS Manufacturing Corp.

5

The business is not dependent upon a single customer or a few customers, the loss

of any or more of which will not have material adverse effect on the company

(vii) The business of the company is not in any way dependent on related parties’

transactions.

(viii) Licenses, Concessions, Labor contracts, including duration;

a) With Maritime Industry Authority (Marina) registration

LSC vessels are duly registered with MARINA and subjected to regular

MARINA survey and ISM audits to ascertain its adherence to vessel and

manning safety standards. The Company has been granted a company

Certificate of Public Convenience (CPC) for the seven vessels under RA 9295

valid for 25 years from June 7, 2005 to June 7, 2030 by the MARINA to

service domestic ports of call.

b) Labor contracts

For the sea-based employees, the Collective Bargaining Agreement shall be

in full force and effect until 31 August 2015 for licensed crewmembers, and

until 15 September 2015 for unlicensed crewmembers.

For the land-based employees, the Collective Bargaining Agreement shall be

in full force and effect until 15 February 2012.

c) Licenses and Franchises

For licenses and franchises of vessels, while principal terms are anchored

solely on seaworthiness of vessel (of which registrant is already ISM-

Certified by regulatory authority) only the following expiration dates are

disclosed:

M/V LORCON VISAYAS

CERTIFICATES DATE DATE STATUS

AND LICENSES ISSUED EXPIRY

Certificate of Ownership (CO) 11/08/10 Permanent

Certificate of Vessel Registry (CVR) 11/08/10 Permanent

Certificate of Public Convenience (CPC) 06/07/05 06/07/30

Cargo Ship Safety Certificate 03/20/14 02/24/15

Coastwise License (CWL) 09/17/13 09/25/14

Radio Station License (RSL) 10/31/13 08/21/14

Coastwise Loadline Certificate (CLLC) 03/21/13 03/08/18

M/V LORCON CEBU

CERTIFICATES DATE DATE EXPIRY STATUS

AND LICENSES ISSUED








6

M/V LORCON MANILA


AND LICENSES ISSUED








M/V LORCON GENERAL SANTOS









Coastwise Loadline Certificate (CLLC) 09/20/13 02/04/14 M/V LORCON CAGAYAN DE ORO


AND LICENSES ISSUED








M/V LORCON DUMAGUETE










(ix) The Company has no pending request for approval from any government

body.

(x) There is no record of cost incurred for research and development.

7

(xi) Costs and effects of compliance with environmental laws

The Company complies with the Anti-Pollution Act, which requires the

control of smoke emission coming from the vessels and disallows spilling or

dumping of oil into the sea. The Company complies with such regulations

through the effective utilization of equipment such as bridge sludge tank.

However, the cost of such equipment is not separately accounted for in the

company’s books. The cost of compliance is not significant in amount.

(xii) Total number of employees and number of full time employees

As of 31 December 2013, the total sea-based manpower is 145 and the total

land-based manpower is 166. The registrant does not anticipate increasing

its manpower for the ensuing year.

The political and social provisions of CBA for sea-based employees shall

be in full force and effect until 31 August 2015 for licensed crew members

and until 15 September 2015 for unlicensed crew members.

The description, ownership and limitation on ownership, of the principal properties of the company are

shown below. Vessel in Operations:

VESSEL/YEAR BUILT OWNERSHIP

STATUS

GRT & DWT IN

METRIC TON

CAPACITY IN

TEUs/LIEN SERVICE ROUTE

LORCON MNL 1996 COMPANY OWNED 4,328 5,998.30 426

MLA//CGY/ILO/BAC/MNL (MORTGAGED)

LORCON CDO 1986 COMPANY OWNED 5,954 7,203 300

MLA/CBU/CGYMLA (NOT MORTGAGED)

LORCON GEN

SANTOS 2000 COMPANY OWNED 4,962 7,209

408 MLA/CBU/DUM/ZAM/MLA

(MORTGAGED)

LORCON CBU 1986 COMPANY OWNED 4,996 6,087 278 MLA/ILO/ZAM/COT/GSC/CBU/

MLA (MORTGAGED)

LORCON VIS 1986 COMPANY OWNED 5,954 7,233 300 MLA/ILO/ZAM/COT/GSC/CBU/

MLA (MORTGAGED)

LORCON ZAM 1984 COMPANY OWNED 5,589 6,630 205

MLA /BAC/ILO/MLA (MORTGAGED)

LORCON DUM 1999 COMPANY OWNED 7,970 9,822. 486

MLA/DVO/CBU//MLA (MORTGAGED)

1. The limitations are those which are usual to ordinary mortgage of chattel and real properties. The Company has no intention to acquire properties not in the ordinary course of business in the next

twelve months.

2. The Company leases the following properties in its operations:

The Company leases from various entities the following properties for its operations, to wit:

1. A container yard covering an area of 2,000 square meters located at Polloc Port, Parang, Maguindanao,

Cotabato City at the rate of Php21,300.00 per month. As stipulated, the contract is valid for a period of

one (1) year commencing January 1, 2013 until December 31, 2013.

2. A warehouse/office in Salimbao, Sultan Kudarat, Maguindanao, consisting of an area of 850 square

8

meters for a monthly rental of Php21,000.00. This lease commenced on 09 December 2013 and is valid

as such until 08 December 2016. (Antonio Uy)

3. An office located at Door No. 5, Julia Pacana St., Barangay 21, Cagayan De Oro City with a monthly

rental fee of Php10,000.00. The period covering this lease commenced on 01 April 2012 until 30 March

2014.

4. A container yard with office covering an area of 10,000 square meters located at Phividec Estate of

Misamis Oriental (PIE-MO), Municipalities of Tagaloan and Villanueva, Province of Misamis Oriental.

Contract is valid for a period of ten (10) years commencing September 1, 2008.

5. A parcel of land with a building consisting of approximately 17,607 square meters, more or less, located

at Barangay Labangal, General Santos City, for a monthly rental of Php55,000.00. Contract is valid for

a period of five (5) years commencing 01 August 2011 until 31 July 2016.

6. In Iloilo City, a warehouse covering an area of 820 located at Barangay Loboc, Lapaz, Iloilo City, for a

monthly rental of Php46,881.45. Contract is valid for a period of one (1) year commencing 01 January

2011 until December 31, 2012. Contract was no longer renewed after 2012.

7. In Iloilo City, one door commercial building with an area of approximately 150 square meters for a

monthly rental of Php 19,420.50 commencing 01 April 2012 and Php21,362.55 commencing 01 April

2013 until 31 March 2014, exclusive of EVAT plus Php750.00.00 for security services and common

electric cost at Php275.00.

8. Another container yard with an area of 3,613.00 square meters located at Barangay Obrero, Iloilo City

for a monthly rental of Php111,063.62. Contract is valid for a period of one (1) year commencing January

1, 2013 until December 31, 2013.

9. A Container yard covering an area of 10,000 square meters, more or less, located at Km. 10, Sasa, Davao

City. Contract is valid for five (5) years commencing 01 February 2007 until 31 December 2013 for an

aggregate area of 10,000 square meters. Effective, February 1, 2007 to December 31, 2013, Php53.50

per square meter per month for the concreted portion and Php28.50 for the non-concreted portion of the

property.

10. An office space covering an area of 702 09 square meters located at Times Plaza Building, U.N. Ave.

Cor. Taft Ave., Ermita, Manila with a monthly rental of 147,800.00. Contract commenced January 2011

until June 31, 2015.

11. In Zamboanga, a container yard covering an area of 4,800 square meters located at Governor Ramos,

San Roque, Zamboanga City with a monthly rental of Php147,840.00.Contract is valid for a period of

three (3) years commencing 01 January 2014 until December 2014.

An additional area in Governor Ramos, San Roque, Zambonga City, covering an area of 2,000 square

meters was also utilized as container yard, with a monthly rental of Php50,000.00. Contract is valid foa

a period of three (3) years commencing 01 January 2014 until 31 December 2014.

12. In Bacolod, a container yard covering an area of 6,282 square meters located at BREDCO II, reclamation

Area, Bacolod City with a monthly rental of Php375,439.47 VAT inclusive. Contract commenced on

January 1, 2004 and deemed automatically renewed every year.

13. A container yard located at Bacong, Negros Oriental with a monthly rental of Php45,000.00. Contract

was renewed for five (5) years commencing 01 January 2013 until 31 December 2018. Lease contract

is renewed on a month to month basis, but final contract is still undergoing negotiations.

14. A container yard located at Manila Harbor Center, Tondo, Manila, with an area of 5,000 sqm and a

monthly rental of Php330,000.00, with annual escalation rate of 5%. Contract is for a period of five (5)

years commencing on 01 May 2011 until 30 April 2016. (J.O.S. Holdings, Inc.)

9

15. A warehouse on a parcel of land with an area of 444.8 sqm. located at No. 658 Calindagan, Dumaguete

City, Negros Oriental, and with a monthly rent of Php31,136.00, exclusive of VAT. Contract is from 16

December 2011 until 15 December 2013. (JOS Holdings, Inc.)

16. The ground floor of a building with an area of 150 sqm. located at No. 323 Moriones Street, Tondo, City

of Manila, and a monthly rental of Php50,000.00 (Vat-inclusive). Contract is for 5 years commencing

on 01 February 2014 until 31 January 2019. (Sps.Limpio)

17. A container yard and a container office, with an area of 6,000 square meters located at #15 Old Airport

Road, Km. 9, Sasa, Davao City. Contract is for five (5) years from 01 April 2014 until 31 March 2019.

(Kudos);

18. A container yard with an area of 6,500 square meters located at 571-572 Honorio Lopez Boulevard,

Tondo, City of Manila, with a monthly rental of Php226,875.00, for two (2) years, commencing on 15

February 2014 until 29 February 2016.

19. An area located at MNH CFS 1bay, with an area of 556.45 square meters, with a monthly rental of

Php67,665.04, commencing on 16 September 2013 to 14 January 2018;

Item 3. Legal Proceedings

The Company is the defendant in several pending legal cases involving claims for damages arising

from the ordinary course of business and trade and those arising from its relationship with its employees as the

latter’s employer. The management opines, however, that the ultimate liability which may result from these

lawsuits and claims, if any, would not impinge on the financial position and operating results of the company.

Item 4. Submission of Matters to a Vote of Security Holders

None

10

PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters

Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters

(1) Market Information

The Company’s common shares are traded at the Philippine Stock Exchange. The historical high-

low share prices of the company’s stock are Php1.20 – 1.00 and Php2.67 – 0.90 as of quarters

ending March 2009 and March 2012 respectively. The quarterly high and low share prices of

LSC during the last three calendar years and interim periods are as follows:

QUARTER ENDING IN PHIL. PESO

VOLUME HIGH LOW

Quarter ending March 2010 1.20 1.00 667,000 Quarter ending June 2010 1.10 1.00 372,000 Quarter ending Sept. 2010 1.15 0.75 393,000 Quarter ending Dec. 2010 1.05 1.00 218,000 Quarter ending March 2011 1.05 0.90 169,000


VOLUME HIGH LOW

Quarter ending March 2011 1.05 0.90 169,000 Quarter ending June 2011 1.06 0.92 1,735,000

Quarter ending Sept. 2011 1.20 0.99 107,000 Quarter ending Dec. 2011 2.35 1.03 14,067,000 Quarter ending March 2012 2.67 1.03 5,106,000


VOLUME HIGH LOW

Quarter ending March 2012 2.65 1.03 5,106,000 Quarter ending June 2012 1.97 1.30 799,000

Quarter ending Sept. 2012 1.83 1.20 392,000 Quarter ending Dec. 2012 1.70 1.26 11,668,000 Quarter ending March 2013 1.65 1.25 783,000


VOLUME HIGH LOW

Quarter ending March 2013 1.65 1.25 787,000 Quarter ending June 2013 1.61 1.25 495,823

Quarter ending Sept. 2013 1.35 1.18 11,880,300 Quarter ending Dec. 2013 2.20 1.10 11,691,760 Quarter ending March 2014 1.60 1.23 42,891,761

(2) Holders

As of March 31, 2014, the Company has 960 stockholders and the top twenty shareholders of

the company as of said date are the following:

Name of Stockholders

Number of

Shares

Held

Total

Shares

% Over Total

Outstanding

1 National Marine Corporation (Direct) 276,520,756 379,149,561 68.36%

2 National Marine Corporation (Indirect

thru PCD Nominee Corporation) 102,628,805

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3 Pioneer Insurance & Surety Corporation

(Indirect) 75,193,750 75,193,750 13.56%

4 Julio O. Sy Sr. (Indirect) 42,744,511 42,744,511 7.71%

5 PCD Nominee Corporation (Filipino) 29,763,200 29,763,200 5.37%

6 Jose Go Jr. 8,208,500 8,208,500 1.48%

7 Oscar Y. Go 6,637,157 6,637,157 1.20%

8 Julio D. Sy Jr. 2,187,500 2,187,500 0.39%

9 Roberto A. Umali 1,188,701 1,188,701 0.21%

10 Alvin Y Tan Unjo 437,500 437,500 0.08%

11 Pcd Nominee Corporation (Non-

Filipino) 382,750 382,750 0.07%

11 Jonathan D. Sy 312,500 312,500 0.06%

12 Susano O. Sy 312,500 312,500 0.06%

12 Emerging Market Capital Holdings 250,000 250,000 0.05%

12 Johnny S. Lim 250,000 250,000 0.05%

12 Lilian So Lim 250,000 250,000 0.05%

12 Francisco Lim Lao 250,000 250,000 0.05%

13 Jose Juan Pou 250,000 250,000 0.05%

14 Willington Chua 237,500 237,500 0.04%

15 Michael Escaler 231,250 231,250 0.04%

16 Rcbc Securities, Inc. 223,750 223,750 0.04%

17 Diana F. Malig 214,456 214,456 0.04%

18 Century Sports Phils., Inc. 187,500 187,500 0.03%

18 Pac Sally C. Ong 175,000 175,000 0.03%

19 Aim Scientific Research Foundations,

Inc. 125,000 125,000 0.02%

19 Luis M. Camus 125,000 125,000 0.02%

19 Siewngan Philip Low 125,000 125,000 0.02%

19 Reginaldo A. Oben 125,000 125,000 0.02%

19 Walfrido R. Patawaran 125,000 125,000 0.02%

19 Phiek Lian Go So 125,000 125,000 0.02%

19 Tego Holdings, Inc. 125,000 125,000 0.02%

20 Jacinto V. Rosales Jr. 100,000 100,000 0.02%

(3) Dividends

On June 27, 2013, the BOD has declared and issued in favor of common shareholders of record

as of July 12, 2013 cash dividends amounting to three centavos (P=0.025) per share, or an

aggregate amount of P=13,866,056.

(4) Recent Sales of Unregistered Securities

Within the past 3 years, there has been no sale of the Company’s Securities which were not

registered under the Securities Regulations Code.

(5) Description of Registrant’s Securities

Capital Stock

Since 2006, the Company’s authorized capital stock consists of common stock and maintains

no other class or type of share capital. The occurrence and amount of cash dividends issued to

its common stockholders is determined by the BOD.

Common shareholders have voting rights and appraisal rights, subject to and pursuant to the

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provisions of the Corporation Code. Under the law and the Company’s Articles of Incorporation, foreign ownership is restricted to

forty percent (40%). It provides that no transfer of shares or interest, which will render the

ownership of the Filipino citizens to less than the required percentage of the capital stock as

provided by existing law, shall be allowed or permitted to be recorded in the books of the

company. Item 6. Management’s Discussion and Analysis or Plan of Operations.

Management’s discussion and analysis of financial condition and results of operations for the years

2013, 2012 and 2011 are presented below:

A. Financial Highlights

All Figures in Php ‘000 % %

INCOME STATEMENT 2013 2012

(As restated)

2011

(As restated) 2013-2012 2012-2011

Freight Revenue 1,869,304 2,000,421 1,869,412 -6.55% 7.01%

Cost of Services 1,455,463 1,524,509 1,458,164 -4.53% 4.55%

Terminal Expenses 228,467 223,515 243,621 2.22% -8.25%

Gross Profit 185,374

252,397

167,627 -26.55% 50.57%

Other Income (Charges) -Net 29,293 (24,450) 33,013 -219.81% -174.06%

Admin. & Gen. Expenses 158,703 141,556 157,547 12.11% -10.15%

Finance Costs and Other

Charges-Net 44,047 26,730 36,856 64.78% -27.47%

Net Income Before Tax 11,917 59,661 6,237 -80.03% 856.57%

Provision for Income Tax 1,593 -3,320 -4,937 -147.98% -32.75%

Net Income After Tax 10,324 62,981 11,174 -83.61% 463.64%

Earnings per share Basic 0.02 0.11 0.02 -81.82% 450.00%

Diluted 0.02 0.11 0.02 -81.82% 450.00%

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All Figures in Php ‘000 % %

BALANCE SHEET 2013 2012

(As restated)

2011

(As restated) 2013-2012 2012-2011

Current Assets 1,208,129 971,853 884,422 24.31% 9.89%

Property and Equipment 1,652,972 1,681,456 1,659,959 -1.69% 1.30%

Other Assets 64,332 59,562 42,149 8.01% 41.31%

Total Assets 2,925,433 2,712,871 2,586,530 7.84% 4.88%

Current Liabilities 1,162,727 636,429 630,624 82.70% 0.92%

Long-Term Liabilities 540,106 828,334 752,338 -34.80% 10.10%

Stockholder's Equity 1,222,600 1,248,108 1,203,568 -2.04% 3.70%

Total Liabilities and

Stockholder's Equity 2,925,433 2,712,871 2,586,530 7.84% 4.88%

Material changes (+/- 5% or more) in the financial statements

Income Statement

Freight Revenue decreased by 6.55% due to lower TEU volume, mainly due to volume decline of LCDM

which was off-hired for 24 days, and LCDO which was off-hired for 59 days.

Other Income (Charges) registered an increase of 220% substantially due to losses incurred on the sale of an

old vessel in 2012.

Admin and Gen Expenses increased by 12.11% substantially due to lower impairment losses on bad debt

from trade receivables recognized in the previous year.

Finance Costs and Other Charges increased by 64.79% due to foreign exchange losses incurred in 2013.

Provision for Income Tax increased by 148% due to higher taxable income in 2013.

Balance Sheet

Current Assets increased by 24.31% substantially due to higher prepayments for Insurance and importations

as well as increase in withholding tax credits.

Current liabilities increased by 82.7% due to increase in scheduled balloon payments on borrowings payable

in the coming year and increase in short term loans.

Total non-current liabilities decreased by 34% due to reclassification of maturing term loans to current

portion.

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Key Performance Indicators (KPI)

To evaluate the performance of LSC for a given period, the following performance indicators are used:

1 Current ratio Measures liquidity and is the ratio between current

assets and current liabilities. The Company’s current

ratio in 2013 is 1.04:1.

2 Debt-to-equity ratio Ratio between the total liabilities and total

stockholder's equity. LSC’ debt-to-equity ratio in

2013 is 1.39:1.

3 Net Revenues LSC revenues are mainly composed of freight and

passage charges. Total Revenue in 2013 is P1.86

billion compared to P2 billion in 2012.

4 Income before income tax (IBT) Earnings of the company before income tax expense.

The Income before Income tax for 2013 is P11.9

million.

5 A/R Turn-over Determined by dividing Credit Revenue over

Average Receivables. For 2013 A/R Turn-over is

2.82.

B. Financial Ratios

RATIO ANALYSIS

A. CURRENT RATIO / WORKING CAPITAL RATIO / BANKER’S RATIO

(CURRENT ASSET / CURRENT LIABILITIES)

2013 2012 2011

CA 1,208,129,053 971,853,494 884,421,919

CL 1,162,727,539 636,429,171 630,623,652

CURRENT RATIO

1.04

1.53

1.40

A/R TURNOVER (TOTAL CREDIT SALES / AVE. RECEIVABLES)

2013 2012 2011

CREDIT SALES 1,869,304,043 2,000,421,463 1,869,412,499

AVE. A/R 663,064,925 531,457,903 541,582,325

A/R TURNOVER

2.82

3.76

3.45

A/P TURNOVER

(TOTAL COSTS less Depreciation and Personnel Expenses / AVE. PAYABLE)

2013 2012 2011

COST 1,311,215,272 1,350,147,491 1,296,300,381

AVE.A/P 277,584,582 298,478,018 352,696,196

A/P TURNOVER

4.72

4.52

3.68

15

B. ACID-TEST RATIO/QUICK ASSET RATIO

(CASH + RECEIVABLE / CURRENT LIABILITIES)

2013 2012 2011

CASH/AR 1,000,861,865 797,297,337 725,112,203

CL 1,162,727,539 636,429,171 630,623,652

ACID TEST RATIO 0.86 1.25 1.15

C. FUNDS FROM OPERATIONS

(NET INCOME + FOREX (GAIN)/LOSS + DEPRECIATION & AMORTIZATION)

` 2013 2012 2011

NI 10,324,204 62,980,946 11,174,308

FOREX

10,134,912

(10,052,017) 4,450,551

D & A 319,764,670 333,871,307 360,717,658

FFO 340,223,786 386,800,236 376,342,517

TEST OF SOLVENCY

A. EBIT (EARNINGS BEFORE INTEREST AND TAXES)

2013 2012 2011

EBIT 55,963,834 86,390,209 43,093,919

B. EBITDA (EARNINGS BEFORE INTEREST, TAXES, DEPN & AMORTIZATION)

2013 2012 2011

EBIT 55,963,834 86,390,209 43,093,919

D & A 319,764,670 333,871,307 360,717,658

EBITDA 375,728,504 420,261,516 403,811,577

C. INTEREST RATE COVERAGE RATIO (EBIT / INTEREST EXPENSE)

2013 2012 2011

EBIT 55,963,834 86,390,209 43,093,919

INT 32,923,883 36,401,968 33,002,541

INTEREST RATE COVERAGE RATIO 1.70 2.37 1.31

D. TIMES INTEREST EARNED (EBITDA/INTEREST EXPENSE)

2013 2012 2011

EBITDA 375,728,504 420,261,516 403,811,577

INT 32,923,883 36,401,968 33,002,541

TIE 11.41 11.57 12.24

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E. DEBT TO EQUITY RATIO (TOTAL LIAB. /TOTAL EQUITY)

2013 2012 2011

TL 1,702,833,547 1,464,763,165 1,382,961,297

SHE 1,222,600,220 1,248,108,536 1,203,568,452

RATIO 1.39 1.17 1.15

F. DEBT RATIO (TOTAL LIABILITIES / TOTAL ASSETS)

2013 2012 2011

TL 1,702,833,547 1,464,763,165 1,382,961,297

TA 2,925,433,767 2,712,871,701 2,586,529,749

RATIO 0.58 0.54 0.53

G. EQUITY RATIO (TOTAL SHE / TOTAL ASSETS)

2013 2012 2011

SHE 1,222,600,220 1,248,108,536 1,203,568,452

TA 2,925,433,767 2,712,871,701 2,486,329,749

RATIO 0.42 0.46 0.46

H. ASSET TO EQUITY RATIO (TOTAL ASSETS / TOTAL SHE)

2013 2012 2011

TA 2,925,433,767 2,712,871,701 2,586,529,749

SHE 1,222,600,220 1,248,108,536 1,203,568,452

ASSET TO EQUITY RATIO 2.39 2.17 2.15

TEST OF PROFITABILITY

A. RETURN ON REVENUE OR NET PROFIT RATIO (NET INCOME / NET SALES)

MEASURES THE OVERALL PROFITABILITY OF OPNS

2013 2012 2011

NI 10,324,204 62,980,946 11,174,308

NET REV 1,869,304,043 2,000,421,463 1,869,412,499

% 0.55% 3.15% 0.60%

B. OPERATING PROFIT MARGIN (EBIT/NET SALES)

2013 2012 2011

EBIT 55,963,834 86,390,209 43,093,919

NET REV 1,869,304,043 2,000,421,463 1,608,325,931

% 2.99% 4.37% 2.68%

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C. RETURN ON TOTAL ASSETS (ROA) – EBIT / TOTAL ASSETS

Measures of operating efficiency. It indicates how well management has used the asset under its control to

generate income.

2013 2012 2011

EBIT 55,963,834 87,458,106 43,093,919

TA 2,925,433,767 2,712,871,701 2,586,529,749

% 1.91% 3.22% 1.67%

D. RETURN ON ASSETS (NET INCOME / TOTAL ASSETS)

2013 2012 2011

NI 10,324,204 62,980,946 11,174,308

TA 2,925,433,767 2,712,871,701 2,586,529,749

RETURN 0.35% 2.32% 0.43%

E. RETURN ON OWNER’S EQUITY (NET INCOME / AVE. EQUITY)

Determines the ability of the company to generate income for its shareholders.

2013 2012 2011

NI 10,324,204 62,980,946 11,174,308

SHE 1,222,600,220 1,248,108,536 1,203,568,452

RETURN 0.84% 5.05% 0.93%

C. Discussions

CALENDAR YEAR 2013

The Company registered a net income after tax of Php 10.32 million or a decrease of 83.61% over the previous

year of Php 62.98 million.

During the year the Company acquired 600 container vans under finance lease agreement worth approximately

Php47.6M.

Cash dividends was declared and issued in favor of common shareholders amounting to three centavos (P=0.03)

per share, or an aggregate amount of P=13,891,307 paid last July 12, 2013.

OPERATING RESULTS 2013

Net Freight Revenue during the year was P1.86B, was significantly lower by 6.55% due to lower TEU volume

as compared to the previous year.

FINANCIAL CONDITION-2013

Total Assets expanded 7.84% from Php 2.71B to Php 2.93B due to higher prepayments for Insurance and

importations as well as increase in withholding tax credits.

During the year, bank borrowings increased by P41.5M net of P196.95M of payments.

Current ratio in 2013 is 1.04 compared to 1.53 in the previous year. Debt to equity is at 1.39.

18

(i) There is no event that will trigger direct or contingent financial obligations that is material to the

company, including any default or acceleration of an obligation

(ii) There is no material off-balance sheet transactions, arrangements, obligations (including contingent

obligations), and other relationships of the company with unconsolidated entities or other persons

created during the reporting period.

(iii) There are no material commitments for capital expenditures.

(iv) There are no known trends, events or uncertainties that have had or that are reasonably expected to

have, a material favorable or unfavorable impact on net sales or revenues or income from continuing

operations.

(v) There are no significant elements of income or loss that did not arise from the registrant’s continuing

operations.

(vi) There is/are no seasonal aspects that had a material effect on the financial condition or results of

operations.

CALENDAR YEAR 2012

The Company registered a net income after tax of Php 62.98 million or an increase of 464% over the previous

year of Php 11.1 million.

During the year the Company acquired a ten year old vessel with TEU capacity of 408 for Php232M and acquired

700 container vans worth approximately Php83.3M.

During the year, the Company sold one of its old vessel MV Lorcon Davao, with a net loss of Php36M.

Cash dividends was declared and issued in favor of common shareholders amounting to one and a half centavos

(P=0.015) per share, or an aggregate amount of P=8,319,633.76 paid last July 20, 2012.


Net Freight Revenue during the year was P2.00B, which was significantly higher by 6.5% due to higher TEU

volume as compared with the previous year.

Included in Other Income is P36M loss on the sale of Lorcon Davao.


Total Assets expanded by 4.7% from 2.59B to 2.71B mainly due to increase in cash generated from operations

and fixed assets.

During the year, bank borrowings increased by P119M net of P158M of payments. This included a P238M, 7-

year term loan obtained from Metropolitan Bank & Trust Company to finance the acquisition of a 10 year old

vessel during the year.

Current ratio improved from 1.4 to 1.53 while debt to equity remained at 1.16 largely due to increases in revenues.

CALENDAR YEAR 2011

The Company registered a net income after tax of Php 11.2 million or a decrease of 78.5% over the previous year

of Php 52 million.

During the year the Company spent Php100M on dry-docking of two (2) vessels.

19

Cash dividends was declared and issued in favor of common shareholders amounting to three centavos (P=0.03)

per share, or an aggregate amount of P=13,891,307 and was paid last July 13 2011.


Net Freight Revenue during the year was P1.87B, which was higher by 9.8% due to the implementation of 50%+

increase in bunker surcharge during the early part of the year.

Cost of Services for the year increased by 15.2% substantially due to the increase in fuel costs due to higher

prices and volume.


Total Assets expanded by 3% from 2.5B to 2.6B mainly due to increase in cash, fixed assets and withholding tax

credits..

Net Property and Equipment increased by 1.33% from P1.64B in 2010 to P1.66B substantially due to dry-

dockings and improvements made to the current fleet

During the year, bank borrowings increased by P27M net of 168M of payments. This included a P130M, 3-year

term loan obtained from Metropolitan Bank & Trust Company to finance the various vessel dry-docking during

the year.

Current ratio improved from 1.22 to 1.40 and debt to equity from 1.08 to 1.16 largely due to increase revenues.

PLANS AND PROGRAMS FOR 2014 AND BEYOND

Plans For 2014

LSC will maintain its service to the 10 major ports in country, providing both pier-to-pier and door-door

services. At the same time, the company shall provide customized solutions to select customers. Operations

will continue to focus on vessel and service reliability as well as service excellence.

E-commerce, originally slated for 2013, will be launched within the year. This aims to provide more flexibility

to customers through on-line booking.

Trucking is a critical component of our service. More trucking support is being set up this year in order to meet

expected increase in volumes. This service component becomes more challenging given the current truck ban

policy in the city of Manila. Together with its truckers, customers and consignees, the company is addressing

these problems to minimize the negative effects of a limited window to move cargoes to and from the port of

Manila.

A newly-acquired vessel, re-named Lorcon Bacolod, is scheduled for deployment in mid-2014. This aims to

reduce maintenance costs and down-time.

LSC will continue to make use of port terminals that will provide increased productivity and reasonable cost to

help improve vessel turn-around.

Plans Beyond 2014

Additional ports of call are continually being reviewed, such as Batangas and Visayan ports. These additional

ports could be added internally or in collaboration with other service providers. Also, LSC shall increase

collaboration with its service partners in order to offer full logistics services to its customers.

Fleet renewal and then expansion will continue beyond 2014.

20

LSC's long-term plans include addressing 6 key areas, which we call the 6 Ps, namely, Profit, People, Portfolio,

Partner, Planet, and Productivity. The goal is to ensure that plans and programs of the business organization

are balanced and well-rounded. The 6 Ps also cover traditional areas such as corporate governance, risk

management, health, safety and environment programs and social responsibility programs.

The quest to offer more value and better service to customers is a never-ending journey. LSC shall move on

with this journey and to eventually become a full logistics service provider in the near future.

Item 7. Financial Statements

Please see exhibit A.

Item 8. Information on Independent Accountant and other Related Matters

SGV & Co was the Company’s independent auditor since 2006 until the present.

(1) External Audit Fees and Services

Audit and Audit Related Fees – The aggregate fees billed for each of the last three calendar

years for professional services rendered by the external auditors amounted to Php 1.1M per

year from 2009 to 2013 plus Value Added Tax.

(2) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There was no event in the past where SGV & Co and Co. had any disagreement with the

Company with regard to any matter relating to accounting principles or practices or financial

statement disclosure or auditing scope or procedure.

21

PART III – CONTROL AND COMPENSATION INFORMATION Item 9. Directors and Executive Officers of the Issuer

(a) Directors, Executive Officers, Promoters and Control Persons

(1) Directors and Executive Officers

The term of office of the Company’s director is for a period of one (1) year until the election and

qualification of their successors. The incumbent directors of the Company with their corresponding business

experience and directorship held for at least the past five (5) years are the following: Summary of Term of Office of Directors:

1) Doris Magsaysay-Ho – director since June 2005 up to present 2) Antony Louis Marden – director since June 2005 up to present

3) Julio O. Sy – director since 1996 up to present

4) Roberto A. Umali – director since March 6, 2008

5) Deogracias N. Vistan – independent director from 2002 up to present

6) Michael L. Escaler – independent director from 2002 up to present

7) Mr. Edgardo A. Bautista – independent director from 2008 up to present DORIS MAGSAYSAY HO, 62, Filipino, Chairperson of the Board and Executive Committee

Doris Magsaysay Ho is President and CEO of the Magsaysay Group of Companies, which is principally involved

in shipping, human resources and business process outsourcing services. Magsaysay Transport and Logistics

Group, operates in the Philippine trade with container liner, tanker and logistics services. Its affiliate, Fairmont

Shipping Limited, with operations in Hongkong, Vancouver and London, operates in the international dry bulk

trade. Magsaysay expanded from its roots in shipping to people resource providers. Magsaysay is present in the

Philippines, Indonesia, China, Eastern Europe and North America. The company prepares its people for a diverse

range of positions for the maritime, cruise, healthcare, hospitality, engineering and other industries. Guided by

its principles of caring for people and investing in training, Magsaysay has been awarded the Lloyd’s List Global

Training award for 2011 in London. Magsaysay is also the recipient of the Seatrade Asia Awards 2013 and 2011

for Corporate Social Responsibility and the Seatrade Asia Awards for Education and Training in 2010.

Magsaysay was also recently awarded the Asean Business Advisory Council Awards for Corporate Social

Responsibility and the Asian CSR Awards.

A. Magsaysay Inc. and Subsidiaries President and CEO

Lorenzo Shipping Corporation Chairman

Fairmont Shipping Limited Director

AFFILIATIONS Makati Business Club Trustee

APEC Business Advisory Council Philippine Member

Philippine Interisland Shipping Association Chairman Emeritus

Steamship Mutual Underwriting Association Director

World Maritime University Director of Executive Board

The National Corn Competitiveness Group Chairman

Asia Society Philippine Foundation, Inc. Chairman

Asia Society (New York) Trustee

Metropolitan Museum Manila Trustee

The Hague Process on Refugees & Migration Trustee

First Philippine Conservation Inc. Treasurer and Trustee

World President’s Organization Member

AWARDS

Seatrade Asia Awards for Corporate Social Responsibility 2013

Asian CSR Awards 2013

22

Asia Ceo Awards Global Filipino Executive of the Year 2012

Lloyd’s List Asia Lifetime Achievement Award 2011

The Outstanding Manilan Award 2005

Ernst & Young Entrepreneur of the Year for Social Responsibility 2004

Manhattanville College Leadership Award 2002

ANTONY LOUIS MARDEN, 64, British, Vice Chairman of the Board, Chairman of the Nomination

Committee, Member of the Executive and Audit Committees

Antony Louis Marden has been the Vice Chairman of the Board and Executive Committee. He is also Chairman

of the Nomination Committee since June 2006, and a member of the Audit Committee since June 2005. He is

the President of FIM Limited and a Director in the following corporations: G.E. Marden & Co., Ltd., Fenwick

Shipping Services, Ltd., National Marine Corporation, and the Clean Oil (HK) Limited.

JULIO O. SY, SR., 81, Filipino - Director

Mr. Sy was the Chairman of the Board from 1996 to 2006 and Director of the Company since 1996 to present.

He fulfills the same role in a number of other corporations, including: Dumaguete Coconut Oil Mill, Cebu

International Finance Corporation and Dumaguete City Development Bank. He also takes on further

responsibilities as President of BUSCO Sugar Milling Co., Inc., HIDECO Sugar Milling Co., Inc., Jurong

Engineering (Phils.) Inc., New Bian Yek Commercial Inc., July Development Corp., and July Lighterage Corp.,

as Director of Victorias Quality Packaging Corporation; and as EVP of Makati Agro Trading Inc., and Bayview

Park Hotel. Outside the professional realm, he has been actively involved in various civic organizations attesting

to a wide and diverse field of interest and expertise. Attending Siliman University from elementary to college,

he was awarded Outstanding Silimanian in Business. Other honors to his name include Outstanding National

Citizen Award of the Philippines, Philippine National Red Cross Award and National YMCA award.

ROBERTO A. UMALI, 58, Filipino - Director, President and Member of the Executive

Committee

Mr. Umali was formally elected and appointed as Director and President of the company on March 6,

2008. He had been the Officer-in-Charge of the company from May 2007, taking over the position of

the late Capt. Romeo L. Malig. Presently, Mr. Umali is also the Chief Operating Officer of the

Magsaysay Transport and Logistics Corporation and President of the NMC Group (National Marine

Corporation, NMC Container Lines, Inc., NMC Ship Agency and Brokerage, Inc., One Stop Logistics

Solutions, Inc., One Stop Distribution, Inc., Roadlink Solutions, Inc., Clean Oil Resources, Inc., Islas

Tankers Seatransport Corporation, Batangas Bay Carriers, Inc., Laguna Lake Carriers, Inc., Paros

Maritime, Inc., Marine Fuels Philippines, Inc., South East Asian Bunkers and Terminals, Inc., Shiplink

Terminal Resources, Inc., Icebox Logistics Services, Inc., Magsaysay-Seacor, Inc., Omni-Asia Tristar

Holdings, Inc.) and Magsaysay Lines, Inc. (Magsaysay Shipmanagement, Inc., Magsaysay Marine

Services, Inc., MagTech Solutions and Marine Consultancy Services, Inc., Sun Cruises, Inc., Sole

Cruises, Inc., and Filipinas Maritime Transport Corporation), Director and member of the Executive

Committee of various companies in the Magsaysay Group of Companies, and Chairman of Asiaport

Equipment and Logistics Corporation, Fast Cranes, Inc., Travel Services, Inc. and Travel People

Limited, Inc. He started his career with Luzon Stevedoring Corporation in 1978 and since then has

devoted his expertise in the areas of general management, shipping operations, chartering, port

operations, ship management, shipyard operations, shipbuilding, logistics management, planning,

project studies, and personnel administration.

As an active leader in the shipping industry, Mr. Umali currently holds the position as Trustee of the

Philippine Business for Social Progress and Chairman of its Livelihood and Enterprise Committee, and

directorships of leading shipping associations, namely; Philippine Inter-island Shipping Association

(PISA), Philippine Petroleum Sea Transport Association, Philippine Liner Shipping Association, and

23

Filipino Shipowners' Association. He also holds the position as member of various prestigious

business organizations such as the American Chamber of Commerce, Makati Business Club, Business

Economic Club and Philippine Chamber of Commerce and Industry.

Mr. Umali was the Most Outstanding Employee of National Marine Corporation in 1985. He was

awarded as Baby Rotarian of the Year in 2000 by the Rotary Club of Kamuning West, District 3780

and later became its President in 2004-2005. He is also a member of the U.P. Alumi Association and

U.P. Alumni Engineers Association. He placed fourth in the Assistant Electrical Engineering Board

exams after completing his undergraduate degree at the University of the Philippines in 1977. Mr.

Umali graduated with distinction at the Norwegian Shipping Academy in 1987 in the Professional

Shipping and Maritime Law and Insurance courses.

MICHAEL L. ESCALER, 63, Filipino - Independent Director & Member of the Audit Committee.

Mr. Michael L. Escaler is the President and Chief Executive Officer of All Asian Countertrade Incorporated,

known as the largest sugar trader in the Philippines, founded in 1994 in partnership with Louis Dreyfus

Commodities and Sojitz Corporation/Fuji Nikon. Mr. Escaler is also the Chairman and Chief Executive Officer

of Pampanga Sugar Development Company (PASUDECO), Sweet Crystals Integrated Sugar Mill Corporation,

Okeelanta Corporation, San Fernando Electric Company, Balibago Waterworks Corporation and Metro Clark

Waste Management Inc. He also serves as a Director for Herminio Teves Sugar Co., Trinity Life Insurance Co.

and Trinity Health Company. Mr. Escaler has served on the Board of Director for Lorenzo Shipping Corporation

since 2002.

Mr. Escaler is also an active member of the Rotary Club of Makati and prior to founding All Asian Countertrade,

Mr. Escaler was a sugar trader in New York and London from 1972-1993 where he worked for Nissho Iwai

Corporation as well as other companies like Philipp Brothers and ACLI a commodity trading companies. Mr.

Escaler is a Hall of Famer Sprinter for the Ateneo de Manila University where he graduated Cum Laude with a

Degree in AB Economics in 1972. Mr. Escaler finished his Masters in International Marketing at New York

University in 1978.

MR. DEOGRACIAS N. VISTAN, 70, Filipino - Independent Director, Chairman of the Audit Committee

and Member of the Nomination Committee

Mr. Vistan became a Director of the Company in 2002. He is a respected veteran banker whose last major stint

was as President and CEO of Equitable PCI Bank Corporation in 2001-2002. He distinguished himself in the

same position in Solidbank Corporation from 1992 to 2000 and as President and Vice-Chairman of the Land

Bank of the Philippines from 1986 to 1992. Before that, he occupied various senior management positions in

Citibank (Manila) where he also started his banking career.

Presently, he is Chairman of Creamline Dairy Corporation and an Independent Director of Philippine National

Bank and U-Bix Corporation. He is also Chairman of the Landbank Countryside Development Foundation, Inc.,

the PinoyME Foundation and a Trustee of the Ramon Magsaysay Award Foundation.

He graduated with a double degree in Business Administration and Humanities from the De La Salle University

and finished his Master in Business Administration at the Wharton Graduate School of the University of

Pennsylvania.

EDGARDO A. BAUTISTA, 79, Filipino, Independent Director

Mr. Bautista was nominated as an Independent Director of the Company on April 17, 2008. He is currently the

Vice Chairman and CEO of CEPALCO Group, Chairman, Acuatico Pte Ltd Singapore also sits as a Chairman

Acuatico Services Vietnam, He is also a member of the Management Board of Viwasupco Vietnam and Viwaco

Vietnam, also a Member of the Board of Trustees of the AIM Mirant Bridging Leadership Center.

He was a Consultant to the President of San Miguel Corporation from June 2008 to June 2009. He was a

Commissioner of the PT Bakrieland Development Tbk. since April 2007 until Feb. 2009. He was also the

24

Chairman of the EL Paso Philippines Energy Company, Inc and Director of EPEC Nederland Holding BV, and

East Asia Utilities Corporation, up until June 2008. From July 2006 to June 2008, Mr. Bautista served as the

Executive Director, Head of Asia Infrastructure Business of Avenue Asia Investments Management, LLC.

Mr. Bautista was also an independent director of the Philippine National Oil Company – EDC (PNOC-EDC)

until September 2007. From 2006 to 2007, he served as a Director of Visayan Electric Company, San Fernando

Electric and Light Company, Vivant Corporation and Global Business Power Corporation. From 2003 to 2005,

Mr. Bautista was a Director in Subic Enerzone Corporation and Philippine Electricity Market Corporation.

From January 1997 to December 2005, Mr. Bautista was the Chief Executive Officer of Mirant Philippines

Corporation and its subsidiaries, the President of Mirant Philippine Foundation and the President and Chief

Executive Officer of Mirant Global Corporation and its four subsidiaries. Prior to his stint with Mirant, he served

as the President and Chief Executive Officer of the Hopewell Group of Companies, a pioneer independent power

company which developed into Mirant Philippines Corporation.

Mr. Bautista graduated with honors (Cum Laude) from De La Salle College with a degree in Mechanical

Engineering. He also completed General Electric’s 2 year specialized management and technical program for

selected graduate engineers from different countries conducted at various facilities in the United States and an

Advance Management Program conducted by professors of the Harvard Business School. In 2006, Mr. Bautista

became a Certified Fellow of the Institute of Independent Directors.

ARSENIO C. CABRERA, JR., 53, Filipino - Corporate Secretary

Atty. Cabrera, a member of the Philippine Bar, holds a Bachelor of Laws (Second Honors) and a Bachelor of

Science in Legal Management from Ateneo de Manila University. Mr. Cabrera is a Managing Partner of Herrera

Teehankee & Cabrera Law Offices. He was elected as Corporate Secretary of the Company in 1996. He is

currently the General Counsel of STI Education Services Group, Inc. He also serves as Corporate Secretary of

Araval, Inc., BOIE Drug, Inc., BOIE, Incorporated, BOIE Prime, Inc., Bountiful Geomines, Inc., Calatagan Bay

Realty, Inc., Canlubang Golf and Country Club, Inc., Capital Managers and Advisors, Inc., Classic Finance

Corporation, Coinage, Inc., DLS-STI Colleges, Inc., DLS-STI Megaclinic, Inc., Foundation for Filipinos, Inc.,

GEOGEN Corporation, GEOGRACE Resources Philippines, Inc., Masbate13 Philippines, Inc., Mina Tierra

Gracia, Inc., NiHAO Mineral Resources International, Inc., Oregalore, Inc., Philippine American Drug

Company, Philippine First Condominium Corporation, Philippines First Insurance Co., Inc., Philippine Life

Assurance Financial Corporation, Philippine Women’s University, Philhealthcare, Inc., Philplans First, Inc.,

Renaissance Condominium Corporation, Rivara, Inc., Rosehills Memorial Management Philippines, Inc. Sonak

Holdings, Inc., STI Education Systems Holdings, Inc., STI Investments, Inc., Total Consolidated Asset

Management, Inc., Trend Developers, Inc., Unlad Resources Development Corporation, Villa Development

Corporation, West Negros University Corp. and WVC Development Corporation.

ANA CARMINA S. HERRERA, 39, Filipino - Assistant Corporate Secretary

A Senior Associate of Herrera Teehankee and Cabrera Law Offices, Atty. Herrera also performs the

role of Asst. Corporate Secretary in a number of other corporations: Banclife Insurance Co., Inc.,

Coastal Bay Chemicals, Inc., STI Education Systems Holdings, Inc., Palisades Condominium

Corporation, Philippine Life Assurance Financial Corporation, Philhealthcare, Inc., Philippines First

Insurance Co., Inc., Philippine First Condominium Corporation, STI College of Kalookan, Inc. and

STI College of Novaliches, Inc. She received her Bachelor of Laws degree from the University of the

Philippines in 2000.

OTHER EXECUTIVE OFFICERS:

25

EDNA F. MENDIOLA, 52, Filipino – Vice-President for Finance & Chief Finance Officer

Prior to her appointment as VP for Finance / Chief Finance Officer in April 17, 2009, Ms. Mendiola used to be

the Internal Audit Head when she joined Lorenzo Shipping Corporation in October 2007. Prior to LSC, she

handled the position of being the Country Audit Head of Consolidated Industrial Gases Inc. (CIGI), a multi-

national gas manufacturing company for 6 years where she was heavily involved in the Asia cluster focusing on

Business Assurance, Corporate Governance / Code of Conduct and the control framework for Sarbanes-Oxley

Act, a statutory requirement for publicly traded companies. While in the Audit position, she also occupied the

position of Local Implementation Project Manager for SAP when launched in CIGI in the year 2005.

Ms. Mendiola worked in CIGI for 23 years handling various managerial positions in Audit and Finance - Credit

& Treasury, Risk Management, Joint-Venture Accounting, Procurement and Quality Systems Audit. She is a

Certified Public Accountant and a graduate of University of the East - Manila with a degree of Bachelor of

Science in Business Administration.

FELICISIMO H. SALDAÑA, JR., 64, Filipino – Vice President for Operations

Mr. Saldaña joined the Company, during the latter part of the year 2000 with a wealth of experience both from

international and domestic shipping operations. He has handled all work activities involved in a shipping

company, i.e. finance and administration, operations and marketing work at Sealand Service, Inc. He was also

the General Manager of a major domestic container yard and warehouse operator and also General Manager of

Hyundai Shipping Agency in the Philippines. He is a CPA from Far Eastern University with a Masters in Business

Administration degree from De La Salle University. He was appointed as Vice President for Operations &

Logistics also in October 2002.

EDRALIN G. MANAPSAL, 55 Filipino - Vice President for Sales & Marketing

Mr. Manapsal graduated with a degree in Business Administration major in Management from the Philippine

School of Business Administration ( PSBA ).

He joined the Company in May 2001 as Senior Corporate Sales and Marketing Manager and after a year was

promoted to Assistant Vice President for Marketing and Sales in October 2002. He was appointed as Vice

President for Marketing and Sales in 2005.

His other work stints were with Anscor Transport & Terminals, Inc., Soriamont Steamship Agencies, Inc. as

Line Manager for U.S.A./EUROPE trade, P&O Nedlloyd, Inc. as Senior Marketing and Sales Manager and

HANJIN Shipping as Sales and Japanese Accounts Senior Manager.

DINO C. DIAZ, 50, Filipino – Compliance Officer

Mr. Diaz joined the Company in 2005 bringing with him 20 years of shipping experience. Prior to joining the

Company, he held various key positions in National Marine Corporation (NMC) and its Subsidiaries. Some of

these were as General Manager of NMC Container Lines and as Assistant Vice President for Corporate Planning

and Business Development of NMC.,

He graduated from the Ateneo de Manila University in 1984 with a BS degree in Management Engineering. He

started his career in shipping with Benguet Management Corporation and had a brief stint with SGV Consulting

prior to joining National Marine Corporation in 1991. He attended the Sea Transport Course at the Asian Institute

of Management and Maritime Transport Course at the World Maritime University in Malmo, Sweden.

(2) Significant Employees

No person, who is not a director or an executive officer, is expected to make a significant contribution

to the business of the Company. Neither is the business highly dependent on the services of key

26

personnel.

(3) Family Relationships

All the other above named directors and/or executive officers of the Company are not related, either by

consanguinity or affinity up to the fourth civil degree.

(4) Involvement in Certain Legal Proceedings

To the knowledge and/or information of the Company, the above named directors and executive officers

of the Company are not, presently or during the last five (5) years, involved or have been involved in

any material legal proceeding affecting/involving themselves and/or their property before any court of

law or administrative body in the Philippines or elsewhere. To the knowledge and/or information of the

Company, the said persons have not been convicted by final judgment of any offense punishable by the

laws of the Republic of the Philippines or of the laws of any other nation/country. Item 10. Executive Compensation

a. Executive Compensation

The aggregate total compensation for directors, the President and the top four officers of the

Company is shown below.

Top five (5) officers

Compensation YEAR Compensation (Bonuses)

2014 Php 14.3M Php1.5M

(estimate) (estimate)

1. Mr. Roberto A. Umali, President

2. Mr. Edna F. Mendiola, VP-Finance

3. Mr. Edralin Manapsal, VP- Sales and Marketing

4. Mr. Dino C. Diaz, Compliance Officer

5. Mr. Felicisimo H. Saldaña, VP- Operations



2013 Php 13.0M Php2.2M




9. Mr. Dino C. Diaz, Compliance Officer




2012 Php 11.81M Php1.21M

27




14. Mr. Dino C. Diaz, VP- Corporate Planning and Logistics and Compliance Officer




2011 Php 10.89M Php1.69M




4. Mr. Dino C. Diaz, VP- Corporate Planning and Logistics and Compliance Officer


a All officers and directors Year Compensation Bonuses

as a group unnamed 2014(estimate) Phhp14.80M Php 2.00M

2013 Php 13.96M Php 3.50M

2012 Php 12.51M Php 1.83M

2011 Php 11.63M Php 2.94M

b. Compensation of Directors Compensation Bonuses

Year 2014 (estimate) Php1.000M Php0.80M

Year 2013 Php 0.927M Php 1.30M



c. Employment Contracts and Termination of Employment and Change-in-Control Arrangements. There are no employment contracts between the Company and a named executive officer, and any

compensatory plan or arrangement, including payments to be received from the Company, with respect

to a named executive officer, which plan or arrangement results or will result from the resignation,

retirement or any other termination of such executive officer's employment with the Company and its

subsidiaries or from a change-in-control of the Company or a change in the named executive officer's

responsibilities following a change-in-control and the amount involved, including all periodic payments

or installments, which exceeds Php2,500,000. Item 11. Security of Certain Record/Beneficial Owners and Management

1.) Security Ownership of Certain Record/Beneficial Owners as of March 31, 2014

As of 31 March 2014, the following stockholders are the only owners of more than 5% of the

Company’s voting capital stock, whether directly or indirectly, as record owner or beneficial owner:

Title of Class

Name, Address of Record Owner and Relationship with

Issuer

Name of Beneficial Owner and Relationship

with Record Owner

Citizenship No. of Shares Held

Percent

Common National Marine Corporation

Doris Magsaysay-Ho, the President of National Marine Corporation, and

Filipino Direct – 276,520,756

49.86%

28

7/F Times Plaza, U.N. Ave. cor. Taft Ave., Ermita, Manila

Antony Louis Marden, a director of National Marine Corporation, are authorized to vote for the shares of National Marine Corporation in the Company

Indirect 102,628,805

18.50%

Common Pioneer Insurance & Surety Corp. (“Pioneer) 108 Paseo de Roxas, Makati City Pioneer is the Company’s insurer for its seven (7) vessels

Pioneer is the beneficial owner of the shares. Mr. David Coyukiat, the President of Pioneer, is duly authorized to vote for the shares of Pioneer in the Company.

Filipino 75,193,750 13.56%

Common Julio O. Sy, Sr. Filipino 42,744,511 7.71%

Security Ownership of Management as of 31 March 2014

The following table sets forth as of 31 March 2014, the beneficial ownership of each director and

executive officer of the Company:

Title of Class Name of Beneficial Owner Amount & Nature of Citizenship Percent of Beneficial Ownership Class

Common Julio O. Sy, Sr. 42,744,511 Record Filipino 7.71%

Common Doris Magsaysay Ho 1 Record Filipino 0.00%

Common Antony Louis Marden 1 Record British 0.00%

Common Michael L. Escaler 241,250 Record Filipino 0.04%

Common Deogracias N. Vistan 3,750 Record Filipino 0.00%

Common Roberto A. Umali 1,188,701 Record Filipino 0.21%

Common Edgardo A. Bautista 1,000 Record Filipino 0.00%

Common Atty. Arsenio C. Cabrera, Jr. 30,000 Record Filipino 0.01%

Common Directors & Officers as a Group 44,209,214 Record 7.97%

(3) Voting Trust Holders of 5% or More

NMC and Pioneer entered into a Voting Trust Agreement whereby Pioneer transferred and

delivered stock certificates covering 75,193,750 shares of the Company or approximately

13.53% of the Company’s outstanding capital stock to NMC as the Trustee. The

Agreement provided that NMC, as the Trustee, was entitled to exercise all the rights and

powers of an absolute owner of said shares of stock, including the right to vote for every

corporate purpose in accordance with its best judgment. Under the terms of the Voting

Trust Agreement, NMC is obliged to deliver proper certificates of the equivalent amount

of shares in the Company to Pioneer in July 2006 or in any period that may be subsequently

agreed upon by the parties.

29

(4) Changes in Control

There is no existing arrangement which may result in a change of control in the

Company.

Item 12. Certain Relationships and Related Transactions.

Transactions between related parties are accounted for at arms’ length prices or on terms similar to those

offered to non-related entities in an economically comparable market.

The following are the list of transactions during the past two (2) years to which the Company is a party,

and in which certain persons or group have a direct or indirect material interest.

1. NMC Container Lines, Inc. (NMCCLI) – related party A wholly owned subsidiary of NMC, NMCCLI has a Co-Loading Agreement with the Company. To

alleviate temporary service disruptions, the parties extended to each other the privilege of co-loading their

respective cargos subject to the payment of the freight or tariff rates specified under the Co-Loading

Agreement. 2. Asiaport Equipment and Logistics Corporation – related party On 01 September 2008, LSC signed a cargo-hanling contract with Asiaport Equipment and logistics

Corporation for the handling of its containers at LSC’s container yard at Pier 16 in Manila. Asiaport is 30

percent owned by National Marine Corporation.

20. One Stop Logistics Solutions (OSLI) – related party One Stop Logistics Solutions provides logistical support to the Company by providing logistics services,

such as cargo consolidation, cargo handling, cargo trucking, and lube oil transport among other services. 4. Magsaysay Houlder Insurance Brokers, Inc. (MHIBI) – related party

MHIBI handles the marine cargo insurance requirements of the Company.

5. Magsaysay Shipmanagement Inc. (MSI) – related party

The Company entered into a Ship Management Agreement with MSI an associate company of NMC, on

30 November 2005. Pursuant to the terms of the Agreement, MSI is obliged to maintain the vessels of the

Company in seaworthy condition and in accordance with the standards set by the Company: MSI is also

obliged to manage the crew of said vessels for the duration of the Agreement or from 1 January 2006 to 31

December 2009. Currently the Shipmanagement Agreement with MSI is in the process of being renewed. 5. Julio O. Sy, Sr., Shareholder, Director On 16 Dec 2007, the Company entered into a contract of lease with Mr. Julio O. Sy, Sr. for the rental of a

parcel of land containing an area of 5,000 square meters situated at Harbor Center, Tondo, Manila at the

rate of Php66.55 per square meter and payable monthly. The contract is for a period of three (3) months

from 16 Dec 2007 up to 15 Mar 2008. 6. DKL Shipping Agency – related party The Company entered into an agency contract with DKL Shipping Agency, a sole proprietorship business

entity owned by Ms Jocelyn S. Limkaichong, daughter of Mr. Julio Sy, to service its marketing and other

shipping related requirements in 1998 for the port of Dumaguete City and in December 2000 for the port

of Bacolod City. 7. Tao Commodity Trader Inc. - related party

30

Tao Commodity, a corporation majority owned by Mr. Julio Sy Jr., son of Mr. Julio Sy Sr. is the major

supplier of the Company’s fuel requirements in 2005. 8. Dumaguete Coconut Mills – related party Dumaguete Coconut Mills is a corporation substantially owned by Mr. Julio Sy Sr., shareholder, director

of the Company. The Company entered into a Contract of Lease with Dumaguete Coconut Mills for the

rental of a parcel of land located at Bacong, Negros Oriental at the rate of Php30, 000.00 per month. The

contract stipulated that the leased premises would be used for storage purposes only. The term of the

contract commenced on 1 October 2002 and will expire on 31 December 2007. 9. Pioneer Insurance & Surety Corp. (Pioneer), Shareholder

Pioneer is the Company’s provider of protection and indemnity and of hull & machinery insurances for its

seven (7) vessels.

10. Mr. Oscar Go, Shareholder OYG Transport Inc. Owned by Mr. Oscar Go, OYG Transport Inc. has entered into a non-exclusive hauler agreement with the

Company

11. The following customers are majority owned by directors or shareholders:

Customers Director/Shareholder

All Asian Countertrade Majority owned by Mr. Michael Escaler, director

Oceanic Container Lines, Inc. Majority owned by Mr. Jose Go Jr., shareholder

Discovery Haulers, Inc. Majority owned by Mr. Jose Go Jr., shareholder

Evertop Transport Majority owned by Mr. Jose Go III, son of Mr. Jose Go Jr.,

shareholder

Roadlink Transport Wholly owned by One Stop Logistics Solutions, Inc. (OLSI)

31

PART IV – EXHIBITS AND SCHEDULES

Item 13. Exhibits and Reports on SEC Form 17-C (a) Exhibits

Exhibits Description A Financial Statements

Statement of Management’s Responsibility for Financial Statements Report of Independent Accountants Balance Sheets as of December 31, 2012 and 2011 Statements of Income for each of the three years ended December 31, 2012, 2011 and 2010

Statements of Comprehensive Income for each of the three years ended

December 31, 2012, 2011 and 2010 Statements of Changes in Stockholders’ Equity for each of the three years ended December 31, 2012, 2011 and 2010 Statements of Cash Flows for each of the three years ended December 31,

2012, 2011 and 2010 Notes to Financial Statements Schedule A - Marketable Securities (Current Marketable Equity Securities and Other Short-term Cash Investments Schedule B – Amounts Receivables from Directors, Officers, Employees, Related Parties and Principal Stockholders Schedule C – Non Current Marketable Equity Securities, Other Long-term Investments in stock and Other Investments Schedule D – Advances to Unconsolidated Subsidiaries and Affiliates Schedule E – Intangible Assets – Other Assets Schedule F – Long-term Loans Schedule G – Indebtedness to Affiliates and Related Parties (Long-term loans from Related Companies) Schedule H – Guarantees of Securities of Other Issuers Schedule I – Capital Stock

(b) Reports on SEC Form 17-C State whether any reports on SEC Form 17-C were filed during the last twelve month period covered by this

report, listing the items reported, any financial statements filed and the dates of such.

Report Date Item

26 April 2013 Venue of the Stockholders’ Meeting

27 June 2013

Results of Annual Stockholder’s Meeting

Election of Officers

Declaration of Cash Dividends

Adoption of Dividend Policy

4 October 2013 Filing of Petition with the Court of Tax Appeals against the Commissioner of

Internal Revenue.

14 October 2013 Amendment of the Corporation’s By-Laws to create the position of Chief

Operating Officer.

32

27 June 2013 Annual Stockholders’ Meeting

The shareholders elected the following Directors of the Company to serve as such

for the ensuing year and until the election and qualification of their successors:

1. Doris Magsaysay Ho

2. Antony Louis Marden

3. Roberto A. Umali

4. Julio O. Sy, Sr.

5. Michael L. Escaler

Independent Directors: 6. Deogracias N. Vistan

7. Edgardo A. Bautista

The stockholders also appointed Sycip Gorres Velayo & Company as the Corporation’s external auditor for the year 2013.

In the Organizational Meeting of the Board of Directors immediately succeeding the

shareholders’ meeting, the following were elected Officers of the Company to serve

as such for the ensuing year and until the election and qualification of their successors:

Chairperson - Doris Magsaysay-Ho Vice-Chairman - Antony Louis Marden President and Chief Executive Officer - Roberto A. Umali Chief Financial Officer/Treasurer - Edna F. Mendiola Compliance Officer - Dino C. Diaz VP for Operations - Felicisimo H. Saldaña VP for Marketing - Edralin G. Manapsal Corporate Secretary & Corporate - Atty. Arsenio C. Cabrera, Jr. Information Officer

Assistant Corporate Secretary - Atty. Anna Carmina S. Herrera Executive Committee:

Chairman - Doris Magsaysay-Ho Member - Antony Louis Marden Member - Roberto A. Umali

Audit Committee:

Chairman - Deogracias N. Vistan Member - Michael L. Escaler Member - Antony Louis Marden Member - Edgardo A. Bautista

Nomination Committee:

Chairman - Antony Louis Marden Member - Deogracias N. Vistan Member - Michael L. Escaler

Compensation Committee:

Chairman - Doris Magsaysay Ho

Member - Antony Louis Marden

Member - Deogracias N. Vistan

*SGVFS004263*

4 8 9 0 9SEC Registration Number

L O R E N Z O S H I P P I N G C O R P O R A T I O N

(Company’s Full Name)

2 0 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 , E r m i t a , M aLn i l a

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

Edna F. Mendiola (02) 567-2180(Contact Person) (Company Telephone Number)

1 2 3 1 AAFSMonth Day (Form Type) Month Day

(Calendar Year) (Annual Meeting)

Not Applicable(Secondary License Type, If Applicable)

SEC Not ApplicableDept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

979 P=943.60 million $3.68 millionTotal 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

*SGVFS004263*

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and ShareholdersLorenzo Shipping Corporation20th Floor Times Plaza BuildingUnited Nations AvenueErmita, Manila

Report on the Financial Statements

We have audited the accompanying financial statements of Lorenzo Shipping Corporation, whichcomprise the balance sheets as at December 31, 2013 and 2012, and the statements of income,statements of comprehensive income, statements of changes in equity and statements of cash flows foreach of the three years in the period ended December 31, 2013, and a summary of significantaccounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements inaccordance with Philippine Financial Reporting Standards, and for such internal control asmanagement determines is necessary to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits in accordance with Philippine Standards on Auditing. Those standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the entity’s internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by management, as well asevaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015

A member firm of Ernst & Young Global Limited

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- 2 -

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position ofLorenzo Shipping Corporation as at December 31, 2013 and 2012, and its financial performance andcash flows for each of the three years in the period ended December 31, 2013, in accordance withPhilippine Financial Reporting Standards.

Report on Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statementstaken as a whole. The supplementary information required under Revenue Regulations 15-2010 inNote 30 to the financial statements is presented for purposes of filing with the Bureau of InternalRevenue and is not a required part of the basic financial statements. Such information is theresponsibility of the management of Lorenzo Shipping Corporation. The information has beensubjected to the auditing procedures applied in our audit of the basic financial statements. In ouropinion, the information is fairly stated, in all material respects in relation to the basic financialstatements taken as a whole.

SYCIP GORRES VELAYO & CO.

Leovina Mae V. ChuPartnerCPA Certificate No. 99910SEC Accreditation No. 1199-A (Group A), March 15, 2012, valid until March 14, 2015Tax Identification No. 209-316-911BIR Accreditation No. 08-001998-96-2012, January 11, 2012, valid until January 10, 2015PTR No. 4225232, January 2, 2014, Makati City

April 14, 2014


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LORENZO SHIPPING CORPORATIONBALANCE SHEETS

December 31,2013

December 31,2012

(As restated;Note 2)

January 1,2012

(As restated;Note 2)

ASSETS

Current AssetsCash and cash equivalents (Note 5) P=110,679,597 P=191,193,593 P=128,890,951Trade and other receivables (Note 6) 890,182,268 606,103,744 596,221,252Inventories (Note 7) 29,883,988 30,460,277 42,506,345Prepayments and other current assets (Note 8) 177,383,200 144,095,880 116,803,371Total Current Assets 1,208,129,053 971,853,494 884,421,919

Noncurrent AssetsProperty and equipment (Note 9) 1,652,972,769 1,681,456,399 1,659,958,872Deferred income tax asset (Note 20) 53,247,313 42,625,111 32,963,427Other noncurrent assets (Note 10) 11,084,632 16,936,697 9,185,531Total Noncurrent Assets 1,717,304,714 1,741,018,207 1,702,107,830

TOTAL ASSETS P=2,925,433,767 P=2,712,871,701 P=2,586,529,749

LIABILITIES AND EQUITY

Current LiabilitiesAccounts payable and accrued expenses (Note 11) P=486,400,240 P=357,479,907 P=454,072,961Short-term borrowings (Note 12) 232,458,822 39,158,822 65,000,000Current portion of: Long-term borrowings (Note 12) 411,871,048 213,979,430 91,500,000 Obligations under finance lease (Note 24) 31,997,429 25,811,012 20,050,691Total Current Liabilities 1,162,727,539 636,429,171 630,623,652

Noncurrent LiabilitiesLong-term borrowings - net of current portion (Note 12) 299,269,321 648,316,609 624,944,462Obligations under finance lease - net of current portion

(Note 24) 130,159,204 105,948,729 62,106,408Retirement benefit obligation (Note 16) 110,677,483 74,068,656 65,286,775Total Noncurrent Liabilities 540,106,008 828,333,994 752,337,645

EQUITY (Note 21)Common stock - P=1 par value 555,652,251 555,652,251 555,652,251 Authorized - 991,183,999 shares Issued and outstanding - 554,642,251 sharesAdditional paid-in capital 459,791,492 459,791,492 459,791,492Actuarial gains (losses) on defined benefit plan (Note 16) (29,198,893) (7,232,429) 2,888,799Retained earnings 239,481,220 243,023,072 188,361,760Treasury shares at cost (3,125,850) (3,125,850) (3,125,850)Total Equity 1,222,600,220 1,248,108,536 1,203,568,452

TOTAL LIABILITIES AND EQUITY P=2,925,433,767 P=2,712,871,701 P=2,586,529,749

See accompanying Notes to Financial Statements.

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LORENZO SHIPPING CORPORATIONSTATEMENTS OF INCOME

Years Ended December 31

2013

2012(As restated;

Note 2)

2011(As restated;

Note 2)

FREIGHT REVENUE (Note 23) P=1,869,304,043 P=2,000,421,463 P=1,869,412,499

DIRECT COSTSCost of services (Note 13) 1,455,463,331 1,524,509,816 1,458,164,128Terminal expenses (Note 14) 228,467,119 223,515,338 243,621,112

1,683,930,450 1,748,025,154 1,701,785,240

GROSS PROFIT 185,373,593 252,396,309 167,627,259

GENERAL AND ADMINISTRATIVEEXPENSES (Note 15) (158,703,319) (141,555,641) (157,546,735)

FINANCE COSTS AND OTHERCHARGES - net (Note 19) (44,046,710) (26,729,793) (36,856,117)

OTHER INCOME (CHARGES) - net(Note 18) 29,293,560 (24,450,459) 33,013,395

INCOME BEFORE INCOME TAX 11,917,124 59,660,416 6,237,802

PROVISION FOR (BENEFIT FROM)INCOME TAX (Note 20)

Current 2,800,923 2,003,485 3,478,924Deferred (1,208,003) (5,324,015) (8,415,430)

1,592,920 (3,320,530) (4,936,506)

NET INCOME P=10,324,204 P=62,980,946 P=11,174,308

EARNINGS PER SHARE (Note 22)Basic/diluted P=0.02 P=0.11 P=0.02


*SGVFS004263*

LORENZO SHIPPING CORPORATIONSTATEMENTS OF COMPREHENSIVE INCOME


2013

2012(As restated;

Note 2)

2011(As restated;

Note 2)

NET INCOME P=10,324,204 P=62,980,946 P=11,174,308

OTHER COMPREHENSIVE INCOMEItems that will not be reclassified to

statements of income: Actuarial gains (losses) on defined benefit

plan (Note 16) (31,380,663) (14,458,895) 9,566,851 Income tax effect 9,414,199 4,337,667 (2,870,055)

21,966,464 10,121,228 6,696,796

TOTAL COMPREHENSIVE INCOME(LOSS) (P=11,642,260) P=52,859,718 P=17,871,104


*SGVFS004263*

LORENZO SHIPPING CORPORATIONSTATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

Capital StockAdditional

Paid-in Capital Treasury Shares

Actuarial Losseson Defined Retained Earnings (Note 21)

TotalBenefit Plan

(Note 16) Appropriated UnappropriatedBalances at January 1, 2011, as previously reported P=555,652,251 P=459,791,492 P=– P=– P=732,909 P=190,345,850 P=1,206,522,502Changes in accounting for employee benefits (Note 2) – – – (3,807,997) – – (3,807,997)Balances at January 1, 2011, as restated 555,652,251 459,791,492 – (3,807,997) 732,909 190,345,850 1,202,714,505Cash dividends - P=0.03 per share (Note 21) – – – – – (13,891,307) (13,891,307)Acquisition of treasury shares (Note 21) – – (3,125,850) – – – (3,125,850)Net income for the year – – – – – 11,174,308 11,174,308Movement of actuarial gains on defined benefit plan – – – 6,696,796 – – 6,696,796Total comprehensive income – – – 6,696,796 – 11,174,308 17,871,104Balances at December 31, 2011, as restated P=555,652,251 P=459,791,492 (P=3,125,850) P=2,888,799 P=732,909 P=187,628,851 P=1,203,568,452

Balances at January 1, 2012, as restated P=555,652,251 P=459,791,492 (P=3,125,850) P=2,888,799 P=732,909 P=187,628,851 P=1,203,568,452Cash dividends - P=0.015 per share (Note 21) – – – – – (8,319,634) (8,319,634)Reversal of appropriation (Note 21) – – – – (732,909) 732,909 –Net income for the year, as previously reported – – – – – 62,389,661 62,389,661Changes in accounting for employee benefits (Note 2) – – – – – 591,285 591,285Net income for the year, as restated – – – – – 62,980,946 62,980,946Movement of actuarial losses on defined benefit plan – – – (10,121,228) – – (10,121,228)Total comprehensive income – – – (10,121,228) – 62,980,946 52,859,718Balances at December 31, 2012, as restated P=555,652,251 P=459,791,492 (P=3,125,850) (P=7,232,429) P=– P=243,023,072 P=1,248,108,536

Balances at January 1, 2013, as restated P=555,652,251 P=459,791,492 (P=3,125,850) (P=7,232,429) P=– P=243,023,072 P=1,248,108,536Cash dividends - P=0.025 per share (Note 21) – – – – – (13,866,056) (13,866,056)Net income for the year – – – – – 10,324,204 10,324,204Movement of actuarial losses on defined benefit plan – – – (21,966,464) – – (21,966,464)Total comprehensive income – – – (21,966,464) – 10,324,204 (11,642,260)Balances at December 31, 2013 P=555,652,251 P=459,791,492 (P=3,125,850) (P=29,198,893) P=– P=239,481,220 P=1,222,600,220


*SGVFS004263*

LORENZO SHIPPING CORPORATIONSTATEMENTS OF CASH FLOWS


2013

2012(As restated;

Note 2) 2011

CASH FLOWS FROM OPERATINGACTIVITIES

Income before income tax P=11,917,124 P=59,660,416 P=6,237,802Adjustments for: Depreciation (Note 9) 319,764,670 333,871,307 360,717,658 Interest expense (Note 19) 32,923,883 36,401,968 33,002,541 Loss (gain) on disposal of property and

equipment - net (Note 18) 27,399,907 37,477,764 (14,325,068) Net unrealized foreign exchange

loss (gain) (Note 19) 11,801,726 (7,648,101) 151,661 Impairment losses on: Trade and other receivables

(Notes 6 and 15) 1,796,451 3,565,174 27,043,379 Deposits (Note 15) – 993,092 – Amortization of deferred financing cost 591,830 901,024 302,534 Equity in net loss of an associate 160,762 89,239 – Interest income (Note 15) (619,433) (1,305,882) (1,053,292)Operating income before working capital

changes 405,736,920 464,006,001 412,077,215Decrease (increase) in: Trade and other receivables (284,962,646) (13,102,885) 3,594,630 Inventories 576,289 12,046,068 1,057,813 Prepayments and other current assets (33,287,320) (27,292,511) (55,745,068)Increase (decrease) in: Accounts payable and accrued expenses 128,701,668 (96,044,700) (1,535,539) Pension obligation 5,228,164 (5,677,014) 235,571Net cash generated from operations 221,993,075 333,934,959 359,684,622Income taxes paid (2,800,923) (2,003,485) (3,478,924)Net cash flows from operating activities 219,192,152 331,931,474 356,205,698

CASH FLOWS FROM INVESTINGACTIVITIES

Proceeds from disposal of property andequipment 6,066,132 34,994,953 21,465,560

Decrease (increase) in other noncurrent assets 5,691,303 (7,840,405) 3,224,134Interest received 1,050,709 914,558 1,053,292Additions to property and equipment

(Notes 9 and 29) (277,091,569) (344,604,463) (316,817,661)Net cash flows used in investing activities (264,283,425) (316,535,357) (291,074,675)

(Forward)

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2013

2012(As restated;

Note 2) 2011

CASH FLOWS FROM FINANCINGACTIVITIES

Proceeds from: Short-term borrowings P=238,500,000 P=39,158,822 P=65,000,000 Long-term borrowings – 238,000,000 130,000,000Acquisition of treasury shares – – (3,125,850)Decrease in obligations under finance lease

(Note 29) (29,771,517) (27,558,251) (13,817,092)Payments of: Dividends (13,866,056) (8,319,634) (13,891,307) Interest (33,333,553) (36,240,692) (31,533,661) Short-term borrowings (45,200,000) (65,000,000) (70,000,000) Long-term borrowings (151,747,500) (93,049,447) (98,276,442)Net cash flows from (used in) financing

activities (35,418,626) 46,990,798 (35,644,352)

NET INCREASE (DECREASE) INCASH AND CASH EQUIVALENTS (80,509,899) 62,386,915 29,486,671

EFFECT OF EXCHANGE RATECHANGES ON CASH ANDCASH EQUIVALENTS (4,097) (84,273) 1,989,420

CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 191,193,593 128,890,951 97,414,860

CASH AND CASH EQUIVALENTSAT END OF YEAR P=110,679,597 P=191,193,593 P=128,890,951


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LORENZO SHIPPING CORPORATIONNOTES TO FINANCIAL STATEMENTS

1. Corporate Information

Lorenzo Shipping Corporation (the Company) was incorporated in the Philippines and registeredwith the Securities and Exchange Commission (SEC) on October 17, 1972 primarily to engage indomestic inter-island cargo shipping activities.

Since 2006, the Company is majority-owned by National Marine Corporation (NMC), a domesticshipping company (see Note 23).

The Company’s common shares of stock are traded in the Philippine Stock Exchange (PSE).

The Company is a holder of several Certificates of Convenience and special permits issued by theMaritime Industry Authority to service certain domestic ports of call.

The Company’s registered and principal business address is 20th Floor Times Plaza Building,United Nations Avenue, Ermita, Manila.

The financial statements of the Company as of December 31, 2013 and 2012 and for the threeyears ended were approved and authorized for issue by the Audit Committee on April 14, 2014 asdelegated by the Board of Directors (BOD) last December 11, 2013.

2. Basis of Preparation, Statements of Compliance and Changes in Accounting Policies andDisclosures

Basis of PresentationThe accompanying financial statements have been prepared under the historical cost and arepresented in Philippine peso, which is the Company’s functional and presentation currency.

The financial statements provide comparative information in respect of the previous period. Inaddition, the Company presents an additional balance sheet at the beginning of the earliest periodpresented when there is a retrospective application of an accounting policy, a retrospectiverestatement or a reclassification of items in the financial statements. An additional balance sheetas at January 1, 2012 is presented in these financial statements due to retrospective application ofcertain accounting policies.

Statement of ComplianceThe financial statements of the Company have been prepared in compliance 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 revised standards and IFRIC which were applied starting January 1, 2013.Except for the adoption of Revised Philippine Accounting Standards (PAS) 19, Employee Benefit,these new and revised standards and interpretations did not have any significant impact on theCompany’s financial statements.

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The nature and the impact of each new standards and amendments are described below:

PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities(Amendments)

These amendments require an entity to disclose information about rights of set-off and relatedarrangements (such as collateral agreements). The new disclosures are required for all recognizedfinancial instruments that are set off in accordance with PAS 32, Financial Instruments:Presentation. These disclosures also apply to recognized financial instruments that are subject toan enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they areset-off in accordance with PAS 32. The amendments require entities to disclose, in a tabularformat unless another format is more appropriate, the following minimum quantitativeinformation. This is presented separately for financial assets and financial liabilities recognized atthe end of the reporting period:

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

net amounts presented in the statement of financial position;c) The net amounts presented in the statement of financial position;d) The amounts subject to an enforceable master netting arrangement or similar agreement that

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

offsetting criteria in PAS 32; 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 adoption of the amended did not have a significant impact on the financial statements of theCompany.

PFRS 10, Consolidated Financial StatementsPFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, thataddresses the accounting for consolidated financial statements. It also includes the issues raised inStandards Interpretation Committee (SIC) 12, Consolidation - Special Purpose Entities. PFRS 10establishes a single control model that applies to all entities including special purpose entities. Thechanges introduced by PFRS 10 will require management to exercise significant judgment todetermine which entities are controlled, and therefore, are required to be consolidated by a parent,compared with the requirements that were in PAS 27. The amendment is not applicable to theCompany.

PFRS 11, Joint ArrangementsPFRS 11 replaces PAS 31, Interest in Joint Ventures and SIC 13, Jointly-controlled Entities - Non-Monetary Contributions by Venturers. PFRS 11 removes the option to account for jointlycontrolled entities using proportionate consolidation. Instead, jointly controlled entities that meetthe definition of a joint venture must be accounted for using the equity method. The amendment isnot applicable to the Company.

PFRS 12, Disclosure of Interests in Other EntitiesPFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries,joint arrangements, associates and structured entities. The requirements in PFRS 12 are morecomprehensive than the previously existing disclosure requirements for subsidiaries (for example,where a subsidiary is controlled with less than a majority of voting rights). The amendment has nosignificant impact to the Company.

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PFRS 13, Fair Value MeasurementPFRS 13 establishes a single source of guidance under PFRS for all fair value measurements.PFRS 13 does not change when an entity is required to use fair value, but rather provides guidanceon how to measure fair value under PFRS. PFRS 13 defines fair value as an exit price. PFRS 13also requires additional disclosures.

As a result of the guidance in PFRS 13, the Company re-assessed its policies for measuring fairvalues, in particular, its valuation inputs such as non-performance risk for fair value measurementof liabilities. The Company has assessed that the application of PFRS 13 has not materiallyimpacted its fair value measurements. Additional disclosures, where required, are provided in theindividual notes relating to the assets and liabilities whose fair values were determined. Fair valuehierarchy is provided in Note 25.

Amendment to PAS 1, Financial Statement Presentation - Presentation of Items of OtherComprehensive Income

The amendments to PAS 1 change the grouping of items presented in other comprehensiveincome. Items that could be reclassified (or “recycled”) to profit or loss at a future point in time(i.e., upon derecognition or settlement) would be presented separately from items that will neverbe recycled. The amendment affects presentation only and has no impact on the Company’sfinancial position or performance.

Revised PAS 19, Employee BenefitsOn 1 January 2013, the Company adopted Revised PAS 19.

For defined benefit plans, the Revised PAS 19 requires all actuarial gains and losses to berecognized in other comprehensive income and unvested past service costs previously recognizedover the average vesting period to be recognized immediately in profit or loss when incurred.

Prior to adoption of the Revised PAS 19, the Company recognized actuarial gains and lossesimmediately to profit or loss while past service cost, if any, is recognized immediately to profit orloss, unless the changes to the pension plan are conditional on the employees remaining in servicefor a specified period of time (the vesting period). In this case, the past service cost is amortizedon a straight-line basis over the vesting period. Upon adoption of the Revised PAS 19, theCompany changed its accounting policy to recognize all actuarial gains and losses in othercomprehensive income and all past service costs in profit or loss in the period they occur.

Moving forward, the Company will retain the recognized actuarial gains and losses in othercomprehensive income and will not transfer this to other items of equity.

The Revised PAS 19 replaced the interest cost and expected return on plan assets with the conceptof net interest on defined benefit liability or asset which is calculated by multiplying the netbalance sheet defined benefit liability or asset by the discount rate used to measure the employeebenefit obligation, each as at the beginning of the annual period.

The Revised PAS 19 also amended the definition of short-term employee benefits and requiresemployee benefits to be classified as short-term based on expected timing of settlement rather thanthe employee’s entitlement to the benefits. In addition, the Revised PAS 19 modifies the timingof recognition for termination benefits. The modification requires the termination benefits to berecognized at the earlier of when the offer cannot be withdrawn or when the related restructuringcosts are recognized.

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Changes to definition of short-term employee benefits and timing of recognition for terminationbenefits do not have any impact on the Company’s financial position and financial performance.

The changes in accounting policies have been applied retrospectively. The effects of first timeadoption of the Revised PAS 19 on the financial statements are as follows:

As ofDecember 31,

2013

As ofDecember 31,

2012

As ofJanuary 1,

2012Increase (decrease) in:Balance SheetsRetirement benefit obligation P=40,931,206 P=9,486,903 (P=4,126,855)Deferred income tax asset (12,279,493) (2,846,202) 1,238,057Other comprehensive income (29,198,893) (7,232,429) 2,888,799Retained earnings 546,737 591,285 –

2013 2012Increase (decrease) in:Statements of IncomeNet benefit costs P=63,640 (P=844,693)Provision for deferred tax (19,092) 253,408Net loss (profit) for the year P=44,548 (P=591,285)

2013 2012Statements of Comprehensive IncomeActuarial losses on defined benefit plan P=31,380,663 P=14,458,895Income tax effects (9,414,199) (4,337,667)Other comprehensive loss for the year, net of tax 21,966,464 10,121,228Total comprehensive loss for the year P=22,011,012 P=9,529,943

Other than the change in income before income tax, there is no material impact in the statements ofcash flows.

Revised PAS 27, Separate Financial Statements (as revised in 2011)As a consequence of the new PFRS 10, Consolidated Financial Statements and PFRS 12,Disclosure of Interests in Other Entities what remains of PAS 27 is limited to accounting forsubsidiaries, jointly controlled entities and associates in separate financial statements. Theadoption of the amended PAS 27 did not have a significant impact on the financial statements ofthe Company.

Revised PAS 28, Investments in Associates and Joint VenturesAs a consequence of the new PFRS 11, Joint Arrangements and PFRS 12, Disclosure of Interestsin Other Entities, PAS 28 has been renamed PAS 28, Investments in Associates and JointVentures, and describes the applications of the equity method to investments in joint ventures inaddition to associates. The amendment has no significant impact to the Company.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface MineThis interpretation applies to waste removal costs that are incurred in surface mining activityduring the production phase of the mine (“production stripping costs”) and provides guidance onthe recognition of production stripping costs as an asset and measurement of the stripping activityasset. The amendment is not applicable to the Company.

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PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Government Loans(Amendments)The amendments to PFRS 1 require first-time adopters to apply the requirements of PAS 20,Accounting for Government Grants and Disclosure of Government Assistance, prospectively togovernment loans existing at the date of transition to PFRS. However, entities may choose toapply the requirements of PAS 39, Financial Instruments: Recognition and Measurement, andPAS 20 to government loans retrospectively if the information needed to do so had been obtainedat the time of initially accounting for those loans. This amendment s are not applicable to theCompany.

Annual Improvements to PFRSs (2009-2011 cycle)The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessaryamendments to PFRSs.

PFRS 1, First-time Adoption of PFRS - Borrowing CostsThe amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs inaccordance with its previous generally accepted accounting principles, may carry forward, withoutany adjustment, the amount previously capitalized in its opening statement of financial position atthe date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized inaccordance with PAS 23, Borrowing Costs. The amendment does not apply to the Company as it isnot a first-time adopter of PFRS.

PAS 1, Presentation of Financial Statements - Clarification of the Requirements for ComparativeInformation

These amendments clarify the requirements for comparative information that are disclosedvoluntarily and those that are mandatory due to retrospective application of an accounting policy, orretrospective restatement or reclassification of items in the financial statements. An entity mustinclude comparative information in the related notes to the financial statements when it voluntarilyprovides comparative information beyond the minimum required comparative period. Theadditional comparative period does not need to contain a complete set of financial statements. Onthe other hand, supporting notes for the third balance sheet (mandatory when there is aretrospective application of an accounting policy, or retrospective restatement or reclassification ofitems in the financial statements) are not required. As a result, the Company has not includedcomparative information in respect of the opening statement of financial position as at January 1,2011. The amendments affect disclosures only and have no impact on the Company’s financialposition or performance.

PAS 16, Property, Plant and Equipment - Classification of Servicing EquipmentThe amendment clarifies that spare parts, stand-by equipment and servicing equipment should berecognized as property, plant and equipment when they meet the definition of property, plant andequipment and should be recognized as inventory if otherwise.

PAS 32, Financial Instruments: Presentation - Tax Effect of Distribution to Holders of EquityInstruments

The amendment clarifies that income taxes relating to distributions to equity holders and totransaction costs of an equity transaction are accounted for in accordance with PAS 12, IncomeTaxes. The amendment does not have any significant impact on the Company’s financial positionor performance.

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PAS 34, Interim Financial Reporting - Interim Financial Reporting and Segment Information forTotal Assets and Liabilities

The amendment clarifies that the total assets and liabilities for a particular reportable segment needto be disclosed only when the amounts are regularly provided to the chief operating decision makerand there has been a material change from the amount disclosed in the entity’s previous annualfinancial statements for that reportable segment. The amendment has no impact on the Company’sfinancial position or performance.

New standards and interpretation issued and effective after December 31, 2013The Company will adopt the standards and interpretations enumerated below when these becomeeffective. Except as otherwise indicated, the Company does not expect the adoption of these newand amended PFRS and Philippine Interpretations to have significant impact on its financialstatements.

PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets(Amendments)

These amendments remove the unintended consequences of PFRS 13 on the disclosures requiredunder PAS 36.

In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which impairment loss has been recognized or reversed during theperiod. These amendments are effective retrospectively for annual periods beginning on or afterJanuary 1, 2014 with earlier application permitted, provided PFRS 13 is also applied. Theamendments affect disclosures only and have no impact on the Company’s financial position orperformance.

Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)These amendments are effective for annual periods beginning on or after January 1, 2014. Theyprovide an exception to the consolidation requirement for entities that meet the definition of aninvestment entity under PFRS 10. The exception to consolidation requires investment entities toaccount for subsidiaries at fair value through profit or loss.

Philippine Interpretation IFRIC 21, Levies (IFRIC 21)IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggerspayment, as identified by the relevant legislation, occurs. For a levy that is triggered uponreaching a minimum threshold, the interpretation clarifies that no liability should be anticipatedbefore the specified minimum threshold is reached. IFRIC 21 is effective for annual periodsbeginning on or after January 1, 2014.

PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives andContinuation of Hedge Accounting (Amendments)

These amendments provide relief from discontinuing hedge accounting when novation of aderivative designated as a hedging instrument meets certain criteria. These amendments areeffective for annual periods beginning on or after January 1, 2014. The Company has noderivatives during the period. However, these amendments would be considered for futurenovations.

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PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and FinancialLiabilities (Amendments)

The amendments clarify the meaning of “currently has a legally enforceable right to set-off” andalso clarify the application of the PAS 32 offsetting criteria to settlement systems (such as centralclearing house systems) which apply gross settlement mechanisms that are not simultaneous. Theamendments affect presentation only and have no impact on the Company’s financial position orperformance. The amendments to PAS 32 are to be retrospectively applied for annual periodsbeginning on or after January 1, 2014.

PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments)The amendments apply to contributions from employees or third parties to defined benefit plans.Contributions that are set out in the formal terms of the plan shall be accounted for as reductions tocurrent service costs if they are linked to service or as part of the remeasurements of the netdefined benefit asset or liability if they are not linked to service. Contributions that arediscretionary shall be accounted for as reductions of current service cost upon payment of thesecontributions to the plans. The amendments to PAS 19 are to be retrospectively applied for annualperiods beginning on or after July 1, 2014.

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

PFRS 2, Share-based Payment - Definition of Vesting ConditionThe amendment revised the definitions of vesting condition and market condition and added thedefinitions of performance condition and service condition to clarify various issues. Thisamendment shall be prospectively applied to share-based payment transactions for which the grantdate is on or after July 1, 2014. This amendment does not apply to the Company as it has noshare-based payments.

PFRS 3, Business Combinations - Accounting for Contingent Consideration in a BusinessCombination

The amendment 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 9 isnot yet adopted). The amendment shall be prospectively applied to business combinations forwhich the acquisition date is on or after July 1, 2014. The Company shall consider thisamendment for future business combinations.

PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Totalof the Reportable Segments’ Assets to the Entity’s Assets

The amendments require entities to disclose the judgment made by management in aggregatingtwo or more operating segments. This disclosure should include a brief description of theoperating segments that have been aggregated in this way and the economic indicators that havebeen assessed in determining that the aggregated operating segments share similar economiccharacteristics. The amendments also clarify that an entity shall provide reconciliations of the totalof the reportable segments’ assets to the entity’s assets if such amounts are regularly provided tothe chief operating decision maker. These amendments are effective for annual periods beginningon or after July 1, 2014 and are applied retrospectively. The amendments have no impact on theCompany.

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PFRS 13, Fair Value Measurement - Short-term Receivables and PayablesThe amendment clarifies that short-term receivables and payables with no stated interest rates canbe held at invoice amounts when the effect of discounting is immaterial.

PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement ofAccumulated Depreciation

The amendment clarifies that, upon revaluation of an item of property, plant and equipment, thecarrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treatedin one of the following ways:a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the

carrying amount of the asset. The accumulated depreciation at the date of revaluation isadjusted to equal the difference between the gross carrying amount and the carrying amount ofthe asset after taking into account any accumulated impairment losses.

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

The amendment is effective for annual periods beginning on or after July 1, 2014. Theamendment shall apply to all revaluations recognized in annual periods beginning on or after thedate of initial application of this amendment and in the immediately preceding annual period. Theamendment has no impact on the Company’s financial position or performance.

PAS 24, Related Party Disclosures - Key Management PersonnelThe amendments clarify that an entity is a related party of the reporting entity if the said entity, orany member of a Company for which it is a part of, provides key management personnel servicesto the reporting entity or to the parent company of the reporting entity. The amendments alsoclarify that a reporting entity that obtains management personnel services from another entity (alsoreferred to as management entity) is not required to disclose the compensation paid or payable bythe management entity to its employees or directors. The reporting entity is required to disclosethe amounts incurred for the key management personnel services provided by a separatemanagement entity. The amendments are effective for annual periods beginning on or after July 1,2014 and are applied retrospectively. The amendments affect disclosures only and have no impacton the Company’s financial position or performance.

PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of AccumulatedAmortization

The amendments clarify 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 the followingways:a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of

the carrying amount of the asset. The accumulated amortization at the date of revaluation 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 are effective for annual periods beginning on or after July 1, 2014. Theamendments shall apply to all revaluations recognized in annual periods beginning on or after thedate of initial application of this amendment and in the immediately preceding annual period. Theamendments have no impact to the Company.

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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 PFRS - Meaning of ‘Effective PFRSs’The amendment clarifies that an entity may choose to apply either a current standard or a newstandard that is not yet mandatory, but that permits early application, provided either standard isapplied consistently throughout the periods presented in the entity’s first PFRS financialstatements. This amendment is not applicable to the Company as it is not a first-time adopter ofPFRS.

PFRS 3, Business Combinations - Scope Exceptions for Joint ArrangementsThe amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a jointarrangement in the financial statements of the joint arrangement itself. The amendment iseffective for annual periods beginning on or after July 1, 2014 and is applied prospectively. Theamendment have no impact on the Company’s financial position and performance.

PFRS 13, Fair Value Measurement - Portfolio ExceptionThe amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets,financial liabilities and other contracts. The amendment is effective for annual periods beginningon or after July 1, 2014 and is applied prospectively. The amendment has no significant impact onthe Company’s financial position or performance.

PAS 40, Investment PropertyThe amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifyingproperty as investment property or owner-occupied property. The amendment stated thatjudgment 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 PFRS 3.This judgment is based on the guidance of PFRS 3. This amendment is effective for annualperiods beginning on or after July 1, 2014 and is applied prospectively. The amendment is notapplicable to the Company.

PFRS 9, Financial InstrumentsPFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 and applies tothe classification and measurement of financial assets and liabilities and hedge accounting,respectively. Work on the second phase, which relate to impairment of financial instruments, andthe limited amendments to the classification and measurement model is still ongoing, with a viewto replace PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair valueat initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, besubsequently measured at amortized cost if it is held within a business model that has the objectiveto hold the assets to collect the contractual cash flows and its contractual terms give rise, onspecified dates, to cash flows that are solely payments of principal and interest on the principaloutstanding. All other debt instruments are subsequently measured at fair value through profit orloss. All equity financial assets are measured at fair value either through other comprehensiveincome (OCI) or profit or loss. Equity financial assets held for trading must be measured at fairvalue through profit or loss. For liabilities designated as at FVPL using the fair value option, theamount of change in the fair value of a liability that is attributable to changes in credit risk must bepresented in OCI. The remainder of the change in fair value is presented in profit or loss, unlesspresentation of the fair value change relating to the entity’s own credit risk in OCI would create or

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enlarge an accounting mismatch in profit or loss. All other PAS 39 classification andmeasurement requirements for financial liabilities have been carried forward to PFRS 9, includingthe embedded derivative bifurcation rules and the criteria for using the FVO. The adoption of thefirst phase of PFRS 9 will have an effect on the classification and measurement of the Company’sfinancial assets, but will potentially have no impact on the classification and measurement offinancial liabilities.

On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39 with amore principles-based approach. Changes include replacing the rules-based hedge effectivenesstest with an objectives-based test that focuses on the economic relationship between the hedgeditem and the hedging instrument, and the effect of credit risk on that economic relationship;allowing risk components to be designated as the hedged item, not only for financial items, butalso for non-financial items, provided that the risk component is separately identifiable andreliably measurable; and allowing the time value of an option, the forward element of a forwardcontract and any foreign currency basis spread to be excluded from the designation of a financialinstrument as the hedging instrument and accounted for as costs of hedging. PFRS 9 also requiresmore extensive disclosures for hedge accounting.

PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before the completionof the limited amendments to the classification and measurement model and impairmentmethodology. The Company will not adopt the standard before the completion of the limitedamendments and the second phase of the project.

Philippine Interpretation IFRIC 15, Agreements for the Construction of Real EstateThis interpretation covers accounting for revenue and associated expenses by entities thatundertake the construction of real estate directly or through subcontractors. The interpretationrequires that revenue on construction of real estate be recognized only upon completion, exceptwhen such contract qualifies as construction contract to be accounted for under PAS 11,Construction Contracts, or involves rendering of services in which case revenue is recognizedbased on stage of completion. Contracts involving provision of services with the constructionmaterials and where the risks and reward of ownership are transferred to the buyer on a continuousbasis will also be accounted for based on stage of completion. The SEC and the FinancialReporting Standards Council (FRSC) have deferred the effectivity of this interpretation until thefinal Revenue standard is issued by the International Accounting Standards Board (IASB) and anevaluation of the requirements of the final Revenue standard against the practices of the Philippinereal estate industry is completed.

3. Summary of Significant Accounting Policies

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 theliability takes place either:

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

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

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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 theireconomic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's abilityto generate economic benefits by using the asset in its highest and best use or by selling it toanother market participant that would use the asset in its highest and best use.

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

All assets and liabilities for which fair value is measured or disclosed in the financial statementsare categorized within the fair value hierarchy, described as follows, based on the lowest levelinput that is significant to the fair value measurement as a whole:

· Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities· Level 2 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is directly or indirectly observable· Level 3 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is unobservable

For assets and liabilities that are recognized in the financial statements on a recurring basis, theCompany determines whether transfers have occurred between Levels in the hierarchy byre-assessing 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 Company has determined classes of assets andliabilities on the basis of the nature, characteristics and risks of the asset or liability and the levelof the fair value hierarchy as explained above.

Cash and Cash EquivalentsCash includes cash on hand and in banks, which are carried at face value. Cash equivalents areshort-term, highly liquid investments that are readily convertible to known amounts of cash withoriginal maturities of three months or less from the date of acquisition and that are subject to aninsignificant risk of change in value.

Financial InstrumentsDate of recognitionThe Company recognizes a financial asset or financial liability in the balance sheet when itbecomes a party to contractual provisions of the instrument.

All regular way purchases and sales of financial assets are recognized on the trade date, which isthe date the Company commits to purchase or sell the asset. Regular way purchases or sales arepurchases or sales of financial assets that require delivery of assets within the period generallyestablished by regulation or convention in the marketplace.

Initial recognition of financial instrumentsAll financial instruments, including investment securities and loans and receivables, are initiallymeasured at fair value. Except for financial assets at fair value through profit or loss (FVPL),the initial measurement of financial assets includes transaction costs. The Company classifies its

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financial instruments in the following categories: financial assets at FVPL, held-to-maturity(HTM) investments, available-for-sale (AFS) investments, loans and receivables, financialliabilities at FVPL, and other financial liabilities. The classification depends on the purpose forwhich the financial instruments were acquired and whether they are quoted in an active market.Management determines the classification of its financial instruments at initial recognition and,where allowed and appropriate, re-evaluates such designation at every reporting period.

As of December 31, 2013 and 2012, the Company does not have outstanding financial asset atFVPL, HTM investments, AFS investments, and financial liabilities at FVPL.

Embedded derivativesAn embedded derivative is separated from the host contract and accounted for as derivative if allthe following conditions are met:

· the economic characteristics and risks of the embedded derivative are not closely related to theeconomic characteristic of the host contract;

· a separate instrument with the same terms as the embedded derivative would meet thedefinition of the derivative; and

· the hybrid or combined instrument is not recognized at FVPL.

Freestanding and separated embedded derivatives are classified as financial assets or financialliabilities at FVPL unless they are designated as effective hedging instruments. Derivativeinstruments are initially recognized at fair value on the date in which a derivative transaction isentered into or bifurcated, and are subsequently re-measured at fair value. Derivatives are carriedas assets when the fair value is positive and as liabilities when the fair value is negative.Gains and losses from changes in fair value of derivatives are recognized immediately in thestatement of income.

The Company assesses whether embedded derivatives are required to be separated from hostcontracts when the Company first becomes party to the contract. Reassessment only occurs ifthere is a change in the terms of the contract that significantly modifies the cash flows that wouldotherwise be required.

As of December 31, 2013 and 2012, the Company has no bifurcated embedded derivatives.

Loans and receivablesLoans and receivables are nonderivative financial assets with fixed or determinable payments thatare not quoted in an active market. After initial measurement, such financial assets are carried atamortized cost using the effective interest rate method less accumulated allowance for impairment,if any. Amortized cost is calculated taking into account any discount or premium on acquisitionand includes fees that are an integral part of the effective interest rate and transaction costs. Gainsand losses are recognized in the statement of income when the loans and receivables arederecognized or impaired, as well as through the amortization process. Loans and receivables areclassified as current assets when it is expected to be realized within twelve months after thebalance sheet date or within the normal operating cycle, whichever is longer.

The Company’s cash and cash equivalents, trade and other receivables, loan receivables, securitydeposits included under other noncurrent assets are classified under this category (see Note 25).

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Other financial liabilitiesIssued financial liabilities or their components, which are not designated at FVPL are classified asother financial liabilities, where the substance of the contractual arrangement results in theCompany having an obligation either to deliver cash or another financial asset to the holder, or tosatisfy the obligation other than by the exchange of a fixed amount of cash or another financialasset for a fixed number of own equity shares. The components of issued financial liabilities thatcontain both liability and equity elements are accounted for separately, with the equity componentbeing assigned the residual amount after deducting from the instrument as a whole the amountseparately determined as the fair value of the liability component on the date of issue. After initialmeasurement, other financial liabilities are subsequently measured at amortized cost using theeffective interest rate method. Amortized cost is calculated by taking into account any discount orpremium on the issue and fees that are an integral part of the effective interest rate. Any effects ofrestatement of foreign currency-denominated liabilities are recognized in the statement of income.

Other financial liabilities are classified as current liabilities when it is expected to be settled withintwelve months after the balance sheet date or the Company has an unconditional right to defersettlement for at least 12 months from the balance sheet date.

The Company’s interest-bearing borrowings, accounts payable and accrued expenses, obligationsunder finance lease and other obligations that meet the above definition (other than liabilitiescovered by other accounting standards, such as income tax payable) are classified under thiscategory (see Note 25).

Derecognition of Financial Assets and LiabilitiesFinancial assetsA financial asset (or, where applicable, a part of a financial asset or part of a group of similarfinancial assets) is derecognized where:

· the rights to receive cash flows from the asset have expired;· the Company 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 Company has transferred its rights to receive cash flows from the asset and either hastransferred substantially all the risks and rewards of the asset, or has neither transferred norretained substantially all the risks and rewards of the asset, but has transferred control of theasset.

Where the Company has transferred its rights to receive cash flows from an asset and has neithertransferred nor retained substantially all the risks and rewards of the asset nor transferred controlof the asset, the asset is recognized to the extent of the Company’s continuing involvement in theasset. Continuing involvement that takes the form of a guarantee over the transferred asset ismeasured at the lower of the original carrying amount of the asset and the maximum amount ofconsideration that the Company could be required to repay.

Financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged orcancelled or has expired.

Where 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 new

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liability, and the difference in the respective carrying amounts is recognized in the statement ofincome.

Impairment of Financial AssetsThe Company assesses at each balance sheet date whether a financial asset or group of financialassets is impaired.

Assets carried at amortized costIf there is objective evidence that an impairment loss on loans and receivables carried at amortizedcost has been incurred, the amount of the loss is measured as the difference between the asset’scarrying amount and the present value of estimated future cash flows (excluding future creditlosses that have not been incurred) discounted at the financial asset’s original effective interest rate(i.e., the effective interest rate computed at initial recognition). The carrying amount of the assetshall be reduced either directly or through the use of an allowance account. The amount of theloss shall be recognized in the statement of income.

The Company first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant, and individually or collectively for financialassets that are not individually significant. If it is determined that no objective evidence ofimpairment exists for an individually assessed financial asset, whether significant or not, the assetis included in a group of financial assets with similar credit risk characteristics and that group offinancial assets is collectively assessed for impairment. Assets that are individually assessed forimpairment and for which an impairment loss is or continues to be recognized are not included inthe collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized, the previouslyrecognized impairment loss is reversed. Any subsequent reversal of an impairment loss isrecognized in the statement of income, to the extent that the carrying value of the asset does notexceed its amortized cost at the reversal date.

In relation to trade receivables, a provision for impairment loss is made when there is objectiveevidence (such as the probability of insolvency or significant financial difficulties of the debtor)that the Company will not able to collect all the amounts due under the original terms of theinvoice. The carrying amount of the receivables is reduced through the use of an allowanceaccount.

Assets carried at costIf there is objective evidence that an impairment loss on an unquoted equity instrument that is notcarried at fair value because its fair value cannot be reliably measured, or on a derivative asset thatis 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 asset’s carrying amountand the present value of estimated future cash flows discounted at the current market rate of returnfor a similar financial asset.

AFS investmentsSignificant or prolonged decline in fair value below cost, significant financial difficulties of theissuer or obligor, and the disappearance of an active trading market are considerations todetermine whether there is objective evidence that investment securities classified as AFSfinancial assets are impaired.

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If an AFS financial asset is impaired, an amount comprising the difference between its cost (net ofany principal payment and amortization) and its current fair value, less any impairment losspreviously recognized in the statement of income, is transferred from other comprehensive incometo the statement of income. Reversals in respect of equity instruments classified as AFS are notrecognized in the statement of income.

Reversals of impairment losses on debt instruments are reversed through the statement of income,if the increase in fair value of the instrument can be objectively related to an event occurring afterthe impairment loss was recognized in the statement of income.

Day 1 Profit or LossWhere the transaction price in a non-active market is different from the fair value from otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from observable market, the Company recognizes the differencebetween the transaction price and fair value (a ‘Day 1’ profit or loss) in the statement of incomeunless it qualifies for recognition as some other type of asset. In cases where use is made of datawhich is not observable, the difference between the transaction price and model value isrecognized in the statement of income only when the inputs become observable or when theinstrument is derecognized. For each transaction, the Company determines the appropriatemethod of recognizing the ‘Day 1’ profit or loss amount.

Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount reported in the balance sheetif, and only if, there is a currently enforceable legal right to offset the recognized amounts andthere is an intention to settle on a net basis, or to realize the asset and settle the liabilitysimultaneously. This is not generally the case with master netting agreements, and the relatedassets and liabilities are presented gross in the balance sheet.

InventoriesInventories are valued at the lower of cost and net realizable value. Costs incurred in bringingeach product to its present location and condition are accounted for as follows:

Materials and spare parts - purchase cost using first-in, first-out methodFuel, diesel and lubricants - purchase cost using first-in, first-out method

Net realizable value is the estimated replacement costs.

An allowance for losses and obsolescence is determined based on a regular review andmanagement evaluation of movement and condition of spare parts and supplies.

Property and EquipmentProperty and equipment, except for land, are stated at cost, excluding the costs of day-to-dayservicing, less accumulated depreciation and any accumulated impairment in value. Such costincludes the cost of replacing part of the property and equipment when that cost is incurred, if therecognition criteria are met.

The initial cost of property and equipment consists of its purchase price, including import duties,taxes and any directly attributable costs of bringing the asset to the location and conditionnecessary for it to be capable of operating in the manner intended by the Company. Expendituresincurred after the property and equipment have been put into operation, such as repairs andmaintenance and overhaul costs, are normally charged in the statement of income in the period inwhich the costs are incurred. Land is stated at cost less any accumulated impairment in value.

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Each part of an item of property and equipment with a cost that is significant in relation to the totalcost of the item shall be depreciated separately.

Depreciation is computed on a straight-line basis less its residual value over the estimated usefullife (EUL) as follows:

Category Number of YearsLand improvements 3Vessels, excluding drydocking costs and vessel tools and equipment 35*Drydocking costs 3Container vans and improvements 5-10Buildings, warehouses, terminal premises and equipment

and leasehold improvements 3-10Office furniture and equipment 5Transportation equipment 5Vessel tools and equipment 5*From the time the ship was built

The remaining EUL of the vessels range from 2 to 23 years.

The asset’s residual values, useful lives and depreciation method are reviewed and adjusted, ifappropriate, at each balance sheet date.

Major overhaul costs incurred during drydocking of vessels are capitalized and depreciated over a3-year period or the next drydocking, whichever comes first. When significant drydocking costsare incurred prior to the expiry of the 3-year depreciation period, the remaining costs of theprevious drydocking are written off in the period of the subsequent drydocking. Drydocking costsare recorded as part of “Vessels” under property and equipment.

Fully depreciated assets are retained in the accounts until these are no longer in use. An item ofproperty and equipment is derecognized upon disposal or when no future economic benefits areexpected from the continued use of the item. Any gain or loss arising on derecognition of theproperty and equipment (calculated as the difference between the net disposal proceeds and thecarrying amount of the item) is included in the statement of income in the year the asset isderecognized.

The carrying amount of property and equipment are reviewed for impairment when events orchanges in circumstances indicate that the carrying amount may not be recoverable.

Investment in AssociateAn associate is an entity in which the Company has significant influence and which is neither asubsidiary nor a joint venture of the Company. An associate is accounted for under the equitymethod of accounting.

Under the equity method, investment in an associate is carried in the balance sheet at cost pluspost-acquisition changes in the Company’s share in the net asset of the associate. The statementof income reflects the share in the result of operations of the associate. Where there has been achange recognized directly in the equity of the associate, the Company recognizes its share in anychanges and discloses this, when applicable, in the statement of income. Profit and lossesresulting from transactions between the Company and the associate are eliminated to the extent ofthe interest in the associate. After application of the equity method, the Company determines

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whether it is necessary to recognize any additional impairment loss with respect to the Company’snet investment in the associate.

The Company discontinues the use of equity method from the date when it ceases to havesignificant influence over an associate and accounts for the investment in accordance with PAS 39from that date, provided the associate does not become a subsidiary or a joint venture as defined inPAS 31. Upon loss of significant influence over the associate, the Company measures andrecognizes any retaining investment at its fair value. Any difference in the carrying amount of theassociate upon loss of significant influence and the fair value of the retaining investment andproceeds from disposal is recognized in profit or loss. When the Company’s interest in aninvestment in associate is reduced to zero, additional losses are provided only to the extent that theCompany has incurred obligations or made payments on behalf of the associate to satisfyobligations of the investee that the Company has guaranteed or otherwise committed. If theassociate subsequently reports profits, the Company resumes recognizing its share of the profits ifit equals the share of net losses not recognized.

The financial statements of the associate are prepared for the same reporting period as theCompany. The accounting policies of the associate conform to those used by the Company forlike transactions and events in similar circumstances.

Impairment of Non-financial AssetsThe Company assesses at each balance sheet date whether there is an indication that anon-financial asset may be impaired. If any such indication exists, or when annual impairmenttesting for a non-financial asset is required, the Company makes an estimate of the non-financialasset’s recoverable amount. A non-financial asset’s recoverable amount is the higher of a non-financial asset’s or cash-generating unit’s fair value less costs to sell and its value in use and isdetermined for an individual non-financial asset, unless the non-financial asset does not generatecash inflows that are largely independent of those from other non-financial assets or groups ofnon-financial assets. Where the carrying amount of a non-financial asset exceeds its recoverableamount, the non-financial asset is considered impaired and is written down to its recoverableamount. In assessing value in use, the estimated future cash flows are discounted to their presentvalue using a pre-tax discount rate that reflects current market assessments of the time value ofmoney and the risks specific to the non-financial asset. In determining fair value less costs to sell,an appropriate valuation model is used. These calculations are corroborated by valuationmultiples, quoted share prices for publicly traded subsidiaries or other available fair valueindicators. Impairment losses of continuing operations are recognized in the statement of incomein those expense categories consistent with the function of the impaired non-financial asset.

An assessment is made at each balance sheet date as to whether there is any indication thatpreviously recognized impairment losses may no longer exist or may have decreased. If suchindication exists, the recoverable amount is estimated. A previously recognized impairment loss isreversed only if there has been a change in the estimates used to determine the non-financialasset’s recoverable amount since the last impairment loss was recognized. If that is the case, thecarrying amount of the non-financial asset is increased to its recoverable amount. That increasedamount cannot exceed the carrying amount that would have been determined, net of depreciation,had no impairment loss been recognized for the non-financial asset in prior years. Such reversal isrecognized in the statement of income. After such a reversal, the depreciation charge is adjustedin future periods to allocate the non-financial asset’s revised carrying amount, less any residualvalue, on a systematic basis over its remaining useful life.

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Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to theCompany and the revenue can be reliably measured, regardless of when payment is being made.Revenue is measured at the fair value of the consideration received or receivable, taking intoaccount contractually defined terms of payment and excluding taxes or duty. The Companyassesses its revenue arrangements against specific criteria in order to determine if it is acting asprincipal or agent. The following specific recognition criteria must also be met before revenue isrecognized:

Freight revenuesRevenues derived from freight services are recognized on the basis of cargo loaded during the yeartaking into account all direct costs related to the cargo as well as capacity costs incurred during theyear.

Interest incomeInterest income from bank deposits and short-term investments (net of tax) is recognized asinterest accrues (using the effective interest rate method that is the rate that exactly discountsestimated future cash receipts through the expected life of the financial instrument to the netcarrying amount of the financial asset).

Rental incomeRevenue is recognized on a straight-line basis over the lease term.

Income from insurance claimsIncome from insurance claims is recognized when the amount can be measured and the flow of theeconomic benefit to the Company is highly probable and measurable.

Cost and ExpensesCost and expenses are decreases in economic benefits during the accounting period in the form ofoutflows or decrease of assets or incurrence of liabilities that result in decreases in equity, otherthan those relating to distributions to equity participants. Cost and expenses are recognized whenincurred.

ProvisionsProvisions are recognized only 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 benefitswill be required to settle the obligation and a reliable estimate can be made of the amount of theobligation. Where the Company expects a provision to be reimbursed, for example under aninsurance contract, the reimbursement is recognized as a separate asset but only when thereimbursement is virtually certain. The expense relating to any provision is presented in thestatement of income, net of any reimbursements. If the effect of the time value of money ismaterial, provisions are determined by discounting the expected future cash flows at a pre-tax ratethat reflects current market assessments of the time value of money and, where appropriate, therisks specific to the liability. Where discounting is used, the increase in the provision due to thepassage of time is recognized as interest expense.

Borrowing CostsBorrowing costs directly attributable to the acquisition, construction or production of an asset thatnecessarily takes a substantial period of time to get ready for its intended use or sale arecapitalized as part of the cost of the respective assets. All other borrowing costs are expensed inthe period they occur. Borrowing costs consist of interest and other costs that an entity incurs inconnection with the borrowing of funds.

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Deferred Financing CostsDeferred financing costs represent costs incurred to obtain project financing. Deferred financingcosts are amortized, using the effective interest rate method, over the term of the related long-termborrowing.

TaxesCurrent income taxCurrent income tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the taxation authorities. The tax rates and taxlaws used to compute the amount are those that are enacted or substantively enacted at the balancesheet date.

Deferred income taxDeferred income tax is provided using the balance sheet liability method on temporary differencesat the balance sheet date between the tax bases of assets and liabilities and their carrying amountsfor 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 anasset or liability in a transaction that is not a business combination and, at the time of thetransaction, affects neither the accounting income nor taxable income or loss; and

· in respect of taxable temporary differences associated with investments in foreign subsidiariesand interests in joint ventures, where the timing of the reversal of the temporary differencescan be controlled and it is probable that the temporary differences will not reverse in theforeseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carryforwardbenefits of unused tax credits and unused tax losses, to the extent that it is probable that taxableincome will be available against which the deductible temporary differences, and the carryforwardbenefits 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 fromthe initial recognition of an asset or liability in a transaction that is not a business combinationand, at the time of the transaction, affects neither the accounting income nor taxable income orloss; and

· in respect of deductible temporary differences associated with investments in foreignsubsidiaries and interests in joint ventures, deferred income tax assets are recognized only tothe extent that it is probable that the temporary differences will reverse in the foreseeablefuture and taxable income will be available against which the temporary differences can beutilized.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date andreduced to the extent that it is no longer probable that sufficient taxable income will be availableto allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred incometax assets are reassessed at each balance sheet date and are recognized to the extent that it hasbecome probable that future taxable income will allow the deferred income tax asset to berecovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to applyto the year when the asset is realized or the liability is settled, based on tax rates (and tax laws)

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that have been enacted or substantively enacted at the balance sheet date.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceableright exists to offset current income tax assets against current income tax liabilities and thedeferred income taxes relate to the same taxable entity and the same taxation authority.

Deferred income tax relating to items recognized directly in equity is recognized in equity and notin the statement of income.

Value-added taxes (VAT)Revenues, expenses and assets are recognized net of the amount of VAT, except:

· Where the VAT incurred on a purchase of assets or services is not recoverable from thetaxation authority, in which case the VAT is recognized as part of the cost of acquisition of theasset or as part of the expense item as applicable.

· Receivables and payables that are stated with the amount of VAT included.

The net amount of VAT recoverable from, or payable to, the taxation authority is included as partof receivables or payables in the balance sheet.

Capital StockCapital stock is determined using the par value shares that have been issued. When the Companyissues more than one class of stock, a separate account is maintained for each class of stock andnumber of shares issued.

When the shares are sold at a premium, the difference between the proceeds and the par value iscredited to the “Additional paid-in capital” account. When the shares are issued for aconsideration other than cash, the proceeds are measured by the fair value of the considerationreceived. In case the shares are issued to extinguish or settle the liability of the Company, theshares shall be measured either at fair value of the share issued or fair value of the liability settled,whichever is more reliably determinable.

Treasury StockThe Company’s own equity instruments which are reacquired are recognized at cost and deductedfrom equity. No gain or loss is recognized in the statement of income on the purchase, sale, issueor cancellation of the Company’s own equity instruments.

Retained EarningsThe amount included in retained earnings includes profit or loss attributable to the Company’sequity holders and reduced by dividends on common stock. Retained earnings may also includeeffect of changes in accounting policies as may be required by the standards’ transitionalprovisions.

Pension CostThe net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets (if any),adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceilingis the present value of any economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

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Defined benefit costs comprise the following:· Service cost· Net interest on the net defined benefit liability or asset· Remeasurements of net defined benefit liability or asset

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically byindependent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as expense or income in profitor loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in theeffect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in other comprehensive income in the period in which they arise. Remeasurementsare not reclassified to profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Company, nor can they be paiddirectly to the Company. Fair value of plan assets is based on market price information. When nomarket price is available, the fair value of plan assets is estimated by discounting expected futurecash flows using a discount rate that reflects both the risk associated with the plan assets and thematurity or expected disposal date of those assets (or, if they have no maturity, the expected perioduntil the settlement of the related obligations). If the fair value of the plan assets is higher than thepresent value of the defined benefit obligation, the measurement of the resulting defined benefitasset is limited to the present value of economic benefits available in the form of refunds from theplan or reductions in future contributions to the plan.

Earnings Per Share (EPS)Basic EPS is calculated by dividing net income for the year attributable to common shareholdersby the number of share issued and outstanding at the end of the year after giving retroactive effectto regular stock dividends declared and stock rights exercised during the year, if any.

Diluted EPS is computed by dividing net income by the weighted average number of commonshares outstanding during the period, after giving retroactive effect for any stock dividends, stocksplits or reverse stock splits during the period, and adjusted for the effect of dilutive convertiblepreferred shares. If the required dividends to be declared on convertible preferred shares dividedby the number of equivalent common shares, assuming such shares are converted would decreasethe basic EPS, then such convertible preferred shares would be deemed dilutive. Where the effectof the assumed conversion of the preferred shares and the exercise of all outstanding options haveanti-dilutive effect, basic and diluted EPS are stated at the same amount.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance ofthe arrangement at inception date of whether the fulfillment of the arrangement is dependent onthe use of a specific asset or assets or the arrangement conveys a right to use the asset. Areassessment is made after the inception of the lease only if one of the following applies:

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a. there is a change in contractual terms, other than a renewal or extension of the arrangement;b. a renewal option is exercised or extension granted, unless the term of the renewal or extension

was initially included in the lease term;c. there is a change in the determination of whether fulfillment is dependent on a specified asset;

ord. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenario a, c or d and at the date ofrenewal or extension period for scenario b.

Operating lease - Company as lesseeLeases of office premises and container yards where the lessor retains substantially all the risksand rewards of ownership are classified as operating leases. Payments made under operatingleases (net of any incentives received from the lessor) are charged to the statement of income on astraight-line basis over the period of lease.

Operating lease - Company as lessorLease of land where the Company retains substantially all the risks and rewards of ownership areclassified as operating leases. Receipts under operating leases (net of any incentives granted to thelessee) are charged to the statement of income on a straight-line basis over the period of lease.

Finance lease - Company as lesseeLeases of container vans, where the Company has substantially obtained the risks and rewards ofownership, are classified as finance leases. Finance leases are capitalized at the lease’s inceptionat the lower of the fair value of the leased property and the present value of the minimum leasepayments. Each lease payment is allocated between the liability and finance charges so as toachieve a constant rate on the finance balance outstanding. The corresponding rental obligations,net of finance charges, are included in “Obligations under finance lease” account in the balancesheet. The interest element of the finance cost is charged to the statement of income over the leaseperiod so as to produce a constant periodic rate of interest on the remaining balance of the liabilityfor each period. Property and equipment acquired under finance leases is depreciated over theshorter of the asset’s useful life and the lease term.

Foreign Currency TransactionsThe financial statements are presented in Philippine peso, which is the Company’s functional andpresentation currency. Transactions in foreign currencies are initially recorded in Philippine pesobased on the exchange rates prevailing at the dates of the transactions. At year-end, monetaryassets and liabilities denominated in foreign currencies are restated at closing rate and anyexchange differentials are credited to or charged against the statement of income.

ContingenciesContingent liabilities are not recognized in the financial statements. These are disclosed unless thepossibility of an outflow of resources embodying economic benefits is remote. Contingent assetsare not recognized in the financial statements but are disclosed when an inflow of economicbenefits is probable.

Segment ReportingThe Company and its branches and agencies are operating as one reportable segment engaged indomestic inter-island cargo shipping activities within the Philippines. Therefore, neither businessnor geographical segment information is presented.

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Events After the Reporting PeriodPost year-end events that provide additional information about the Company’s financial position atthe balance sheet date (adjusting events) are reflected in the financial statements. Post year-endevents that are not adjusting events are disclosed in the notes to financial statements whenmaterial.

4. Significant Accounting Judgments and Estimates

The preparation of the accompanying financial statements requires management to makejudgments and estimates that affect the amounts reported in the financial statements and theaccompanying notes. The judgments and estimates used in the accompanying financial statementsare based upon management’s evaluation of relevant facts and circumstances as of date of thefinancial statements. Actual results could differ from such estimates.

JudgmentsIn the process of applying the Company’s accounting policies, management has made judgments,apart from those involving estimation, which have the most significant effect on the amountsrecognized in the financial statements.

Determining functional currencyBased on the economic substance of the underlying circumstances relevant to the Company, thefunctional currency of the Company has been determined to be the Philippine peso. ThePhilippine peso is the currency of the primary economic environment in which the Companyoperates. It is the currency that mainly influences its revenues and operating expenses.

Operating lease commitments - Company as lesseeThe Company has entered into leases of container yards, warehouses/offices and equipment. TheCompany has determined that it does not retain all the significant risks and rewards of ownershipof these properties which are leased out on operating lease arrangements.

Operating Lease - The Company as LessorThe Company has entered into commercial property leases. The Company has determined that itretains all significant risks and rewards of ownership of these properties which are leased out asoperating leases.

Finance lease commitments - Company as lesseeThe Company has entered into leases of dry van containers. The Company has determined thatthese leases are finance leases since the significant risks and rewards of ownership related to theseproperties are transferred to the Company from the date of the lease agreement.

EstimationsThe key assumptions concerning the future and other key sources of estimation uncertainty at thebalance sheet date that have a significant risk causing material adjustments to the carryingamounts of the assets and liabilities within the next financial years are discussed below:

Impairment losses on trade and other receivablesThe Company assesses at each balance sheet date whether there is any objective evidence thattrade and other receivables are impaired. To determine whether there is objective evidence ofimpairment, the Company considers factors such as the probability of insolvency or significantfinancial difficulties of the debtor and default or significant delay in payments.

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The main consideration for impairment assessment include whether any payments are overdue orif there are any known difficulties in the cash flows of the counterparties. The Company assessesimpairment in two areas: individually assessed allowances and collectively assessed allowances.

The Company determines allowances for each significant receivable on an individual basis.Among the items that the Company considers in assessing impairment is the inability to collectfrom the counterparty based on the contractual terms of the receivable. Receivables included inthe specific assessment are the accounts that have been endorsed to the legal department and long-outstanding accounts receivable.

For collective assessment, allowances are assessed for receivables that are individually significantand for individually significant receivables where there is no objective evidence of individualimpairment. Impairment losses are estimated by taking into consideration the age of thereceivables, past collection experience and other factors that may affect collectability.

Where there is objective evidence of impairment, the amount and timing of future cash flows areestimated based on age and status of the trade and other receivables, as well as on historical lossexperience.

Trade and other receivables amounted to P=890,182,268 and P=606,103,744 as ofDecember 31, 2013 and 2012, respectively (see Note 6). These trade and other receivables haveallowance for impairment losses amounting to P=34,063,633 and P=32,267,182 as ofDecember 31, 2013 and 2012, respectively (see Note 6).

EUL of property and equipmentThe EUL used as a basis for depreciating the Company’s vessels and other property andequipment were determined on the basis of management’s assessment of the period within whichthe benefits of these assets are expected to be realized taking into account actual historicalinformation on the use of such assets as well as industry standards and averages applicable to theCompany’s assets. The Company reviews annually the EUL of property and equipment.A reduction in EUL of property and equipment would increase the recorded depreciation expenseand decrease noncurrent assets.

The net book value of property and equipment amounted to P=1,652,972,769 and P=1,681,456,399as of December 31, 2013 and 2012, respectively (see Note 9).

Impairment of property and equipment and other non-financial assetsInternal and external sources of information are reviewed at each balance sheet date to identifyindications that the property and equipment may be impaired or an impairment loss previouslyrecognized no longer exists or may be decreased. If any such indication exists, the recoverableamount of the asset is estimated. An impairment loss is recognized whenever the carrying amountof an asset exceeds its recoverable amount. The Company assesses the impairment of assetswhenever events or changes in circumstances indicate that the carrying amount of an asset maynot be recoverable. The factors that the Company considers important which could trigger animpairment review include the following:

· significant underperformance relative to expected historical or projected future operatingresults;

· significant changes in the manner of use of the assets or the strategy for the overall business;and

· significant negative industry or economic trends.

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The Company has not identified any events or changes in circumstances that would indicateimpairment of property and equipment and other non-financial assets.

The carrying value of property and equipment amounted to P=1,652,972,769 and P=1,681,456,399 asof December 31, 2013 and 2012, respectively (see Note 9). The carrying value of othernon-financial assets amounted to P=266,748,724 and P=230,831,271 as of December 31, 2013 and2012, respectively (see Notes 6, 7, 8 and 10).

Realizability of deferred income tax assetsThe Company reviews the carrying amounts of deferred income tax assets at each balance sheetdate and reduces it to the extent that it is no longer probable that sufficient taxable income will beavailable to allow all or part of the deferred income tax assets to be utilized. Management believesthat it can generate sufficient taxable income to allow all or part of its deferred income tax assetsto be utilized.

The Company recognized deferred income tax assets amounting to P=53,443,587 and P=45,293,364as of December 31, 2013 and 2012, respectively (see Note 20). No deferred income tax assetswere recognized on deductible temporary difference amounting to P=2,800,923 as of December 31,2013.

Pension and other retirement benefitsThe determination of the obligation and the cost of pension and other retirement benefits isdependent on the selection of certain assumptions used by actuaries in calculating such amounts.Those assumptions are described in Note 16, and include among others, discount rates and salaryincrease rates. In accordance with PFRS, actual results that differ from the Company’sassumptions are accumulated and amortized over future periods and therefore, generally affect therecognized expense and recorded obligation in such future periods. While the Company believesthat the assumptions are reasonable and appropriate, significant differences in the actualexperience or significant changes in the assumptions may materially affect the pension and otherretirement obligation.

The carrying amount of the Company’s pension obligation was P=110,677,483 and P=74,068,656 asof December 31, 2013 and 2012, respectively (see Note 16).

Fair value of financial instrumentsWhere the fair value of financial assets and financial liabilities recorded in the balance sheetcannot be derived from active markets, they are determined using valuation techniques includingthe discounted cash flows model. The inputs to these models are taken from observable marketswhere possible, but where this is not feasible, a degree of judgment is required in establishing fairvalues. The adjustments include considerations of inputs such as liquidity risk, credit risk andvolatility. Changes in assumptions about these factors could affect the reported fair values offinancial instruments.

The fair values of the Company’s financial assets amounted to P=986,900,712 and P=765,472,867 asof December 31, 2013 and 2012, respectively, and financial liabilities amounted toP=1,717,013,495 and P=1,313,187,086 as of December 31, 2013 and 2012, respectively (see Note25).

ContingenciesIn the ordinary course of business, the Company is a defendant in various litigations and claims.The Company has an ongoing case with the Court of Tax Appeals. The estimate of the probable

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costs for the resolution of these claims and cases has been developed in consultation with internaland external legal counsels handling the Company’s defense in these matters and is based upon ananalysis of potential results. Although there can be no assurances, management and its legalcounsels believe that the ultimate resolution of these legal proceedings would not likely have amaterial, adverse effect on the results of its operations, financial position or liquidity of theCompany. It is possible, however, that the future results of operations could be materially affectedby changes in estimates or in the effectiveness of the strategies relating to these litigations andclaims.

5. Cash and Cash Equivalents

2013 2012Cash on hand and in banks P=110,679,597 P=53,193,593Short-term placements – 138,000,000

P=110,679,597 P=191,193,593

Cash in banks earn interest at the respective bank deposit rates. Short term-placements are madefor varying periods of up to three months depending on the immediate cash requirements of theCompany and earn interest at the respective short-term placements rates.

Interest income from bank deposits and short-term placements, net of final tax, amounted toP=619,433, P=1,305,882 and P=1,053,292 in 2013, 2012 and 2011, respectively (see Note 19).

6. Trade and Other Receivables

2013 2012Trade: Third parties P=562,834,858 P=448,488,571 Related parties (see Note 23) 250,732,433 111,925,737

813,567,291 560,414,308Less allowance for impairment losses 24,824,100 23,027,649

788,743,191 537,386,659Others: Deposit to suppliers 60,434,829 57,276,635 Insurance claims 17,338,412 6,267,193 Advances 5,499,118 5,997,597 Officers and employees 1,083,883 1,181,066 Others 26,322,368 7,234,127

110,678,610 77,956,618Less allowance for impairment losses 9,239,533 9,239,533

101,439,077 68,717,085P=890,182,268 P=606,103,744

Trade receivables are noninterest-bearing and are generally on a 30-day term.

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Rollforward of allowance for impairment losses follows:

2013 2012Balances at beginning of year P=32,267,182 P=40,017,965Provisions (see Note 15) 1,796,451 3,565,174Reversal – (3,017,139)Write-off – (8,298,818)

P=34,063,633 P=32,267,182

7. Inventories - at cost

2013 2012Fuel, diesel and lubricants P=26,283,283 P=26,132,311Materials and spare parts 3,600,705 4,327,966

P=29,883,988 P=30,460,277

Fuel and supplies inventories recorded under “Cost of services”, “Terminal expenses”, and“General and administrative expenses” amounted to P=519,104,920, P=47,303,760, P=2,352,123,respectively, in 2013 and P=614,254,542, P=49,696,263, P=2,621,261, respectively, in 2012(see Notes 13, 14 and 15).

8. Prepayments and Other Current Assets

2013 2012Creditable withholding tax (CWT) P=127,178,889 P=107,217,467Deferred input VAT 45,685,357 31,794,784Prepaid insurance 2,884,414 2,258,048Prepaid importation charges 534,499 1,824,058Loan receivable - current portion 1,100,041 1,001,523

P=177,383,200 P=144,095,880

Deferred input tax pertains to VAT from purchases and/or importations of various parts, supplies,equipment, machineries and or capital goods which will be claimed as credit against output taxliabilities in a manner prescribed by pertinent revenue regulations. As of year-end, it consists ofthe balance of the deferred input tax on capital goods exceeding P=1 million as well as theunapplied Input VAT pertaining to the last month’s transactions of the current taxable year. Inputtax on capital goods shall be claimed on a staggered basis over 60 months or the useful life of therelated assets, whichever is shorter.

CWTs represent the amount withheld by the Company’s customers in relation to its sale ofservices. These are recognized upon collection of the related sales and are utilized as tax creditsagainst income tax due as allowed by the Philippine taxation laws and regulations.

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9. Property and Equipment

2013

LandLand

Improvements

Vessels andDrydocking

Costs

ContainerVans and

Improvements

Buildings,Warehouses,

TerminalPremises and

Equipmentand LeaseholdImprovements

OfficeFurniture and

EquipmentTransportation

Equipment

VesselTools and

Equipment Total

CostBalances at beginning of

year P=17,124,468 P=15,272,566 P=2,270,978,574 P=693,109,967 P=333,636,024 P=58,201,132 P=35,775,135 P=210,704,672 P=3,634,802,538Additions – – 176,098,416 69,294,449 1,214,055 11,632,440 833,036 65,674,700 324,747,096Disposals/write-off – – (167,377,895) (25,367,163) – – (621,818) – (193,366,876)Balances at end of year 17,124,468 15,272,566 2,279,699,095 737,037,253 334,850,079 69,833,572 35,986,353 276,379,372 3,766,182,758

Accumulated depreciationBalances at beginning of

year – 15,162,145 997,841,510 458,976,215 300,002,909 50,126,898 22,693,668 108,542,794 1,953,346,139Depreciation for the year – 110,421 196,208,605 39,672,120 5,365,113 4,768,350 3,741,037 69,899,024 319,764,670Disposals/write-off – – (136,429,406) (22,880,323) – – (591,091) – (159,900,820)Balances at end of year – 15,272,566 1,057,620,709 475,768,012 305,368,022 54,895,248 25,843,614 178,441,818 2,113,209,989Net book value P=17,124,468 P=– P=1,222,078,386 P=261,269,241 P=29,482,057 P=14,938,324 P=10,142,739 P=97,937,554 P=1,652,972,769

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2012

LandLand

Improvements

Vessels andDrydocking

Costs

ContainerVans and

Improvements

Buildings,Warehouses,

TerminalPremises and

Equipmentand LeaseholdImprovements

OfficeFurniture and

EquipmentTransportation

Equipment

VesselTools and

Equipment Total

CostBalances at beginning of

year P=17,124,468 P=15,272,566 P=2,749,103,511 P=652,696,816 P=353,027,374 P=56,318,696 P=31,964,205 P=157,368,025 P=4,032,875,661Additions – – 269,058,160 83,687,462 1,682,320 1,882,436 5,331,380 66,199,793 427,841,551Disposals/write-off – – (747,183,097) (43,274,311) (21,073,670) – (1,520,450) (12,863,146) (825,914,674)Balances at end of year 17,124,468 15,272,566 2,270,978,574 693,109,967 333,636,024 58,201,132 35,775,135 210,704,672 3,634,802,538

Accumulated depreciationBalances at beginning of

year – 13,001,313 1,458,781,835 463,623,925 309,573,705 46,933,353 20,199,282 60,803,376 2,372,916,789Depreciation for the year – 2,160,832 229,041,075 34,445,269 7,610,119 3,193,545 3,603,131 53,817,336 333,871,307Disposals/write-off – – (689,981,400) (39,092,979) (17,180,915) – (1,108,745) (6,077,918) (753,441,957)Balances at end of year – 15,162,145 997,841,510 458,976,215 300,002,909 50,126,898 22,693,668 108,542,794 1,953,346,139Net book value P=17,124,468 P=110,421 P=1,273,137,064 P=234,133,752 P=33,633,115 P=8,074,234 P=13,081,467 P=102,161,878 P=1,681,456,399

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In 2013, some parts of a vessel with a net book value of P=30,948,489 were damaged andsubsequently derecognized which resulted to a loss on disposal (see Note 18).

On January 30, 2012, the Company entered into a Memorandum of Agreement with a third partyfor the purchase of vessel.

On July 14, 2012, the Company entered into a Memorandum of Agreement with a third party forthe sale of one of the Company’s vessels, which has a net book value amounting to P=65,122,585 atthe time of the sale. Loss recognized on the sale amounted to P=41,960,885 (see Note 18).

In 2012, the Company sold various delivery vans which resulted to recognition of gain amountingto P=4,483,121 (see Note 18).

To ensure the maintenance of the vessels in accordance with international standards, the Companyhas availed of the services of a related party to oversee the regular upgrading and maintenance ofthe vessels (see Note 23).

The balance of property and equipment as of December 31, 2013 and 2012 includes fullydepreciated assets still in use amounting to P=551,887,118 and P=575,705,600, respectively.

Certain vessels with carrying values of P=1,037,435,970 and P=1,167,123,236 as ofDecember 31, 2013 and 2012, respectively, are used as chattel mortgage securities for long-termborrowings (see Note 12).

Property and equipment include the following amounts where the Company is a lessee under afinance lease (see Note 24):

2013 2012Cost P=233,856,582 P=186,201,055Less accumulated depreciation 62,385,850 36,525,646Net book value P=171,470,732 P=149,675,409

10. Other Noncurrent Assets

2013 2012Deposits - net (see Note 24) P=6,644,834 P=11,236,096Loan receivable - net of current portion 3,740,463 4,840,504Investment in associate – 160,762Others 699,335 699,335

P=11,084,632 P=16,936,697

On November 2012, the Company entered into a Memorandum of Agreement with an agency(the debtor) for a five year term loan amounting to P=6,000,000. The loan receivable is due onOctober 2017, subject to 9% per annum and shall be equally amortized for 60 months. The loan issecured by a chattel mortgage on a land-based equipment.

On April 20, 2011, the Company and its related party NMC Container Lines Inc. (NMCCLI)incorporated One Team Services Inc. (OTSI), in the Philippines owning 50% each, primarily toengage in the business of operating and maintaining cargo handling services including theoperation, ownership, acquisition, and/or lease of the proper and necessary transport and cargo

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handling equipment. As of December 31, 2013, OTSI has not started its commercial operations.

Selected financial information of the associate as of December 31, 2013 and 2012 and for theyears then ended follows:

2013 2012Total assets P=514,131 P=502,042Total liabilities 3,230,556 103,682Total equity (capital deficiency) (793,901) 398,360Proportion of the Company’s ownership 50% 50%Carrying value – 160,762

2013 2012Income P=1,056 P=1,137Expenses (1,116,480) (77,974)Net loss P=1,115,424 P=76,837

Equity in net loss of OTSI amounted to P=160,762 and P=50,820 in 2013 and 2012, respectively.OTSI has not declared dividends in 2013 and 2012.

11. Accounts Payable and Accrued Expenses

2013 2012Trade: Third parties P=167,675,674 P=143,974,176 Related parties (see Note 23) 73,835,901 52,565,296Output VAT 112,442,449 75,459,162Accrued expenses:

Repairs, maintenance and supplies for vessels 32,687,564 3,002,247Outside services 26,586,922 9,675,023Hustling, trucking and labor services 19,476,616 11,719,564Others 7,852,528 6,416,154

Dividends payable (see Note 21) 24,169,757 28,185,465Other taxes payable 5,444,165 4,923,399Customer deposits 3,216,630 3,122,594Customer claims 613,783 613,783Others 10,398,251 17,823,044

P=484,400,240 P=357,479,907

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12. Borrowings

Short-term borrowings from local banks bear annual interest at 4.00% to 4.25% and 4.25% to5.25% in 2013 and 2012, respectively. Short-term borrowings are secured by trade receivableswith carrying amount of about P=35.0 million.

Long-term borrowings consist of:

2013 2012

Balance of loan obtained from Banco de Oro (BDO) of P=450.0 million,maturing on July 7, 2014 and payable in 7 equal semi-annualinstallments of P=12.5 million until October 2011, 5 equal semi-annual installments of P=27.5 million starting April 2012 untilApril 2014. Annual interest rate is equal to the PDST-F plus 2.5%or the simple average of PHIBOR and PDST-F rate when PHIBORrate is 2.0% higher than the corresponding PDST-F. Interest isrepriced and paid quarterly. Interest rates range from 3.50% to3.75% in 2013 and 4.00% to 4.74% in 2012. P=227,500,000 P=282,500,000

Balance of loan obtained from Metropolitan Bank & Trust Company(MBTC) of P=238.0 million, P=50.0 million was availed lastApril 20, 2012 and will mature on April 20, 2019, P=138.0 millionwas availed last May 15, 2012 and will mature on May 15, 2019.The loan is payable in quarterly installments of P=2.0 million for thefirst drawdown and P=7.5 million for the second drawdown with oneyear grace period. Interest is paid and repriced quarterly.Annual interest rate is equal to PDST-F plus minimum of 1.25%spread inclusive of Gross Receipts Tax rate (GRT), or the BSPOvernight lending rate plus GRT, whichever is higher at the time ofthe repricing. Interest rates range from 3.00% to 3.50% in 2013 andfrom 3.25% to 3.79% in 2012. 208,745,427 237,013,750

Balance of loan obtained from BDO of P=225.0 million, maturing onMarch 16, 2017 and payable quarterly in 16 equal quarterlyinstallments starting June 16, 2013. Annual interest rate is equal toPDST-F plus applicable spread and tax. Interest rates range from3.50% to 3.80% in 2013 and 4.00% to 4.50% in 2012. 182,394,942 224,282,289

Balance of loan obtained from MBTC of P=130.0 million. P=60.0 millionwas availed last June 2, 2011 and will mature on June 2, 2014,P=40.0 million was availed last July 29, 2011 and will mature onJuly 29, 2014, while P=30.0 million was availed lastOctober 26, 2011 and will mature on October 24, 2014. The loan ispayable in quarterly installments of P=6.5 million with one yeargrace period and with a balloon payment of principal on the thirdyear amounting to P=84.5 million. Interest is paid monthly andrepriced quarterly. Annual interest rate is equal to PDST-F plusminimum of 1.25% spread inclusive of GRT, or the BSP Overnightlending rate plus GRT, whichever is higher at the time of therepricing. Interest rates range from 3.00% to 3.44% in 2013 and3.00% to 4.74% in 2012. 92,500,000 118,500,000

711,140,369 862,296,039Less current portion - net of deferred financing cost 411,871,048 213,979,430

P=299,269,321 P=648,316,609

The long-term borrowings are secured by chattel mortgages on certain vessels with carrying

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values of P=1,037,435,970 and P=1,167,123,236 as of December 31, 2013 and 2012, respectively(see Note 9). Certain lenders require the Company to maintain financial ratios as stipulated in theloan agreements. As of December 31, 2013 and 2012, the Company is compliant with the requiredratios.

Deferred financing costs were incurred in connection with the financing arrangement. These costare amortized, using the effective interest rate method, over the term of the related loans.

Rollforward analysis of deferred financing costs follows:

2013 2012Cost:

Balances at beginning of period P=2,907,515 P=1,717,515Addition – 1,190,000

2,907,515 2,907,515Accumulated amortization:

Balances at beginning of period 1,203,558 302,534Amortization for the period 591,830 901,024

Balances at end of period 1,795,388 1,203,5581,112,127 1,703,957

Less current portion 458,952 515,154P=653,175 P=1,188,803

13. Cost of Services

2013 2012 2011Materials, supplies and facilities (see Note 7) P=519,104,920 P=614,254,542 P=598,753,108Outside services 487,331,372 442,448,570 340,465,320Depreciation (see Note 9) 266,107,629 282,856,712 315,109,996Personnel (see Note 17) 95,815,974 94,164,465 97,054,326Voyage 52,560,999 58,441,689 48,560,098Vessel insurance (see Note 23) 31,224,966 28,754,824 26,419,749Others 3,317,471 3,589,014 31,801,531

P=1,455,463,331 P=1,524,509,816 P=1,458,164,128

14. Terminal Expenses

2013 2012 2011Rental (see Note 24) P=55,885,072 P=49,172,804 P=50,350,341Materials, supplies and facilities (see Note 7) 47,303,760 49,696,263 54,177,618Depreciation (see Note 9) 44,932,893 44,003,158 39,158,052Outside services 42,954,719 46,580,208 63,233,745Personnel (see Note 17) 29,690,040 26,575,100 27,391,081Others 7,700,635 7,487,805 9,310,275

P=228,467,119 P=223,515,338 P=243,621,112

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15. General and Administrative Expenses

2013

2012(As restated;

Note 2) 2011Personnel (see Note 17) P=86,147,813 P=84,822,432 P=77,868,529Outside services 30,187,421 11,468,970 13,742,413Rental (see Note 24) 9,248,030 8,430,863 8,690,119Depreciation (see Note 9) 8,724,148 7,011,437 6,449,610Communication, light and water 8,039,764 6,899,314 7,176,743Transportation and travel 3,438,836 3,505,463 3,728,104Taxes and licenses 2,851,147 4,752,988 3,562,886Supplies (see Note 7) 2,352,123 2,621,261 2,520,616Impairment losses: Trade and other receivables (see Note 6) 1,796,451 3,565,174 27,043,379 Deposits – 993,092 –Repairs and maintenance 1,270,356 1,187,638 1,518,090Entertainment, amusement and recreation 1,104,987 1,353,276 1,253,193Employees’ training and staff meeting 677,142 3,317,151 1,479,616Advertising 185,915 291,104 574,226Membership fees 76,100 64,600 184,738Others 2,603,086 1,270,878 1,754,473

P=158,703,319 P=141,555,641 P=157,546,735

16. Pension Cost

The Company maintains a funded, tax qualified, non-contributory retirement plan covering all itseligible employees. Under the provisions of the plan, the normal retirement age is 60 butemployees with at least 20 years of credited services for sea-staff and 15 years for shore-staff canavail of an early retirement. The retirement plan is intended to provide lump-sum benefitpayments to employees equal to 150% of monthly salary per year for shore-based employees and35 days pay per year of service for sea-based employees.

The Company’s retirement benefit fund (“Fund”) is in form of a trust being maintained andmanaged by BPI Asset Management. In 2012, other than contributions to the Fund, there is notransaction between the Company and the Fund.

Under the existing regulatory framework, Republic Act 7641 requires a provision for retirementpay to qualified private sector employees in the absence of any retirement plan in the entity,provided however that the employee’s retirement benefits under any collective bargaining andother agreements shall not be less than those provided under the law. The law does not requireminimum funding of the plan.

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The following tables summarize the components of net benefit expense recognized in thestatements of income and the funded status and amounts recognized in the balance sheets for thePlan.

2013

2012(As restated;

see Note 2) 2011Retirement expense to be recognized in the statements of

income:Current service cost P=8,113,400 P=6,713,927 P=7,415,348Net interest cost 3,471,972 3,067,590 6,467,808Effect of curtailment – (7,391,300) –Settlements – 9,607,484 –

P=11,585,372 P=11,997,701 P=13,883,156

2013

2012(As restated;

see Note 2)

2011(As restated;

see Note 2)Re-measurement effects to be recognized in other

comprehensive income: Actuarial loss (gain) on defined benefit obligation P=31,097,465 P=14,774,607 (P=10,517,400) Return on assets excluding amount included in net

interest cost 283,198 (315,712) 950,549P=31,380,663 P=14,458,895 (P=9,566,851)

Movements in the pension liability are as follows:

2013

2012(As restated;see Note 2)

Balances at beginning of year P=74,068,656 P=65,286,775Net benefit costs in statements of income: Current service cost 8,113,400 6,713,927 Net interest cost 3,471,972 3,067,590

Effect of curtailment – (7,391,300)Settlements – 9,607,484

11,585,372 11,997,701Net benefit costs in statements of comprehensive income:Actuarial loss due to: Experience adjustments 6,665,465 2,211,685 Changes in financial assumptions 24,432,000 12,562,922 Actual return excluding amount included in net

interest cost 283,198 (315,712)31,380,663 14,458,895

Actual contributions (1,000,000) (6,000,000)Benefits paid (5,357,208) (11,674,715)

P=110,677,483 P=74,068,656

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Pension liability - net

2013

2012(As restated;

see Note 2)Fair value of plan assets P=15,212,718 P=13,679,413Present value of obligation (125,890,201) (87,748,069)Pension liability (P=110,677,483) (P=74,068,656)

Changes in the present value of the defined benefit obligation are as follows:

2013


Balances at beginning of year P=87,748,069 P=72,089,247Net benefit costs in statements of income: Current service costs 8,113,400 6,713,927 Interest cost 4,288,475 3,628,819 Effect of curtailment – (7,391,300)

12,401,875 2,951,446Re-measurements in other comprehensive incomeActuarial loss due to: Experience adjustments 6,665,465 2,211,685 Changes in financial assumptions 24,432,000 12,562,922

31,097,465 14,774,607Benefits paid for voluntary separation (5,357,208) (2,067,231)Balances at end of year P=125,890,201 P=87,748,069

Changes in the fair value of plan assets are as follows:

2013


Balances at beginning of year P=13,679,413 P=6,802,472Interest income included in net interest cost 816,503 561,229Actual return excluding amount included in net interest

cost (283,198) 315,712Actual contributions 1,000,000 6,000,000Balances at end of year P=15,212,718 P=13,679,413

The fair value of plan assets by each class as at the end of the reporting period are as follows:

2013 2012Cash and fixed-income investments P=15,238,204 P=13,701,167Less other liabilities 25,486 21,754Fair value of plan assets P=15,212,718 P=13,679,413

All equity instruments held have quoted prices in active market. The remaining plan assets do nothave quoted market prices in active market. The plan assets have diverse investments and do nothave any concentration risk.

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The principal assumptions used as of December 31, 2013 and 2012 in determining pension benefitobligations net pension asset for the Company’s Plan are shown below:

2013 2012Discount rate 4.94% 5.61%Salary increase rate: Land-based 6.00% 4.00% Sea-based 3.00% 4.00%

The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation as of December 31, 2013, assuming allother assumptions were held constant:

Increase (decrease)in basis points

Effect on definedbenefit obligation

Discount rates 100 (P=12,357,200)(100) 14,581,400

Future salary increases 100 P=13,763,100(100) (11,925,400)

The Company’s defined benefit pension plan is funded by the Company.

The Company expects to contribute P=3,000,000 to the defined benefit plan in 2014.

The average duration of the defined benefit obligation as of December 31, 2013 is 17.33 years.

17. Personnel Expenses

2013

2012(As restated;

see Note 2) 2011Salaries and wages P=153,688,768 P=154,070,651 P=140,413,601Other employee benefits 46,379,687 39,493,645 48,017,179Pension costs (see Note 16) 11,585,372 11,997,701 13,883,156

P=211,653,827 P=205,561,997 P=202,313,936

18. Other Income (Charges) - net

2013 2012 2011Income from insurance claims P=55,236,014 P=11,739,881 P=14,263,188Gain (loss) on disposal of property

and equipment - net (see Note 9) (27,399,907) (37,477,764) 14,325,068Equity in net loss of an associate

(see Note 10) (160,762) (89,239) –Rental income and others 1,618,215 1,376,663 4,425,139

P=29,293,560 (P=24,450,459) P=33,013,395

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19. Finance Costs and Other Charges - net

2013 2012 2011Interest expense: Borrowings (see Note 12): Long-term borrowings P=26,186,594 P=32,482,034 P=28,572,039 Short-term borrowings 3,736,196 2,413,169 3,429,132 Obligations under finance lease

(see Note 24) 3,001,093 1,506,765 1,001,370Foreign exchange losses (gains) - net 10,134,912 (10,052,017) 4,450,551Banks and other financing charges 1,607,348 1,685,724 456,317Interest income (see Note 5) (619,433) (1,305,882) (1,053,292)

P=44,046,710 P=26,729,793 P=36,856,117

20. Income Taxes

The Company’s current provision for income tax represents minimum corporate income tax(MCIT) in 2013, 2012 and 2011.

The reconciliation of income tax computed at the statutory income tax rate to benefit from incometax as shown in the statements of income is as follows:

2013

2012(As restated;

see Note 2) 2011Income tax at statutory income tax rate

of 30% P=3,575,137 P=17,898,126 P=1,871,341Additions to (reductions in) income

tax resulting from: Unrecognized deferred income tax asset 2,800,923 – – Nondeductible expenses 828,067 456,155 213,114 Equity in net loss of an associate 48,228 161,221 130,245 Interest expense limitation 18,499 15,240 – Interest income subjected to final tax (44,970) (391,765) (315,988) Income subject to income tax holiday

(see Note 28) (5,632,964) (21,459,507) (6,835,218)P=1,592,920 (P=3,320,530) (P=4,936,506)

In 2013, the Company did not recognized deferred income tax asset on MCIT amounting toP=2,800,923.

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The components of the net deferred income tax asset are as follows:

2013

2012(As restated;

see Note 2)Deferred income taxes recognized in the statement of

income:Deferred tax assets: Retirement benefit obligation P=18,833,712 P=18,927,029 Allowance for impairment losses on receivables 10,766,144 10,512,306 Net operating loss carry over (NOLCO) 2,306,993 7,272,008 MCIT 5,482,409 5,482,409 Unrealized foreign exchange loss 3,540,518 –

40,929,776 42,193,752Deferred tax liabilities: Unrealized foreign exchange gain – (2,294,430) Deferred financing cost (196,274) (373,823)

(196,274) (2,668,253)Deferred income tax asset related to retirement benefit

obligation recognized directly in equity 12,513,811 3,099,612P=53,247,313 P=42,625,111

The Company has available NOLCO and MCIT which can be claimed as credit against regulartaxable income and regular tax liability, respectively, as follows:

Year Incurred Availment Period Amount Applied/Expired BalanceNOLCO2012 2013-2015 P=20,332,455 P=12,642,478 P=7,689,9772011 2012-2014 3,907,570 3,907,570 –

P=24,240,025 P=16,550,048 P=7,689,977

MCIT2013 2014-2016 P=2,654,175 P=– P=2,654,1752012 2013-2015 2,003,485 – 2,003,4852011 2012-2014 3,478,924 – 3,478,924

P=8,136,584 P=– P=8,136,584

21. Equity

Capital StockOn July 22, 1996, the Company listed with the PSE its common stock, wherein it offered300,751,880 shares to the public at the issue price of P=5.96 per share.

On September 4, 2006, the SEC approved the increase in the Company’s authorized capital stockfrom P=700.0 million divided into 400.0 million common shares, and 300.0 million preferredshares, both with a par value of P=1.0 per share, to P=1.0 billion divided into 895,058,756 commonshares and 104,941,244 preferred shares, both with a par value of P=1.0 per share. In separatemeetings, the BOD and the shareholders resolved that the increase of the authorized capital stockshall be funded by the declaration of stock dividends equivalent to 75,187,967 common shareswith a par value of P=1.0 per share. On October 3, 2006, the PSE approved the application of theCompany to list additional shares relating to the issuance of stock dividends.

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On December 29, 2006, certain shareholders owning 96,125,243 preferred shares opted to converttheir shares into 1 common share per 1 preferred share, plus stock dividends equivalent to 86.96%common share for every preferred share (equivalent to 83,587,161 shares). The Company filedForm 10.1 with SEC for the exemption from registration requirements of the converted96,125,243 preferred shares into 179,712,404 common shares.

On September 21, 2007, the SEC approved the amendment of Article VII of the Company’sArticles of Incorporation through the retirement of 8,816,001 preferred shares and conversion of96,125,243 preferred shares into common shares resulting in the reduction of the Company’sauthorized capital stock to 991,183,999 with par value of P=1.0 per share.

On November 28, 2007, the PSE has approved the Company’s application to list additional96,125,243 common shares to cover the underlying common shares for the conversion of a total of96,125,243 preferred shares at a conversion rate of one (1) common share for every one (1)convertible preferred share. In addition, the PSE has approved the application of the Company tolist additional 83,587,161 common shares, with a par value of P=1.0 per share, to cover the 86.96%stock dividend declaration to the stockholders who opted to convert their preferred shares tocommon shares in 2007.

As of December 31, 2013, 2012 and 2011, the Company has 979, 996 and 1,015 shareholders,respectively.

Retained EarningsAppropriated retained earnings represent amounts for the payments of loan amortization. OnDecember 13, 2012, the BOD approved the reversal of the appropriated retained earnings.

On June 27, 2013, the BOD has declared and issued in favor of common shareholders of record asof July 12, 2013 cash dividends amounting to three centavos (P=0.025) per share, or an aggregateamount of P=13,866,056.

On June 21, 2012, the BOD has declared and issued in favor of common shareholders of record asof July 6, 2012 cash dividends amounting to one and one half centavos (P=0.015) per share, or anaggregate amount of P=8,319,634.

On May 20, 2011, the BOD has declared and issued in favor of common shareholders of record asof June 17, 2011 cash dividends amounting to three centavos (P=0.03) per share, or an aggregateamount of P=13,891,307.

Treasury SharesOn March 11, 2011, the BOD approved the acquisition of 1,010,000 shares of stock of theCompany. On June 23, 2011, the Company acquired 1,010,000 shares of its own outstandingshares for a total consideration of P=3,125,850.

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22. Earnings Per Share

Following are the bases for the computation of EPS as of December 31:

2013 2012 2011Basic/diluted earningsNet income available to common

shareholders P=10,470,952 P=62,980,946 P=11,174,308

Weighted average number ofoutstanding common shares 554,642,251 554,642,251 554,642,251

Basic/diluted EPS P=0.02 P=0.11 P=0.02

For the years ended December 31, 2013, 2012 and 2011, there were no shares of stock that have apotentially dilutive effect on the basic EPS of the Company.

23. Related Party Transactions

Parties are considered to be related if one party has the ability to control, directly or indirectly, theother party or exercise significant influence over the other party in making financial and operatingdecisions. Parties are also considered to be related if they are subject to common control orcommon significant influence. Related parties may be individuals or corporate entities.

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The following are the more significant related party transactions and balances as of and for the years ended December 31, 2013, 2012 and 2011 notseparately shown elsewhere in the financial statements.

Related Parties Year Freight Revenue Purchases

ManagementFees

(Note 13)Reimbursable

Expenses

Insurance,Rental,

GuaranteeFee, and

Other Services

AmountsOwed by

Related Parties(Note 6)

AmountsOwed to

Related Parties(Note 11) Terms Conditions

Parent:

NMC 2013 P=3,619,173 P=– P=– P=– P=4,182,881 P=355,909 P=2,125,931 Brokerage Fee - Payable withinthe following month

Unsecured;No Impairment2012 13,877,692 – – – 9,797,638 3,187,289 955,985

2011 – – – – 3,435,771 16,918,916 4,895,824Affiliates:

One Stop Logistics Solutions,Inc. (OSLI)

2013 11,336,734 – – 18,289 9,317,342 52,372,124 3,127,372 Trucking - Payable within themonth

Unsecured;No Impairment2012 30,305,130 – – 59,031 6,005,873 46,677,980 3,098,556

2011 28,735,654 – – 77,628 9,719,271 44,476,860 3,976,258

NMC Container Lines, Inc.(NMCCLI)

2013 190,664,286 – – 1,472,796 42,049,430 180,448,022 34,541,837 Co-loading/Reimbursables -Payable within the followingmonth

Unsecured;No Impairment2012 101,233,615 – – 8,449,061 30,050,895 40,098,898 22,968,038

2011 46,338,002 – – 8,870,499 23,906,598 43,434,010 28,660,182

All Asian Countertrade 2013 38,132,121 – – – – 8,120,629 – Freight - Collectible in 30 daysafter receipt of Bill

Unsecured;No Impairment2012 40,021,435 – – – – 12,715,150 –

2011 19,945,165 – – – – 7,456,641 258,550

Magsaysay Shipmanagement,Inc. (MSI)

2013 – – 31,599,845 – 1,482,221 4,240,460 10,369,905 Revolving Fund Replenishment -Payable 5 days after receipt

Unsecured;No Impairment2012 – – 31,067,546 – 16,791,080 4,045,914 251,283

2011 – – 32,529,532 – 38,906,051 3,675,958 20,188,811

Magsaysay Marine Services,Inc. (MMSI)

2013 – – – – 27,016,512 843,215 5,473,618 Container Repair - Payablewithin the following month

Unsecured;No Impairment2012 – – – – 28,398,777 748,815 1,864,755

2011 – – – – 42,905,683 845,390 18,634,148

Oceanic Container Lines, Inc. 2013 56,704 – – – 12,746,310 222,179 90,688 Co-loading - Payable in 30 days Unsecured;No Impairment2012 124,860 – – – 2,940,285 222,179 337,857

2011 884,831 – – – 3,191,013 193,313 382,855

One Stop WarehousingSolution, Inc. (OSWSI)

2013 – – – 67,388 23,897,954 1,642,200 5,295,437 Various Unsecured;No Impairment2012 – – – – – – –

2011 – – – – – – –

Road Link Solutions, Inc.(RLSI)

2013 – – – 5,341,147 52,156,134 – 6,142,771 Various Unsecured;No Impairment2012 – – – – – – –

2011 – – – – – – –

(Forward)

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Related Parties Year Freight Revenue Purchases

ManagementFees

(Note 13)Reimbursable

Expenses

Insurance,Rental,

GuaranteeFee, and

Other Services

AmountsOwed by

Related Parties(Note 6)

AmountsOwed to

Related Parties(Note 11) Terms Conditions

OYG Transport Inc. 2013 P=– P=– P=– P=– P=1,572,192 P=– P=55,957 Trucking - Payable in 15 days Unsecured;No Impairment2012 – – – – 1,808,973 – 50,990

2011 – – – – 2,809,509 – 37,125

Magsaysay HoulderInsurance Brokers, Inc.(MHIBI)

2013 – – – – 13,419,233 69,287 41,509 Insurance - Payable in 30 days Unsecured;No Impairment2012 – – – – 10,443,320 – 35,954

2011 – – – – 7,269,356 – 240,074

Asiaport Equipment andLogistics Corp. (AELC)

2013 – – – – 33,043,898 – 2,351,749 Lift on/lift off - Payable in 30days

Unsecured;No Impairment2012 – – – – 41,134,049 – 2,799,660

2011 – – – – 77,136,350 – 13,273,352

Marine Fuels Philippines,Inc. (MFPI)

2013 – – – – – – – Fuel - Payable in 30 days Unsecured;No Impairment2012 – 99,092 – – – – –

2011 – 31,333,634 – – – – 999,476

Other shareholders:

Dumaguete Coconut Mills,Inc. (DCM)

2013 3,816,683 – – – 897,818 724,749 Rental - first 5 days of the month Unsecured;No Impairment2012 9,518,494 – – – 4,726,077 321,995 34,525

2011 3,567,683 – – – 946,107 3,133,249 131,053

Tao Commodity Trader, Inc.(TAO)

2013 – 112,295,243 – – – – 664,878 Fuel - Payable in 30 days Unsecured;No Impairment2012 – 75,646,717 – – – – 12,762,216

2011 – 107,699,169 – – – – 7,343,408

Pioneer Insurance and SuretyCorp. (Pioneer)

2013 – – – – 17,602,883 – 2,454,304 Insurance - Quarterly payment,payable 1st day of the quarter

Unsecured;No Impairment2012 – – – – 22,539,594 – 4,244,721

2011 – – – – 15,935,435 – 4,909,683

Others 2013 449,843 – – – 13,256,971 1,693,659 1,099,945 Various Unsecured;No Impairment2012 578,813 – – – 21,888,536 3,907,517 3,160,756

2011 1,790,760 – – – 9,816,968 61,122 4,713,634Total 2013 P=248,075,044 P=112,295,243 P=31,599,845 P=6,899,620 P=252,641,779 P=250,732,433 P=73,835,901

2012 195,660,039 75,745,809 31,067,546 8,508,092 196,525,097 111,925,737 52,565,2962011 101,262,095 139,032,803 32,529,532 8,948,127 235,978,112 120,195,459 108,644,433

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Magsaysay Group of Companies:

· NMCCLI and MFPI are subsidiaries of NMC. NMCCLI has a co-loading agreement with theCompany while MFPI supplies fuel to the Company.

· MHIBI, a subsidiary of NMC’s parent, handles the marine cargo insurance requirements of theCompany.

· MSI is a subsidiary of NMC’s parent. The Company entered into a shipmanagementagreement with MSI whereby the Company appointed MSI as the manager of its vessels for aperiod of 12 months from January 1, 2012 to December 31, 2012.

· AELC is an associate of NMC. In 2008, the Company entered into an equipment and logisticsservices contract with AELC.

· OSLI, a wholly-owned subsidiary of NMC, is engaged in warehousing, project and rollingcargo handling and other cargo related services.

· MMSI, a subsidiary of NMC’s parent, is primarily engaged in ship repair including corrosioncontrol, container van repairs and other similar services.

· RLSI and OSWLI is a wholly-owned subsidiary of NMC.

Other Shareholders:

· TAO and DCM are substantially owned by Mr. Julio Sy, or his immediate family. TheCompany has a lease agreement with DCM, while TAO is one of the Company’s suppliers offuel for its vessels.

· Pioneer is the Company’s provider of protection and indemnity and hull and machineryinsurance for its vessels.

· Other related parties mentioned are businesses owned by various shareholders or directors ofthe Company and has transactions with the Company in the regular course of business.

Retirement Fund

The Company’s retirement fund is managed by BPI Asset Management (see Note 16).

Compensation of key management personnel:

2013 2012Short-term employee benefits P=17,446,473 P=15,650,164Post-employment benefits 1,586,515 1,354,495

P=19,032,988 P=17,004,659

24. Leases

Finance LeasesThe Company entered into separate lease purchase agreements with Cronos Containers Limited,SeaCube Containers LLC and Textainer Equipment Management Limited for the lease purchase ofdry van containers. Lease charges for each container shall commence on the first calendar day ofthe month following the month in which the container was delivered to the Company and shall

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continue for a period of 3-8 years and shall be payable in 36 monthly installments in accordancewith the terms and conditions of the lease purchase agreement.

The lease purchase agreement includes the following terms and conditions:

a. the Company shall pay the lessor for any event of loss as defined in the agreement equivalentto the stipulated loss value; and

b. provided the Company is not in default, the Company has the option to purchase thecontainers at the purchase price of US$1 per container at the end of the lease term.

The future minimum lease payments for the obligations under finance lease are as follows:

2013 2012Within one year P=36,298,342 P=28,746,532After one year but not more than five years 171,466,429 120,819,119After five years 3,182,139 22,252,468Total minimum lease obligations 210,946,910 171,818,119Less interest portion 48,790,277 40,058,378Present value of minimum lease obligations 162,156,633 131,759,741Less current portion 31,997,429 25,811,012Noncurrent portion P=130,159,204 P=105,948,729

Operating LeasesAs of December 31, 2013, the Company’s leases pertain to the lease of container yards,warehouses/offices, equipments and container vans under various lease agreements for a periodranging from 1 to 10 years until 2018. The minimum annual rental commitments on these leasesare presented below:

2013 2012Less than one year P=12,425,019 P=23,348,687More than one year but not more than five years 49,619,750 66,604,675

P=62,044,769 P=89,953,362

Deposits on the above agreements amounting to P=7,078,641 and P=6,942,341, in 2013 and 2012,respectively, is presented as part of “Other noncurrent assets” account in the balance sheets(see Note 10).

For the years ended December 31, 2013, 2012 and 2011, the Company’s operating leases werecharged to rental under “Terminal expenses” in the statements of income amounting toP=55,885,072, P=49,172,804 and P=50,350,341 and under “General and administrative expenses” inthe statements of income amounting to P=9,248,030, P=8,430,863 and P=8,690,119, respectively(see Notes 14 and 15).

25. Financial Instruments

Financial Risk Management Objectives and PoliciesRisk management is carried out by the Management Committee (ManCom) under policiesapproved by the Executive Committee (ExCom) and the BOD. Audit Committee identifies,evaluates, and hedges financial risks in close cooperation with the Company’s ManCom. ExCom

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and BOD approve written principles provided by ManCom for overall risk management, as well aswritten policies, covering specific ones such as internal control policies, freight policies,purchasing policies and operational policies among others.

The Company’s principal financial instruments consist of borrowings and obligations underfinance leases. The main purpose of these financial instruments is to raise funds for theCompany’s operations. The Company has various financial instruments such as cash and cashequivalents, trade and other receivables, deposits, loan receivable and others included under othernoncurrent assets, and accounts payable and accrued expenses which arise directly from itsoperations.

The Company’s activities expose it to a variety of financial risks. The Company’s overall riskmanagement program focuses on the unpredictability of financial markets and seeks to minimizepotential adverse effects on the Company’s financial performance. Consistent with prior year, theCompany’s policies for managing each of these risks are summarized below:

Fluctuations in freight rate and cargo volumesIn the cargo liner shipping industry, there are constant fluctuations in cargo volumes arising fromcompetition and changes in the market environment. Negative trends in cargo volumes and freightrates have an impact on the Company’s results of operations.

Fuel price fluctuationsPurchases of fuel to operate vessels are vital to the Company’s operations. The market price offuel is directly influenced by the price of crude oil in the world market. Any increase in the priceof crude oil and the related increase in the price of fuel will have a negative impact on theCompany’s earnings. The risk involving fuel price fluctuations are borne mostly by the customersas the Company is allowed to increase freight rates under General Rate Increase and AutomaticFuel Rate Adjustment.

Interest rate riskThe Company depends on funds procured from external sources to meet substantial capitalexpenditure requirements. The Company reviews its exposure to interest rate risk throughquarterly monitoring of actual figures against projections. Management believes that cashgenerated from operations is sufficient to pay its obligations under the loan agreements as they falldue.

The following tables set out the carrying amount as of December 31 by maturity, of theCompany’s financial instruments that are exposed to interest rate risk:

Floating Rate Within 1 Year 1-2 Years 2-5 Years Total

Long-term borrowings 2013 P=428,615,714 P=65,758,719 P=217,876,067 P=712,250,5002012 215,190,669 352,912,413 294,442,040 862,545,122

Fixed Rate Within 1 Year 1-2 Years 2-5 Years Total

Short-term borrowings 2013 P=232,458,822 P=– P=– P=232,458,8222012 39,200,000 – – 39,200,000

Obligations under financelease

2013 27,902,835 65,903,830 68,349,966 162,156,6312012 25,811,012 22,761,975 83,186,754 131,759,741

Interest on financial instruments classified as floating rate is repriced at intervals of less than one

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year. Interest on financial instruments classified as fixed rate is fixed until the maturity of theinstrument. The other financial instruments of the Company that are not included in the abovetables are noninterest-bearing and are therefore not subject to interest rate risk.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates,with all other variables held constant, of the Company’s income before tax (through the impact onfloating rate borrowings):

The sensitivity of the Company’s statement of income is the effect of assumed changes in interestrates based on the bank’s projection of 91-day interest rates using a combination of technicalanalysis and trending techniques.

There is no other impact on the Company’s equity other than those already affecting the statementof income.

Foreign currency riskThe Company’s foreign currency risk results primarily from the foreign exchange rate movementsof the Philippine peso against foreign currencies. The Company resolved to mitigate this risk bytaking advantage of market trends. Such trends are used to determine the proper timing of foreigncurrency transactions in order to realize a foreign currency gain.

The following table demonstrates the sensitivity to a reasonable change in the Philippine pesoexchange rate in relation to foreign currencies based on the bank’s projection of foreign currencyfluctuations, with all variables held constant, of the Company’s income before tax:

Effect on Income Before Tax2013 2012 2011

US DollarStrengthened (2013: 2%, 2012: 2%, 2011: 2%) (P=2,923,877) (P=2,418,547) (P=1,811,831)Weakened (2013: 1%, 2012: 3%, 2011: 2%) 1,461,939 3,627,820 2,719,815

Japanese YenStrengthened (2013: 6%, 2012: 3%, 2011: 3%) (475,550) (155,982) (448,293)Weakened (2013: 1%, 2012: 12%, 2011: 2%) 79,258 623,928 299,746

EuroStrengthened (2013: 3%, 2012: 2%, 2011: 5%) 457,720 133,378 (201,651)Weakened (2013: 1%, 2012: 4%, 2011: 2%) (152,573) (266,755) 80,657

There is no other impact on the Company’s equity other than those already affecting the statementof income.

YearIncrease/Decrease

in Basis PointsEffect on Income

Before TaxInterest-bearing loans and

borrowings2013 +10 (P=907,982)

-20 1,815,964

2012 +50 (P=4,423,157)-75 6,659,252

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The Company’s foreign currency denominated monetary assets and liabilities as of December 31consists of:

2013

US DollarJapanese

Yen EuroCurrent assets $571,140 ¥– €284,321Current liabilities (932,322) (18,697,406) (33,445)Noncurrent liabilities (2,931,844) – –Net foreign currency denominated asset

(liabilities) (3,293,026) (18,697,406) 250,876Exchange rate used 44.395 0.424 60.816Peso equivalent (P=146,193,889) (P=7,925,830) P=15,257,275

2012

US DollarJapanese

Yen EuroCurrent assets $511,777 ¥– €144,560Current liabilities (247,894) (10,861,501) (22,263)Noncurrent liabilities (3,209,738) – –Net foreign currency denominated liabilities (2,945,855) (10,861,501) 122,297Exchange rate used 41.05 0.48 54.53Peso equivalent (P=120,927,344) (P=5,199,401) P=6,668,855

The Company had a net unrealized foreign exchange loss of P=11,801,726 and net unrealized gainof P=7,648,101 and net unrealized loss of P=151,661 in 2013, 2012 and 2011, respectively.

Credit riskCredit risk is defined as the risk of loss arising from the default of an individual, counterparty orissuer not being able to or unwilling to honor its contractual obligations. The Company’sexposure to this risk is primarily due to its transactions with its trading customers.

The Company counters this risk by trading only with recognized, creditworthy third parties. Itemploys standard process in granting credit lines to customers. It performs thorough evaluation ofits customers’ operations and financial standing to ensure that its customers are able to meet itscontractual obligation.

The Company monitors receivable balances and ensures that customers are able to settle theirobligation within the agreed terms. Its Credit and Collection Department is responsible for thecollection of these receivables and ensures that customers are able to settle their obligation.

Concentration of risk arise when a number of counterparties are engaged in similar businessactivities, or activities in the same geographic region, or have similar economic feature that wouldcause their ability to meet contractual obligations to be similarly affected by changes in economic,political or other conditions, such as fluctuations in currencies or interest rates. The Company hasno significant concentration of credit risk.

The Company’s exposure to credit risk arises from default of the counterparty, with a maximumexposure equal to the carrying amount of its financial assets.

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The following table shows the Company’s maximum exposure to credit risk:

2013 2012Cash and cash equivalents* P=110,204,597 P=190,733,593Trade and other receivables: Trade receivables 788,743,191 537,386,659 Insurance claims 17,338,412 6,267,193 Advances 5,499,118 5,997,597 Receivables from officers and employees 1,083,883 1,181,066 Other receivables 26,322,368 7,234,127Loan receivable 4,840,504 5,842,027Other noncurrent assets 7,344,169 7,641,676

P=961,376,242 P=762,283,938*Excluding cash on hand

Credit quality per class of financial assets are as follows:

2013Neither Past Due nor Impaired

Past Due butNot Impaired Impaired TotalHigh Grade

StandardGrade

Sub-standardGrade

Cash and cash equivalents* P=110,204,597 P=– P=– P=– P=– P=110,204,597Trade and other receivables: Trade receivables 240,949,404 75,349,568 23,976,453 448,467,766 24,824,100 813,567,291 Insurance claims – 17,338,412 – – – 17,338,412 Advances 5,499,118 – – – – 5,499,118 Receivables from officers

and employees 1,083,883 – – – – 1,083,883 Other receivables – 26,322,368 – – – 26,322,368Loan receivable 4,840,504 – – – – 4,840,504Other noncurrent assets – 7,344,170 – – 1,593,091 8,937,261

P=362,577,506 P=126,354,518 P=23,976,453 P=448,467,766 P=26,417,191 P=987,793,434*Excluding cash on hand

2012Neither Past Due nor Impaired

Past Due butNot Impaired Impaired TotalHigh Grade

StandardGrade

Sub-standardGrade

Cash and cash equivalents* P=190,733,593 P=– P=– P=– P=– P=190,733,593Trade and other receivables: Trade receivables 121,105,338 53,200,734 4,491,903 358,588,684 23,027,649 560,414,308 Insurance claims – 6,267,193 – – – 6,267,193 Advances 5,997,597 – – – – 5,997,597 Receivables from officers

and employees 1,181,066 – – – – 1,181,066 Other receivables 391,324 6,842,804 – – – 7,234,128Loan receivable 5,842,027 – – – – 5,842,027Other noncurrent assets – 7,641,767 – – 1,593,091 9,234,858

P=325,250,945 P=73,952,498 P=4,491,903 P=358,588,684 P=24,620,740 P=786,904,770*Excluding cash on hand

High grade financial assets are accounts where debtors have established credit integrity, such asmultinational companies in which credit investigations are no longer necessary. Standard gradefinancial assets pertain to accounts of debtors who have historically paid their accounts on timeand who have the financial capacity to pay. On the other hand, sub-standard grade financial assetspertain to accounts of debtors where the Company incurred delays in collection.

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A financial asset is past due when a counterparty has failed to make payment when contractuallydue. Impaired financial assets are those accounts identified by the Company that need to beprovided with allowance. The level of this allowance is evaluated by management on the basis offactors that affect the collectability of the accounts such as, but not limited to the length of theCompany’s relationship with the customer, the customers’ payment behavior and known marketfactors.

Aging analyses per class of financial assets are as follows:

2013Neither Past

Due norImpaired

Past Due but Not Impaired

Impaired TotalLess than

30 Days 31-60 Days 61-90 DaysMore than

91 DaysCash and cash equivalents* P=110,204,597 P=– P=– P=– P=– P=– P=110,204,597Trade and other receivables: Trade receivables 340,275,425 – 84,479,055 80,052,748 283,935,963 24,824,100 813,567,291 Insurance claims 17,338,412 – – – – – 17,338,412 Advances 5,499,118 – – – – – 5,499,118 Receivables from officers and employees 1,083,883 – – – – – 1,083,883 Other receivables 26,322,368 – – – – – 26,322,368Loan receivable 4,840,504 – – – – – 4,840,504Other noncurrent assets 7,344,170 – – – – 1,593,091 8,937,261

P=512,908,477 P=– P=84,479,055 P=80,052,748 P=283,935,963 P=26,417,191 P=987,793,434*Excluding cash on hand

2012Neither Past

Due norImpaired

Past Due but Not Impaired

Impaired TotalLess than

30 Days 31-60 Days 61-90 DaysMore than

91 DaysCash and cash equivalents* P=190,733,593 P=– P=– P=– P=– P=– P=190,733,593Trade and other receivables: Trade receivables 178,797,975 149,223,784 69,390,789 20,596,465 119,377,646 23,027,649 560,414,308 Insurance claims 6,267,193 – – – – – 6,267,193 Advances 5,997,597 – – – – – 5,997,597 Receivables from

officers and employees 1,181,066 – – – – – 1,181,066 Other receivables 7,234,127 – – – – – 7,234,127Loan receivable 5,842,027 – – – – – 5,842,027Other noncurrent assets 7,641,676 – – – – 1,593,091 9,234,767

P=403,695,254 P=149,223,784 P=69,390,789 P=20,596,465 P=119,377,646 P=24,620,740 P=786,904,679*Excluding cash on hand

Liquidity riskLiquidity risk is the risk that the Company will not be able to settle or meet its financialobligations when they fall due. To mitigate exposure to such risk, the Company regularlymonitors its cash position and loan due dates to ensure sufficient fund for working capital and tomeet obligations as they fall due.

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The tables below summarize the maturity profile of the Company’s financial liabilities as ofDecember 31, 2013 and 2012, based on contractual undiscounted cash flows. The table alsoanalyses the maturity profile of the Company’s financial assets in order to provide a completeview of the Company’s contractual commitments. The analysis into relevant maturity grouping isbased on the remaining period at the end of the reporting period to the contractual maturity dates.

2013Less than6 Months

6 Monthsto 1 Year Over 1 Year Total

Financial liabilities:Short-term borrowings P=232,458,822 P=– P=– P=232,458,822Long-term borrowings 123,665,000 290,665,000 297,922,500 712,252,500Obligations under finance lease 16,061,180 15,936,249 130,159,204 162,156,633Future interest payable on borrowings

and finance leases 28,006,229 22,874,435 71,976,767 122,857,431Accounts payable and accrued

expenses 484,400,240 – – 484,400,240P=884,591,471 P=329,475,684 P=500,058,471 P=1,714,125,626

Financial assets:Cash and cash equivalents P=110,679,597 P=– P=– P=110,204,597Trade and other receivables: Trade receivables 424,754,480 363,988,711 24,824,100 813,567,291 Insurance claims 6,267,193 – – 6,267,193 Advances 5,997,597 – – 5,997,597 Receivables from officers and

employees 1,181,066 – – 1,181,066 Other receivables 391,324 – – 391,324Loan receivable 5,842,027 – – 5,842,027Other noncurrent assets 7,641,676 – – 7,641,676

P=562,754,960 P=363,988,711 P=24,824,100 P=951,567,771

2012Less than6 Months

6 Monthsto 1 Year Over 1 Year Total

Financial liabilities:Short-term borrowings P=39,158,822 P=– P=– P=39,158,822Long-term borrowings 64,082,500 87,665,000 710,548,539 862,296,039Obligations under finance lease 13,007,040 12,803,972 105,948,729 131,759,741Future interest payable on borrowings

and finance leases 20,941,179 20,101,467 69,252,257 110,294,903Accounts payable and accrued

expenses 202,059,738 7,394,024 67,643,584 277,097,346P=339,249,279 P=127,964,463 P=953,393,109 P=1,420,606,851

Financial assets:Cash and cash equivalents P=190,733,593 P=– P=– P=190,733,593Trade and other receivables: Trade receivables 438,605,417 55,216,531 43,564,711 537,386,659 Insurance claims – – 6,267,193 6,267,193 Advances – – 7,234,128 7,234,128 Receivables from officers and

employees – – 1,181,066 1,181,066 Other receivables – – 5,997,597 5,997,597Loan receivable 489,017 512,506 4,840,504 5,842,027Other noncurrent assets – – 7,641,676 7,641,676

P=629,828,027 P=55,729,037 P=76,726,875 P=762,283,939

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Classification and Fair Values of Financial InstrumentsSet out below is a comparison by category of carrying amounts and fair values of the Company’sfinancial instruments that are carried in the financial statements.

Carrying Amount Fair Value2013 2012 2013 2012

Loans and Receivables:Loan receivable P=4,840,504 P=5,842,027 P=5,785,640 P=7,294,937Other noncurrent assets 7,519,539 7,641,676 7,557,769 8,917,695

P=12,360,043 P=13,483,703 P=12,398,273 P=16,212,632

Other Financial Liabilities:Obligations under finance lease P=162,156,631 P=131,759,741 P=162,156,631 P=131,759,741Long-term borrowings 713,140,369 862,296,039 713,140,369 862,296,039

P=875,297,000 P=994,055,780 P=875,297,000 P=994,055,780

The following methods and assumptions are used to estimate the fair value of each class offinancial instruments:

Cash and cash equivalents, trade and other receivables, accounts payable and accrued expenses and short-term borrowingsThe carrying values of cash and cash equivalents, trade and other receivables, accounts payableand accrued expenses and short-term borrowings approximate their fair values due to the relativelyshort-term maturity of these financial instruments.

Loans receivableThe fair value of loans receivable is based on the discounted net present value of cash flows usingeffective discount rate of 9.42% as of December 31, 2013 and 2012.

Other noncurrent assetsThe fair value of other noncurrent asset pertaining to security deposit is based on the discountednet present value of cash flows using effective discount rate of 1.01% and 6.30% as ofDecember 31, 2013 and 2012, respectively.

Long-term borrowings and obligations under finance leaseThe fair values of long-term borrowings with variable interest rates approximate their carryingamounts due to quarterly repricing of interest.

The fair values of obligations under finance lease are based on the discounted net present value ofcash flows using effective discount rates of 0.49% to 4.4% respectively, as of December 31, 2013and 2012.

Fair Value HierarchyThe Company uses the following hierarchy for determining and disclosing the fair value offinancial instruments by valuation technique:

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

Level 2: Those involving inputs other than quoted prices included in Level 1 that areobservable for the asset or liability, either directly (as prices) or indirectly (derivedfrom prices)

Level 3: Those inputs for the asset or liability that are not based on observable market data(unobservable inputs)

As of December 31, 2013 and 2012, the Company held the following financial instruments that aremeasured and carried or disclosed at fair value:

December 31, 2013

Total Level 1 Level 2 Level 3Disclosed at fair value:

Other noncurrentassets P=7,519,539 P=− P=− P=7,519,539

Long-term borrowings 713,140,369 − − 713,140,369Obligations under

finance lease 162,156,633 − − 162,156,633Loan receivable 5,785,640 − − 5,785,640

December 31, 2012

Total Level 1 Level 2 Level 3Disclosed at fair value:

Other noncurrent assets P=8,917,695 P=− P=− P=8,917,695Long-term borrowings 862,296,039 − − 862,296,039Obligations under

finance lease 131,759,741 − − 134,634,879Loan receivable 7,294,937 − − 7,294,937

There were no transfers between Level 1 and Level 2 fair value measurement, and there were notransfers into and out of Level 3 fair value measurement.

26. Capital Management

The primary objective of the Company’s capital management is to ensure that it maintains a strongcredit rating and healthy capital ratios in order to support its business and maximize shareholdervalue.

The Company monitors capital using debt-to-equity ratio. It is the policy of the Company tomaintain a debt-to-equity ratio of not more than 1.5 as required by certain lenders. Capitalincludes equity attributable to common shareholders, share premium and accumulated earnings.Debt includes all liabilities, current and long-term interest bearing loans and borrowings andpension obligation.

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2013

2012(As restated,see Note 2)

Short-term borrowings and other current liabilities P=718,859,062 P=396,638,729Long-term borrowings 711,140,369 862,296,039Obligations under finance lease 162,156,633 131,759,741Pension obligation 110,677,483 74,068,656Total debt 1,702,833,547 1,464,763,165

Common stock 555,652,251 555,652,251Additional paid-in capital 459,791,492 459,791,492Actuarial gains (losses) on defined benefit plan (29,198,893) (7,232,429)Treasury shares (3,125,850) (3,125,850)Retained earnings 239,481,220 243,023,072Total equity 1,222,600,220 1,248,108,536

Total debt and equity P=2,925,433,767 P=2,712,871,701

The Company manages its capital structure and makes adjustments to it, in light of changes ineconomic conditions. To maintain or adjust the capital structure, the Company may declaredividends, reacquire outstanding shares, or issue new shares.

On October 28, 2010, PSE issued a memorandum regarding the rule for the minimum publicownership for all listed companies. Based on the memorandum, listed companies shall, at alltimes, maintain a minimum percentage of listed securities held by the public of ten percent (10%)of the listed companies’ issued and outstanding shares, exclusive of any treasury shares or as suchpercentage that may be prescribed by the PSE. The Company has complied with the minimumpublic ownership.

No changes were made in the objectives, policies or processes during the years endedDecember 31, 2013 and 2012.

27. Contingencies

The Company is a defendant in several pending legal cases involving claims for damages and taxassessment arising from the ordinary course of business. In the opinion of management and theCompany’s legal counsel, the ultimate liability for these lawsuits and claims, if any, would not bematerial in relation to the financial position and operating results of the Company. It is possible,however, that the future results of operations could be materially affected by changes in estimatesor in the effectiveness of the strategies relating to these litigation and claims (see Note 4).

28. Registration with Board of Investments (BOI)

The Company is registered with the BOI as a new operator of domestic shipping cargo vessel(MV Lorcon Manila) on a preferred pioneer status and (MV Lorcon Dumaguete) and (MV LorconGeneral Santos) on a non-pioneer status, under the provisions of Executive Order (EO) No. 226,otherwise known as the Omnibus Investment Code of 1987. Under the Company’s registration, itis entitled to certain tax and nontax incentives which include, among others, income tax holiday(ITH).

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*SGVFS004263*

Below are the details of the Company’s ITH entitlement:

Vessel BOI Approval Date Commencement Date* ITH PeriodMV Lorcon Manila July 2007 September 2007 6 yearsMV Lorcon Dumaguete March 2010 June 2010 4 yearsMV Lorcon General Santos July 2012 July 2012 4 years*or actual start of commercial operations, whichever comes first.

The ITH incentives shall be limited only to the revenues generated from the new activity.

Under the terms of the Company’s registration, it is subject to certain requirements, principallythat of following a specified sales volume and sales revenue schedule and securing priorpermission from the BOI before performing certain acts.

Under the Company’s application with the BOI, it can avail of a bonus year in each of thefollowing cases but the aggregate ITH availment (basic and bonus years) shall not exceedeight (8) years:

a. The ratio of the total imported and domestic capital equipment to the number of workers forthe project does not exceed US$10,000 to one (1) worker;

b. The net foreign exchange savings or earnings amount to at least US$500,000 annually duringthe first three (3) years of operation; and

c. The indigenous raw materials used in the manufacture of the registered product must at leastbe fifty (50%) of the total cost of raw materials for the preceding years prior to the extensionunless the BOI prescribes a higher percentage.

29. Note to Statements of Cash Flows

The Company purchased container vans under finance lease agreement for a total considerationamounting to P=47,655,527 and P=83,237,088 in 2013 and 2012, respectively.

30. Supplementary Information Required Under Revenue Regulations (RR) 15-2010

On November 25, 2010, the BIR issued RR 15-2010 which amends certain provisions ofRR 21-2002 prescribing the manner of compliance with any documentary and/or proceduralrequirements in connection with the preparation and submission of financial statementsaccompanying the tax returns. It requires the disclosures of taxes, duties and licenses paid oraccrued during the taxable year.

In compliance with the requirements set forth by RR 15-2010 hereunder are the information ontaxes, duties and licenses paid or accrued during the taxable year.

VATThe National Internal Revenue Code of 1997 provides for the imposition of VAT on sales ofgoods and services. Accordingly, the Company’s sales are subject to output VAT while itsimportations and purchases from other VAT-registered individuals or corporations are subject toinput VAT. R.A. No. 9337 increased the VAT rate from 10.0% to 12.0%, effectiveFebruary 1, 2006.

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The Company is a VAT-registered company with output VAT declaration for the year endedDecember 31, 2013 as follows:

Net sales/receipts Output VAT

Taxable sales: Sale of services P=1,771,456,714 P=212,574,806

The Company’s sales that are subjected to VAT are reported under “Freight Revenue” and “OtherIncome”.

The Company’s sales of services are based on actual collections received, hence may not be thesame as amounts accrued in the statement of income.

The amount of input VAT claimed are broken down for the year ended December 31, 2013is as follows:

Balance at January 1 P=–Current year’s purchases: Capital goods subject to amortization 20,621,419 Services lodged under direct costs 167,977,242 From importation 2,954,215Claims for tax credit/refund and other adjustments 191,552,876Input tax application against output VAT (191,552,876)Balance at December 31 P=–

ImportationsThe landed cost of the Company’s importations amounted to P=24,618,460 for the year.

Documentary stamps taxThe documentary stamps tax paid/accrued during the year on the bill of lading amounted toP=726,115.

Other taxes and licenses:This includes all other taxes, local and national, including real property taxes, licenses and permitfees lodged under the “Taxes and licenses” account in “General and administrative expenses” inthe statement of income.

Details of other taxes and licenses for the year ended December 31, 2013 follows:

License and permits fees P=1,919,276Real property tax 377,161Others 983,604

P=3,280,041

Withholding taxesDetails of withholding taxes for the year ended December 31, 2013 follows:

Expanded withholding taxes P=31,449,240Tax on compensation and benefits 23,051,363Final withholding taxes 246,524

P=54,747,127

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Tax AssessmentCurrently, the Company has a pending case with the Court of Tax Appeals (CTA) allegedly fordeficiency taxes for the year 2008 amounting to P=2.01 billion, inclusive of penalties, interest andsurcharges. Last April 14, 2014, the CTA granted the Company’s Motion to Admit Surety Bondwhich restrained the collection of subject deficiency taxes until further order from the CTA.

*SGVFS004263*

INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULES

The Board of Directors and ShareholdersLorenzo Shipping Corporation20th Floor Times Plaza BuildingUnited Nations AvenueErmita, Manila

We have audited in accordance with Philippine Standards on Auditing, the financial statements ofLorenzo Shipping Corporation as of December 31, 2013 and 2012 and each of the three years in theperiod ended December 31, 2013, included in this Form 17-A and have issued our report thereon datedApril 14, 2014. Our audits were made for the purpose of forming an opinion on the basic financialstatements taken as a whole. The schedules listed in the Index to Financial Statements andSupplementary Schedules are the responsibility of the Company’s management. These schedules arepresented for purposes of complying with Securities Regulation Code Rule 68, As Amended (2011),and are not part of the basic financial statements. These schedules have been subjected to the auditingprocedures applied in the audit of the basic financial statements and, in our opinion, fairly state, in allmaterial respects, the information required to be set forth therein in relation to the basic financialstatements taken as a whole.

SYCIP GORRES VELAYO & CO.

Leovina Mae V. ChuPartnerCPA Certificate No. 99910SEC Accreditation No. 1199-A (Group A), March 15, 2012, valid until March 14, 2015Tax Identification No. 209-316-911BIR Accreditation No. 08-001998-96-2012, January 11, 2012, valid until January 10, 2015PTR No. 4225232, January 2, 2014, Makati City

April 14, 2014

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015


LORENZO SHIPPING CORPORATIONINDEX TO FINANCIAL STATEMENTSAND SUPPLEMENTARY SCHEDULES

Reconciliation of Unappropriated Retained Earnings Available for Dividend Distribution

Schedule of all Effective Standards and Interpretations under PFRS

*SGVFS004263*

LORENZO SHIPPING CORPORATIONRECONCILIATION OF RETAINED EARNINGS AVAILABLE FORDIVIDEND DECLARATIONDECEMBER 31, 2013

Unappropriated Retained Earnings, beginning P=243,023,072Adjustment:

Other unrealized gains or adjustments to the retained earnings as aresult of certain transactions accounted for under PFRS (50,179,534)

Unappropriated Retained Earnings, as adjusted, beginning 192,843,538Net income based on the face of the Audited Financial Statements 10,324,204Add: Equity share in net loss of associate 160,762Less: Non-actual/unrealized income net of tax Benefit from deferred income tax (1,208,003)

Change in accounting for employee benefits (591,285)Net income actual/realized 8,685,678Less: Dividend declaration (13,866,056) Treasury shares (3,125,850)

(16,991,906)Unappropriated Retained Earnings, as adjusted, ending P=184,537,310

*SGVFS004263*

LORENZO SHIPPING CORPORATIONSCHEDULE OF ALL EFFECTIVE STANDARDS AND INTERPRETATIONSDECEMBER 31, 2013

The table below presents the list of Philippine Financial Reporting Standards (PFRS) [which consist ofPFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations] and PhilippineInterpretations Committee (PIC) Q&As effective as of December 31, 2013:

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2013

Adopted NotAdopted

NotApplicable

Framework for the Preparation and Presentation of FinancialStatementsConceptual Framework Phase A: Objectives and qualitativecharacteristics

4

PFRSs Practice Statement Management Commentary 4

Philippine Financial Reporting Standards

PFRS 1(Revised)

First-time Adoption of Philippine Financial ReportingStandards

4

First-time Adoption of Philippine Financial ReportingStandards-Meaning of ‘Effective PFRSs’

See footnote*

Amendments to PFRS 1 and PAS 27: Cost of anInvestment in a Subsidiary, Jointly Controlled Entity orAssociate

4

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

4

Amendment to PFRS 1: Limited Exemption fromComparative PFRS 7 Disclosures for First-time Adopters

4

Amendments to PFRS 1: Severe Hyperinflation andRemoval of Fixed Date for First-time Adopters

4

Amendments to PFRS 1: Government Loans 4

PFRS 2 Share-based Payment 4

Amendments to PFRS 2: Vesting Conditions andCancellations

4

Amendments to PFRS 2: Group Cash-settled Share-basedPayment Transactions

4

Share-based Payment-Definition of Vesting Condition See footnote*

PFRS 3(Revised)

Business Combinations 4

Business Combinations: Accounting for ContingentConsideration in a Business Combination

See footnote*

Business Combinations-Scope Exceptions for JointArrangements

See footnote*

PFRS 4 Insurance Contracts 4

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts

4

PFRS 5 Non-current Assets Held for Sale and DiscontinuedOperations

4

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Adopted NotAdopted

NotApplicable

PFRS 6 Exploration for and Evaluation of Mineral Resources 4

PFRS 7 Financial Instruments: Disclosures 4

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets

4

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets - Effective Date and Transition

4

Amendments to PFRS 7: Improving Disclosures aboutFinancial Instruments

4

Amendments to PFRS 7: Disclosures - Transfers ofFinancial Assets

4

Amendments to PFRS 7: Disclosures - OffsettingFinancial Assets and Financial Liabilities

4

Amendments to PFRS 7: Mandatory Effective Date ofPFRS 9 and Transition Disclosures

4

PFRS 8 Operating Segments 4

Operating Segments-Aggregation of Operating Segmentsand Reconciliation of the Total of the ReportableSegments’ Assets to the Entity’s Assets

See footnote*

PFRS 9 Financial Instruments 4

Amendments to PFRS 9: Mandatory Effective Date ofPFRS 9 and Transition Disclosures

See footnote*

PFRS 10 Consolidated Financial Statements 4

Amendments: Investment Entities See footnote*

PFRS 11 Joint Arrangements 4

PFRS 12 Disclosure of Interests in Other Entities 4


PFRS 13 Fair Value Measurement 4

Fair Value Measurement-Short-term Receivables andPayables

See footnote*

Fair Value-Measurement-Portfolio Exception See footnote*

Philippine Accounting Standards

PAS 1(Revised)

Presentation of Financial Statements 4

Amendment to PAS 1: Capital Disclosures 4

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on Liquidation

4

Amendments to PAS 1: Presentation of Items of OtherComprehensive Income

4

PAS 2 Inventories 4

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Adopted NotAdopted

NotApplicable

PAS 7 Statement of Cash Flows 4

PAS 8 Accounting Policies, Changes in Accounting Estimatesand Errors

4

PAS 10 Events after the Reporting Period 4

PAS 11 Construction Contracts 4

PAS 12 Income Taxes 4

Amendment to PAS 12 - Deferred Tax: Recovery ofUnderlying Assets

4

PAS 16 Property, Plant and Equipment 4

Property, Plant and Equipment-Revaluation Method See footnote*

PAS 17 Leases 4

PAS 18 Revenue 4

PAS 19 Employee Benefits 4

Amendments to PAS 19: Actuarial Gains and Losses,Group Plans and Disclosures

4

PAS 19(Revised)

Employee Benefits 4

Amendments to PAS 19: Defined Benefit Plans: EmployeeContributions

See footnote*

PAS 20 Accounting for Government Grants and Disclosure ofGovernment Assistance

4

PAS 21 The Effects of Changes in Foreign Exchange Rates 4

Amendment: Net Investment in a Foreign Operation 4

PAS 23(Revised)

Borrowing Costs 4

PAS 24(Revised)

Related Party Disclosures 4

Related Party Disclosures-Key Management Personnel See footnote*

PAS 26 Accounting and Reporting by Retirement Benefit Plans 4

PAS 27 Consolidated and Separate Financial Statements 4


PAS 27(Amended)

Separate Financial Statements 4

Amendments: Investment Entities 4

PAS 28 Investments in Associates 4

PAS 28(Amended)

Investments in Associates and Joint Ventures 4

Amendments: Investment Entities 4

PAS 29 Financial Reporting in Hyperinflationary Economies 4

PAS 31 Interests in Joint Ventures 4

PAS 32 Financial Instruments: Disclosure and Presentation 4

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Adopted NotAdopted

NotApplicable

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on Liquidation

4

Amendment to PAS 32: Classification of Rights Issues 4

Amendments to PAS 32: Offsetting Financial Assets andFinancial Liabilities

See footnote*

PAS 33 Earnings per Share 4

PAS 34 Interim Financial Reporting 4

PAS 36 Impairment of Assets 4

Amendments to PAS 36: Recoverable Amount Disclosuresfor Non-financial Assets

See footnote*

PAS 37 Provisions, Contingent Liabilities and Contingent Assets 4

PAS 38 Intangible Assets 4

Intangible Assets-Revaluation Method See footnote*

PAS 39 Financial Instruments: Recognition and Measurement 4

Amendments to PAS 39: Transition and Initial Recognitionof Financial Assets and Financial Liabilities

4

Amendments to PAS 39: Cash Flow Hedge Accounting ofForecast Intragroup Transactions

4

Amendments to PAS 39: The Fair Value Option 4

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts

4

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets

4

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets - Effective Date and Transition

4

Amendments to Philippine Interpretation IFRIC 9 and PAS39: Embedded Derivatives

4

Amendment to PAS 39: Eligible Hedged Items 4

Amendments to PAS 39: Recognition and Measurement:Novation of Derivatives and Continuation of HedgeAccounting

See footnote*

PAS 40 Investment Property 4

PAS 41 Agriculture 4

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration andSimilar Liabilities

4

IFRIC 2 Members' Share in Co-operative Entities and SimilarInstruments

4

IFRIC 4 Determining Whether an Arrangement Contains a Lease 4

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Adopted NotAdopted

NotApplicable

IFRIC 5 Rights to Interests arising from Decommissioning,Restoration and Environmental Rehabilitation Funds

4

IFRIC 6 Liabilities arising from Participating in a Specific Market -Waste Electrical and Electronic Equipment

4

IFRIC 7 Applying the Restatement Approach under PAS 29Financial Reporting in Hyperinflationary Economies

4

IFRIC 8 Scope of PFRS 2 4

IFRIC 9 Reassessment of Embedded Derivatives 4

Amendments to Philippine Interpretation IFRIC 9 and PAS39: Embedded Derivatives

4

IFRIC 10 Interim Financial Reporting and Impairment 4

IFRIC 11 PFRS 2 - Group and Treasury Share Transactions 4

IFRIC 12 Service Concession Arrangements 4

IFRIC 13 Customer Loyalty Programmes 4

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction

4

Amendments to Philippine Interpretations IFRIC 14,Prepayments of a Minimum Funding Requirement

4

IFRIC 15 Agreements for the Construction of Real Estate 4

IFRIC 16 Hedges of a Net Investment in a Foreign Operation 4

IFRIC 17 Distributions of Non-cash Assets to Owners 4

IFRIC 18 Transfers of Assets from Customers 4

IFRIC 19 Extinguishing Financial Liabilities with EquityInstruments

4

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 4

IFRIC 21 Levies See footnote*

SIC-10 Government Assistance - No Specific Relation toOperating Activities

4

SIC-12 Consolidation - Special Purpose Entities 4

Amendment to SIC - 12: Scope of SIC 12 4

SIC-13 Jointly Controlled Entities - Non-Monetary Contributionsby Venturers

4

SIC-15 Operating Leases - Incentives 4

SIC-21 Income Taxes - Recovery of Revalued Non-DepreciableAssets

4

SIC-25 Income Taxes - Changes in the Tax Status of an Entity orits Shareholders

4

SIC-27 Evaluating the Substance of Transactions Involving theLegal Form of a Lease

4

- 6 -

*SGVFS000889*


Adopted NotAdopted

NotApplicable

SIC-29 Service Concession Arrangements: Disclosures. 4

SIC-31 Revenue - Barter Transactions Involving AdvertisingServices

4

SIC-32 Intangible Assets - Web Site Costs 4

LORENZO SHIPPING CORPORATION

Map showing relationship to parent company, middle parent, subsidiaries and associates

As of December 31, 2013

A. Magsaysay, Inc.

Magsaysay Maritime Corporation

(100% owned by AMI)

Magsaysay People Resources Corp.(100% owned by

AMI)

Magsaysay Transport and Logistics Corp.

(100% owned by AMI)

Magsaysay Lines, Inc.

(100% owned by AMI)

Magsaysay Trade and Shipping, Inc.(100% owned by

AMI)

Transocean Transport Corporation(100% owned by MTSI)

Magsaysay Shipping Corporation(100% owned by MTSI)

Transbulk Shipping Corporation(100% owned by MTSI)

Transportes Navieros, Inc.(100% owned by Transbulk)

Trilines Shipping, Inc.(100% owned by Transbulk)

Trytrans Shipping Corporation(100% owned by Transbulk)

MBM Maritme Holdings, Inc(40% owned by MLI;

20% owned by Crest Holdings, Inc;20% owned by FMI, Ltd.)

TravelPeople Ltd., Inc.(20% owned by MLI;80% owned by AMI)

Batangas Bay Carriers, Inc.(100% owned by MBM

Laguna Lake Carriers, Inc.(100% owned by BBCI)

Paros Maritime, Inc.(100% owned by BBCI)

TravelServices, Inc.(70% owned by TravelPeople30% by Prima Ventures Dev't

Corporation)

Islas Maritime Holdings, Inc.(40% owned by MLI;

30% owned by Crest Holdings;30% owned by FIM, Ltd.)

Islas Gas Carriers, Inc.(40% owned by MLI;

26% owned by ILEX Marine Ltd.;10% by DHO;7% by RAU;

10% by EUM;7% by Antony L. Marden)

Islas Tankers Shipping Corporation(50% owned by MLI;25% owned by ILEX;

25% owned by SWM International Holdings Corporation)

National Marine Corporation(60% owned by MLI;

40% owned by FMI, Ltd.)

NMC Containers Lines, Inc.(100% owned by NMC)

One Stop Logistics Solutions, Inc.

(100% owned by NMC)

Road Link Solutions, Inc.(100% owned by NMC)

APEX Equipment Corp.

(100% owned by Road Link)

NMC Ship Agency and Brokerage, Inc.

(100% owned by NMC)

Clean Oil Resources, Inc.(100% owned by NMC)

Marine Fuels Philippines, Inc.(100% owned by NMC)

Offshore Bunkers Philippines, Inc.(100% owned by NMC)

Magsaysay-Seacor, Inc.(60% owned by MLI

40% by Seacor Capital(Asia) Ltd.)

NMC Chartering Co., Inc.100% owned by NMC

Lorenzo Shipping Corporation

Shiplink

Fast Cranes

Asia Port

DIPCI

Icebox

One Stop Warehousing Solutions, Inc.

(100% owned by NMC)

One Stop Distribution, Inc.

(100% owned by NMC)

Filipinas Maritime Transport Corporation

(60% owned by MTLC)20% by Mitsui OSK Lines, Ltd.

20% by Exeno Yamamizu Corp.)

Magsaysay Shipmanagement, Inc.(100% owned by MTLC)

Maliwanag Realty Co., Inc.(100% owned by MSI)

Magsaysay Marine Services, Inc.(100% owned by MTLC)

MagTECH Solutions & Marine Consultancy Services, Inc.(100% owned by MTLC)

Sun Cruises, Inc.(97% owned by MLTC;

0.64% by Ma. Cristina S. Cortez0.64% by DHO0.64% by EUM

0.64% by Robert Alexander Ho0.64% by Helen Constance Ho)

Sole Cruises, Inc.(100% owned by MTLC)

Magsaysay Center for Hospitality and Culinary Arts

(100% owned by MPRC)

Magsaysay Global Services, Inc.(55% owned by MPRC;

45% owned by AMI)

Magsaysay Learning Resources, Inc.

(100% owned by AMI)

Star of Asia Human Resource Training and Dev't.,

Inc.(51% owned by MLRI;

49% owned by Daniel L. Lacson)

Masaya Realty Co., Inc.(100% owned by AMI)

Magsaysay Resource & Support Services, Inc(100% owned by AMI)

Fairex Trading (Asia) Corporation

(100% owned by MRSS)

Magsaysay Global BPO, Inc.

(100% owned by AMI)

CreativesAsia Company, Inc.

(100% owned by AMI)

Global Process Manager(100% owned by AMI)

Pakyaw.Com, Inc.(100% owned by AMI)

PeopleLink, Inc.(100% owned by AMI)

Magsaysay Houlder Insurance Brokers, Inc.

(60% owned by MMC;40% owned by Houlders

Insurance Brokers)

Kaligayahan Realty Company, Inc.(100% owned by MMC)

Boracay Beach & Yacht Club, Inc.(100% owned by Kaligayahan)

Magsaysay Agencies, Inc.(67% owned by MMC;

33% by Mitsui OSK Lines, Ltd.)

Magsaysay MOL Marine, Inc.(75% owned by MAI;

25% by Mitsui OSK Lines, Ltd.)

Magsaysay MOL Shipmanagement, Inc.

(100% owned by MMMI)

Alameda Property Private Holding, Inc.

Islas Tankers Seatransport Corporation

Acqua Y Oro Corporation

Falmont Shipping (Philippines), Inc.

(100% owned by FMS Ltd.

Non-Stock Corporations

Held by Individuals

Jointly owned with Third Parties

FM Maritime Services Ltd. (BVI)

Ascend Training Cooperation Foundation,

Inc.

Santiago Bundok Property Owners Association, Inc.

MOL Training Center (Philippines), Inc.

Magsaysay Institute of Shipping, Inc.

Homer Foundation, Inc.

LEGEND:

Jointly Owned with AMI

Schedule A

1 of 1


Schedule A - Financial Assets


No. of shares or Value based on

Name of Issuing entity and principal amount Amount shown in market quotation at Income received

and association of each issue of bonds and notes the balance sheet balance sheet date and accrued

None

Note:

Financial assets of the Company comprise of the following loans and receivables:

Cash and cash equivalents 110,204,597

Trade receivables 788,743,191

Other receivables 26,322,368

Insurance claims 17,338,412

Advances 5,499,118

Loans Receivable 4,840,504

Receivables from officers and employees 1,083,883

Other noncurrent assets 7,344,170


Schedule B - Amounts Receivable from Directors, Officers, Employees and Principal Stockholders


Amount Amount

Name and Designation of debtor(1) January 1, 2013 Additions Collected(2) Written-off(3) Current Non Current December 31, 2013

Sunny M. Fernandez 128,020.00 128,020.00

No other receivables above P100,000

Deduction

Schedule C

1 of 1


Schedule C - Indebtedness of Unconsolidated Subsidiaries and Affiliates


Not Applicable

Name of Affiliates January 1, 2013 December 31, 2013


Schedule D - Intangible Assets - Other Assets


Other Changes

Description (1)

PLDT P 57,350.00 P P P P 57,350.00

MWSS 22,800.00 22,800.00

CISO 250,000.00 250,000.00

UBIX (copier machine) 17,360.00 17,360.00

Whouse Cagayan de Oro 65,400.00 65,400.00

DSA-injunction bond share 33,000.00 33,000.00

Advances to Phil Trident 881,273.86 881,273.86

Advances to Phil Trident-Cebu Branch 205,738.74 205,738.74

REFUND OF SECURITY DEPOSIT(OR#198130 - 04-13-2007) P (373,751.00) (373,751.00)

Luis Ong Real Estate (Bacolod Whse. Rental) 48,600.00 48,600.00

Deposit in the North Harbor Modernization Project 285,447.99 285,447.99

3 months deposit -CY Davao 1,442,250.00 1,442,250.00

3 months advance -CY Davao 1,442,250.00 1,442,250.00

Advances -PPA ( Cebu Port Authority) 250,000.00 250,000.00

Advances to Chua, Enrique-Gensan Branch 100,000.00 100,000.00

SMART 10,000.00 10,000.00

Copylink Enterprises 20,000.00 20,000.00

Imelda Tan - rental deposit 15,000.00 15,000.00

PHIL. SYNERGETIC VENTURES CORP. - payment for contribution of 3rd party collection project114,430.00 114,430.00

SUN CELLULAR - advance payment (20 units @ Plan 250) 5,000.00 5,000.00

PPA (Bond deposits for wharfage charges at Pier 6) 350,000.00 350,000.00

SUN CELLULAR - 1mo. deposit (82 units @ Plan 350) 28,700.00 28,700.00

EASTERN TELECOM PHILS., INC. 11,000.00 11,000.00

PHIVIDEC IND. - 1 Year Sec. Dep. - Cagayan Branch 562,500.00 562,500.00

PHILIPPINE PORTS AUTHORITY - 3 mos. Addt'l for LCL extn. area 227,673.60 227,673.60

JULIO SY, SR - I Mo. Sec. Dep. CY R2 300,000.00 300,000.00

JULIO SY, SR - I Mo. Sec. Dep. CY R2 (JOS HOLDINGS) ESCALATION 33,000.00 33,000.00

JULIO SY, SR - I Mo. Sec. Dep. CY R2 (JOS HOLDINGS) ESCALATION P 36,300.00 36,300.00

MANILA NORTH HARBOR PHIL. INC. - Pier 10 Office rental 16,353.60 16,353.60

HAPPY COMMUNICATIONS, INC 25,000.00 25,000.00




COPYLINK ENTERPIRSES INC 15,000.00 15,000.00

COPYLINK ENTERPIRSES INC 15,000.00 15,000.00

MERALCO 18,740.00 18,740.00

GLORIA C. LIMPIO 100,000.00 100,000.00

Deposits (Cebu Branch):

UBIX - copier rental 2,700.00 2,700.00

2 months adavance/deposits of Jerson Tormon's house 12,000.00 12,000.00

2 months adavance/deposits of Jerson Tormon's house (PARTIAL REFUND) (1,500.00) (1,500.00)

Deposits (Iloilo Branch):

Golden Gate (office rental) 36,000.00 36,000.00

Golden Gate (Additional) 6,000.00 6,000.00

December 31, 2013

Deductions (3)

January 01, 2013

Additions at

Cost (2)

Charged to Costs &

Expenses

Charged to

Other Accounts

Additions

(Deductions)

Page 1 of 2


Schedule D - Intangible Assets - Other Assets


Other Changes

Description (1) December 31, 2013

Deductions (3)

January 01, 2013

Additions at

Cost (2)

Charged to Costs &

Expenses

Charged to

Other Accounts

Additions

(Deductions)



Solid Gas 15,000.00 15,000.00

PPA- rental deposit 413,145.60 413,145.60

Reduce space occupied from 4000sqm. to 3613sqm. (39,971.84) (39,971.84)

PPA- rental deposit (M&R) 82,629.12 82,629.12

(9,928.34) (9,928.34)

(31,386.22) (31,386.22)

Deposits (Cotabato Branch):

Two (2) empty tanks for acetylene & oxygen 5,000.00 5,000.00

CY Building (2 months deposit & 1 month advance) 48,000.00 48,000.00

Deposits (Bacolod Agency):

Deposit - Bacolod Top 40,000.00 40,000.00

CY rental deposit - Belina Ong 572,315.33 572,315.33

CY rental deposit - Helen Edith Tan 113,452.92 113,452.92

CY rental deposit - Joaquin Gochanco 68,071.74 68,071.74

PPA (Bond deposits for wharfage charges at Bacolod CY) 50,000.00 50,000.00

Deposits (Gensan Branch):

Guarantee Deposit-PPA (June 09, 2006) 25,000.00 25,000.00

Deposits (Zamboanga Agency):

PHILIPPINE PORTS AUTHORITY 100,000.00 100,000.00

Deposits (Dumaguete Agency):

J.O.S HOLDINGS, INC 62,272.00 62,272.00

Investment in One Team Services, Inc. (OTSI) 250,000.00 250,000.00

Others:

DSA 514,000.00 514,000.00

PLDT 2,000.00 2,000.00

North Harbor Project 183,334.63 183,334.63

Allowance for Impairment loss- deposits (1,593,091.60) (1,593,091.60)

TOTAL P 7,891,675.69 P 136,300.00 P - P - P (415,065.56) P 7,612,910.13

Page 2 of 2

Schedule E

1 of 1


Schedule E - Long-term Debt


Amount

Name of Issuer and Authorized by Amount shown Amount shown

Type of Obligation Indenture as Current as Long-term

Banco de Oro P 182,394,942 56,028,930 126,366,012

Banco de Oro 227,500,000 227,500,000 -

Metropolitan Bank and Trust

Company

92,500,000 92,500,000 -

Metropolitan Bank and Trust

Company

208,745,427 35,842,118 172,903,309

P 711,140,369 411,871,048 299,269,321

Annual interest rate is equal to PDST-F plus 1.25 spread subject to quarterly

repricing. Principal with interest payable quarterly.

Annual int. rate equivalent to PDST-F rate plus 2.5% or the simple average of

the PHIBOR and PDST-F when the PHIBOR rate is 200 points higher than

the corresponding PDST-F. Principal payable semi-annually with interest

payable quarterly.

Annual int. rate is equal to PDST-F plus minimum of 1.25% spread inclusive

of Gross Receipts Tax rate (GRT), or the BSP Overnight lending rate plus

GRT, whichever is higher at the time of the repricing. Principal payable

quarterly with interest payable monthly.

Annual int. rate is equal to PDST-F plus minimum of 1.25% spread inclusive

of Gross Receipts Tax rate (GRT), or the BSP Overnight lending rate plus

GRT, whichever is higher at the time of the repricing. Principal payable

quarterly with interest payable monthly.

Schedule F

1 of 1


Schedule F- Indebtedness of Unconsolidated Subsidiaries and Affiliates


Name of Affiliates January 1, 2013 December 31, 2013

None

Schedule G

1 of 1


Schedule G - Guarantees of Securities of Other Issuers


Title of Issue of Total Amount Amount Owned

Name of Issuer of Securities Guaranteed Each Class of Guaranteed and by Person for which Nature of

by the Company Securities Guaranteed Outstanding Statement is Filed Guarantee

None

Schedule H

1 of 2LORENZO SHIPPING CORPORATION

Schedule H - Capital Stock


Number of Shares

Reserved for

Number of Number of Shares Options, Warrants Directors,

Shares Issued and Conversions Officers and Treasury

Title of Issue Authorized Outstanding and Other Rights Affiliates Employees Others Shares

Common Shares 991,183,999 555,652,251 National Marine Corporation 276,520,756

National Marine Corporation (c/o PCD Nominee102,628,805

Pioneer Insurance - - 75,193,750

PCD Nominee (Filipino and Non-Filipino) - - 30,145,950

Others - - 26,935,026

Julio Sy Sr - 42,744,511 -

Michael Escaler - 231,250 -

Arsenio Cabrera - 30,000 -

Deogracias Vistan - 3,750 -

Antony Luis Marden - 1 -

Doris Teresa M. Ho - 1 -

Roberto A. Umali - 1,188,701

Edgardo A. Bautista 1,000

Patingo, Alexander Moring - 1250 -

Alluad, Sabado Calosa - 1250 -

Antonio, Rosalinda Dayao - 1250 -

Argete, Roberto Villablanca - 1250 -

Arrabaca, Remegio Olimban - 1250 -

Baclayo, Roberto Ropa - 1250 -

Crodua, Mario Roferos - 1250 -

Cuison, Rosalio Tanierla - 1250 -

Diapera, Reynaldo Dumalag - 1250 -

De Jesus, Yolanda Rabuga - 1250 -

Del Fonso, Leila Jaca - 1250 -

Enriquez, Maria Lourdes Aguhar - 1250 -

Fernandez, Sunny M. - 1250 -

Ganacias, Sammy Chiong - 1250 -

Goli, Mario Lucero - 1250 -

Laput, Jeshua Gonzales - 1250 -

Lamqui, Alex Alipio - 1250 -

Magbanua, Ernie Insoy - 1250 -

Mendoza, Virginia Delatina - 1250 -

Millondaga, Jimmy Caturas - 1250 -

Tan, Imelda - 1250 -

Number of Shares Held By

Schedule H

2 of 2LORENZO SHIPPING CORPORATION

Schedule H - Capital Stock


Number of Shares

Reserved for

Number of Number of Shares Options, Warrants Directors,

Shares Issued and Conversions Officers and Treasury

Title of Issue Authorized Outstanding and Other Rights Affiliates Employees Others Shares

Number of Shares Held By

Tampus, Nelson Lapiz - 1250 -

Ylade, Charlie Quillanora - 1250 -

(1,010,000)

379,149,561 44,227,964 132,274,726 (1,010,000)

Documents

COVER SHEET - Lorenzo Shipping Corp....Container Lines, Inc. ATSC, Negros Navigation and Sulpicio Lines, Inc. cater to both passenger and cargo market while Solid Shipping , Oceanic