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A B O I T I Z E Q U I T Y V E N T U R E S , I N C .
A B O I T I Z C O R P O R A T E C E N T E R
G O V . M A N U E L C U E N C O A V E .
K A S A M B A G A N , C E B U C I T Y
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S E C
Remarks =pls. Use black ink for scanning purposes
File Number LCU
Document I.D. Cashier
9,892 x
S T A M P S
Total No. of Stockholders Domestic Foreign
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To be accomplished by SEC Personnel concerned
Secondary License Type, if Applicable
Amended Articles Number/SectionDept. Requiring this Doc
Month Day
Fiscal Year
FORM TYPE Month Day
Annual Meeting
S.E.C. Registration Number
( Company's Full Name )
( Business Address: No. Street City / Town / Province )
COVER SHEET
CATHERINE R. ATAYContact Person Company Telephone Number
(032) 411-18003rd Quarterly Report
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SECURITIES AND EXCHANGE COMMISSIONSEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIESREGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended September 30, 20122. Commission identification number CE02536 3. BIR Tax Identification No. 003-828-269-V4. Exact name of issuer as specified in its charter ABOITIZ EQUITY VENTURES, INC.5. Province, country or other jurisdiction of incorporation or organization Cebu City, Philippines6. Industry Classification Code: (SEC Use Only)
7. Address of issuer's principal office Postal Code
Gov. Manuel A. Cuenco Avenue, Kasambagan, Cebu City, Philippines 60008. Issuer's telephone number, including area code
(032) 231-25809. Former name, former address and former fiscal year, if changed since last report
N.A.10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA
Title of each Class Number of shares of commonstock outstanding and amountof debt outstanding
Common stock, P1.00 par value 5,521,871,821Total debt P83,174,767,000
11. Are any or all of the securities listed on a Stock Exchange?
Yes [ x ] No [ ]If yes, state the name of such Stock Exchange and the class/es of securities listed therein:
Philippine Stock Exchange Common
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12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections26 and 141 of the Corporation Code of the Philippines, during the preceding twelve
(12) months (or for such shorter period the registrant was required to file suchreports)
Yes [ x ] No [ ](b) has been subject to such filing requirements for the past ninety (90) days.
Yes [ x ] No [ ]
PART I--FINANCIAL INFORMATIONItem 1. Financial Statements.
Please refer to the financial statements and schedules attached herewith.
Item 2. Management's Discussion and Analysis of Financial Condition and Results ofOperations.The following discussion and analysis of Aboitiz Equity Ventures, Inc.'s (AEV or the Company or theParent Company) consolidated financial condition and results of operations should be read inconjunction with the consolidated financial statements and accompanying schedules anddisclosures set forth elsewhere in this report.
Top Five Key Performance IndicatorsManagement uses the following indicators to evaluate the performance of registrant Aboitiz EquityVentures, Inc. and its subsidiaries (the Company and its subsidiaries are hereinafter collectivelyreferred to as the Group):
1. EQUITY IN NET EARNINGS OF INVESTEESEquity in net earnings (losses) of investees represents the group's share in theundistributed earnings or losses of its investees for each reporting periodsubsequent to acquisition of said investment, net of goodwill impairment cost, if
any. Goodwill is the difference between the purchase price of an investment andthe investor's share in the value of the net identifiable assets of investee at thedate of acquisition. Equity in net earnings (losses) of investees indicatesprofitability of the investments and investees' contribution to the group'sconsolidated net income.
Manner of Computation: Investee's Net Income (Loss) x Investor's % ownership -Goodwill Impairment Cost.
2. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION & AMORTIZATION (EBITDA)The Company computes EBITDA as earnings before extra-ordinary items, netfinance expense, income tax provision, depreciation and amortization. It provides
management and investors with a tool for determining the ability of the group togenerate cash from operations to cover financial charges and income taxes. It is
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also a measure to evaluate the group's ability to service its debts and to finance itscapital expenditure and working capital requirements.
3. CASH FLOW GENERATEDUsing the Statement of Cash Flows, management determines the sources and
usage of funds for the period and analyzes how the group manages its profit anduses its internal and external sources of capital. This aids management inidentifying the impact on cash flow when the group's activities are in a state ofgrowth or decline, and in evaluating management's efforts to control the impact.4. CURRENT RATIOCurrent ratio is a measurement of liquidity, calculated by dividing total currentassets by total current liabilities. It is an indicator of the group's short-term debtpaying ability. The higher the ratio, the more liquid the group.
5. DEBT-TO-EQUITY RATIODebt-to-Equity ratio gives an indication of how leveraged the group is. Itcompares assets provided by creditors to assets provided by shareholders. It isdetermined by dividing total debt by stockholders' equity.
JAN-SEPT 2012 JAN-SEPT 2011EQUITY IN NET EARNINGS OF INVESTEES 10,576,794 8,072,806EBITDA 30,847,355 29,117,344CASH FLOW GENERATED:
Net cash provided by operating activities 19,095,814 16,802,458Net cash provided by (used in) investing activities 946,299 (3,920,356)Net cash used in financing activities (18,697,996) (9,499,590)Net Increase in Cash & Cash Equivalents 1,344,117 3,382,511Cash & Cash Equivalents, Beginning 29,543,492 26,097,203Cash & Cash Equivalents, End 30,835,560 29,513,799
SEP 30 2012 DEC 31/2011CURRENT RATIO 2.96 2.96DEBT-TO-EQUITY RATIO 1.01 1.12
All the key performance indicators were within management's expectation during the period underreview.
Management teams of the different businesses continued to effectively handle their respectiveoperating performances and financial requirements. As a result, profitability had been sustained.This was reflected in the associates' income contributions and the Group's consolidated EBITDAwhich both registered substantial growth of 31% and 6%, respectively. Higher EBITDA generated
additional funds which were used to prepay debt and finance capital expenditures. Despite higher
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fund usage during the current period as compared to last year, the financial position of the Groupremained strong, as indicated by healthy financial ratios at the end of September, 2012.
Financial Results of OperationsFor the three quarters ended September 30, 2012, AEV and its subsidiaries reported a consolidatednet income of P18.02 billion, a 12% YoY increase, which translated to a P3.26 earnings per share. Interms of income contribution, power group still accounted for the lions share at 78%, followed bythe banking and food groups at 17% and 5% each.
The Group generated a non-recurring net gain of P381 million (versus P523 million in 9M2011),which comprised the following: (1) P895 million share of power group's net foreign exchange gainsfrom the revaluation of dollar-denominated loans and placements; (2) P11 million share of AboitizPower Corporations (AP or AboitizPower) gain from its associates preferred share redemption; (3)P183 million share of a power subsidiary's cost reimbursement to its steam supplier; (4) P202million share of a power subsidiary's downward revenue adjustment as a result of an ERC rulingregarding its ancillary services contract; and (5) P139 million share of AP's debt prepayment fees.
Sans one-off items, the Groups core net income for the current period amounted to P17.6 billion,up 14% YoY.
PowerAP and its subsidiaries ended the current period with an income contribution of P14.12 billion, a14% increase from last year's P12.40 billion.
AP's generation group posted a 12% YoY increase in earnings contribution to AEV, from P11.72billion to P13.18 billion, attributed to the higher average selling prices and net generation recordedduring the period under review. As compared to 9M2011 levels, average selling prices rose by 6%as spot market prices improved amid surge in demand for electricity due to warmer climate, and
curtailment in supply resulting from higher plant outages in the Luzon Wholesale Electricity SpotMarket (WESM). Likewise, the groups attributable net generation grew by 10%, from 7,175 GWh to7,903 GWh, resulting from the 15% expansion of sales made through bilateral contracts. In termsof capacity, the group sold, on an attributable basis, 1,562 MW, up by 12% YoY, at the back of risingcapacity sales through bilateral contracts and improved levels of ancillary services.
AP's distribution group also registered a 25% YoY rise in earnings contribution to AEV, from P1.34billion to P1.68 billion. Driving this growth was the 6% YoY expansion in attributable electricitysales, from 2,764 GWh to 2,935 GWh, mainly coming from the 7% increase in the powerconsumption of industrial customers, with residential and commercial sectors posting growth ratesof 5% and 3%, respectively. Higher selling prices attributed to the implementation of the rate
increase under a Performance Based Regulation scheme, and lower systems loss as a result of theinitiatives implemented during the current period, further improved the group's profit margins.
Financial ServicesIncome contribution from the financial services group grew by 15%, from last years P2.68 billion toP3.08 billion. Union Bank of the Philippines (UBP or UnionBank) ended the current period with anearnings contribution of P2.76 billion, an increase of 19% YoY, while City Savings Bank, Inc.'s (CSBor CitySavings) share in earnings was P318 million, down 12% YoY.
UBPs 9M2012 net income was higher at P6.31 billion (vs P5.41 billion in 9M2011) principally due tothe 10% YoY increase (P8.2 billion vs P7.5 billion) in its non-interest income attributed to hefty
trading gains. This improvement was boosted by the 5% growth (P5.5 billion vs P5.2 billion) in net
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interest income, attributable to the 22% drop in interest expense resulting from the decline inaverage levels of high cost deposits and lower borrowings.
The 12% YoY decrease in CSB's net income, from P362 million to P320 million, was mainly due tothe decline in operating margins as the rise in operating expenses outpaced the growth in interestincome on loans and service fees.
FoodIncome contribution from Pilmico Foods Corporation (PFC or Pilmico) and its subsidiaries amountedto P906 million, down 3% YoY. This decline was mainly attributed to the increase in interestexpense as average short-term debt level was higher compared to that of last year.
Material Changes in Line Items of Registrants Statements of Income and Comprehensive IncomeFor the first three quarters of 2012, AEV's consolidated net income attributable to equity holdersregistered a 12% growth, reaching P18.02 billion from P16.04 billion posted in the same period last
year.
Operating profit for the current period amounted to P17.03 billion, a 3% decline YoY, as the rise inconsolidated costs and expenses outpaced the increase in revenues.
Power subsidiaries reported a combined 2% YoY drop in operating margins resulting from the 23%surge in costs and expenses which surpassed the 14% growth in revenues. Consolidated revenuesincreased to P47.01 billion (vs P41.40 billion in 9M2011) substantially due to higher average sellingprices and GWh sold. For the generation subsidiaries, the expansion in revenues was due toimprovement in spot market prices and increase in contracted sales. For the distributionsubsidiaries, it was due to higher consumption by customers and better selling prices from theimplementation of the rate increase under a Performance-Based Regulation (PBR) scheme.
Meanwhile, consolidated costs and expenses rose to P31.68 billion (vs P25.75 billion in 9M2011)mainly due to the increase in fuel costs of AP Renewables, Inc. (APRI), Therma Luzon, Inc. (TLI) andTherma Marine, Inc. (TMI).
CSB, the non-listed banking subsidiary, likewise registered a 16% YoY decrease in operating profitdue to the 39% spike in its operating expenses resulting from the implementation of its expansionprogram and various initiatives. This increase in expenses offset the 17% expansion in revenues.
Food group, on the other hand, posted a 2% YoY growth in operating margins as the P535 millionincrease in revenues more than cancelled out the P510 million rise in costs and expenses. The 5%improvement in sales (P11.5 billion vs P11.0 billion in 9M2011) was attributed to higher sales volume
of the flour and feed divisions. The 5% rise in costs (P10.1 billion vs P9.6 billion in 9M2011) was dueto the uptick in costs of raw materials in the feed division and swine business.
The P2.5 billion increase in the earnings contribution of associates, which more than made up forthe P538 million dip in consolidated operating profit, pulled up the Group's over all profitability.
Share in net earnings of associates grew by 31% YoY (P10.58 billion vs P8.07 billion in 9M2011) dueto the strong performance of UBP and the majority of the power associates. Bulk of the increasewas coming from the substantial income contributions of UBP, SN Aboitiz Power-Magat, Inc.(SNAP-Magat), SN Aboitiz Power-Benguet, Inc. (SNAP-Benguet), Cebu Energy DevelopmentCorporation (CEDC), and Visayan Electric Company, Inc. (VECO). Improvement in UBP's net incomewas a result of higher net interest income and trading gains. The spike in SNAP-Magat's and
SNAP-Benguet's bottomlines was due to significant rise in ancillary service revenues and powersales, respectively. Likewise, the upsurge in the income contributions of CEDC and VECO was
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attributed to higher revenues as CEDC's contracted sales increased and VECO's MWh salesexpanded by 9%, complemented by better selling rates.
The improvement in equity earnings was partially offset by the 4% YoY rise in net interest expense(P5.33 billion vs P5.12 billion), attributable to higher level of short-term loans and increase in
accreted interest cost on TLI's finance lease obligation.The increase in other income enhanced the growth in the Group's consolidated net income for theperiod in review. Other income rose by 140% substantially due to higher foreign exchange (FX)gains (P1.18 billion vs P65 million in 9M2011). This was the result of the restatement of the dollar-denominated debt of the power group under a higher appreciating peso scenario as of the end ofSeptember 2012, as compared to that of September 2011. As of September 30, 2012, rate for theUS$ stood at P41.70 to a dollar, a P2.14 decline from the P43.84 rate as of the beginning of theyear. This appreciation was higher compared to the P0.12 differential as of September 30, 2011when FX rate was at P43.72, reckoned from the P43.84 rate as of the start of that year.
The 15% increase in provision for income tax (P1.3 billion vs P1.1 billion in 9M2011) was due to the
higher taxable income of the majority of the power subsidiaries.
The 15% rise in net income attributable to minority interests was mainly due to the increase inpower group's net income, 23% of which belongs to minority shareholders.
AEV's consolidated comprehensive income attributable to equity holders correspondingly rose by18%, from P15.04 billion in 9M2011 to P17.68 billion in 9M2012. This was attributed to the 12%increase in consolidated net income and the lower fair valuation loss of an associate on itsavailable-for-sale (AFS) investments.
Changes in Registrants Resources, Liabilities and Shareholders EquityAssetsCompared to year-end 2011 level, consolidated assets increased 5% to P211.30 billion as ofSeptember 30, 2012, due to the following:
a. Cash & Cash Equivalents increased by P1.29 billion mainly due to the excess cash generatedfrom operations and dividend collections, after spending for various capital expenditures,debt servicing and cash dividend distribution.
b. Trade and Other Receivables increased by 7% (P23.65 billion vs P22.02 billion in December2011) mainly due to higher loan releases of the banking subsidiary.
c. Inventories increased by 9% (P5.40 billion vs P4.93 billion in December 2011) mainly due tohigher in wheat inventory level of food group.
d. Other Current Assets increased by 26% (P2.80 billion vs P2.22 billion in December 2011)mainly due to the build-up of VAT inputs by power generation subsidiaries as a result ofongoing plant constructions and rehabilitation works.
e. Investments in and Advances to Associates increased by P1.96 billion (P50.72 billion vsP48.76 billion in December 2011) mainly due to the P829 million purchase of additional UBPshares and the recording of P10.58 billion share in earnings of associates during the currentperiod. This increase was partially reduced by the P8.56 billion cash dividends received, the
P268 million share of a banking associate's fair valuation loss on its AFS investments, and
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the P545 million proceeds from the preferred share redemption made by certain powerassociates.
f. Gross of depreciation expense, the resulting P6.97 billion increase in Property Plant andEquipment was mainly due to the following: 1.) rehabilitation of geothermal power plant
and power barges; 2.) on-going construction of Davao coal and Tudaya hydro powerplants; and 3.) various capital expenditures of power and food groups.
g. Investment Properties increased by 17% YoY (P400 million vs P341 million in December2011) due to additional foreclosed properties held by CSB.
h. Deferred Income Tax Assets increased by 62% (P435 million vs P269 million in December2011) mainly due to the corresponding tax effect on the additional impairment loss and baddebt provisions recorded by certain power subsidiaries during the current period.
The above increases were tempered by the 26% YoY decline in Pension Asset account resultingfrom retirement contribution accruals for the current period.
LiabilitiesConsolidated short-term bank loans grew by 5% (P5.56 billion vs P5.3 billion in December 2011)while long-term liabilities declined by 4% (P77.88 billion vs P80.74 billion in December 2011). Theincrease in short-term loans was mainly due to the additional availments made by food group tofund working capital requirements. The decrease in long term debt was principally due to theP7.98 billion pretermination of AP bonds and fixed-rate notes, P925 million amortization paymentson existing loans, P19 million amortization payment on a payable to a preferred shareholder of asubsidiary, and P15 million decrease in Obligations on Power Distribution System account owing toservice fee payments, net of capitalized costs. Said decrease was substantially countered by theP3.82 billion new loan availments made, and the P2.26 billion rise in finance lease obligationresulting from interest accretion.
Trade and other payables and deposit liabilities were higher by 13%, from P17.14 billion to P19.35billion, mainly due to: a.) power group's rise in payables to suppliers as a result of ongoing plantconstructions and rehabilitation works; and b.) banking subsidiary's growth in deposits.
Income tax payable increased by 59%, from P223 million to P355 million, due to the recording ofthe additional income tax liability for the current period as a result of the growth in taxable netincome of the majority of the power subsidiaries.
Pension liability increased by 28%, from P37 million to P48 million, on account of pension cost
accruals for the current period.
Customer deposits were higher by 9.5%, from P2.17 billion to P2.38 billion, mainly due to thegrowth in the customer base of power distribution subsidiaries.
Derivative liability decreased by 100%, from P7.58 million to nil, due to the wind down of non-deliverable forwards during period in review.
Deferred income tax liabilities rose by 80%, from P398 million to P715 million, mainly due to the setup of the corresponding income tax provision on the unrealized foreign exchange gains bookedduring period in review.
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EquityEquity attributable to equity holders of the parent grew by 11% from year-end 2011 level of P77.08billion to P85.39 billion, mainly due to the P9.3 billion increase in Retained Earnings, resulting fromthe P18.02 billion net income recorded during the current period, reduced by the P8.72 billion cash
dividends paid. This increase was partially offset by the recognition of the following: a.) P272million share in a banking associate's unrealized fair valuation loss on its AFS investments; b.) P70million share of current translation adjustments recorded by power generation associates using USdollars as functional currency; and c.) P639 million acquisition of minority interest by AEV parent inits additional purchase of AP shares.
Material Changes in Liquidity and Cash Reserves of RegistrantFor the first three quarters of 2012, the group continued to support its liquidity mainly from cashgenerated from operations and dividends received from associates.
Compared to the cash inflow during the comparable period in 2011, consolidated cash generated
from operating activities in 9M2012 increased by P2.29 billion to P19.1 billion, mainly due toincrease in trade payables.
The current period ended up with a P946 million net cash generated from investing activities,compared to the P3.92 billion cash used during the comparable period last year. This was mainlydue to the increase in cash dividends received from associates, partially countered by higher fundsspent for major asset acquisitions and capital expenditures.
Net cash used in financing activities was higher at P18.7 billion, compared to P9.5 billion in 9M2011.This increase was attributed to net debt repayments made during the current period versus the netdebt availment last year.
For the period in review, net cash inflows surpassed cash outflows, resulting to a 4% increase incash and cash equivalents, from P29.54 billion as of year-end 2011 to P30.84 billion as ofSeptember 30, 2012.
Financial RatiosBacked by strong operating cash inflows, liquidity was adequately preserved. Cash and cashequivalents stood at P30.84 billion as of September 30, 2012, keeping current ratio at the samehigh level of 2.96:1. Debt-to-equity improved to 1.01:1 (versus year-end 2011s 1.12:1), as growth inequity outpaced the increase in total liabilities. Likewise, net debt-to-equity ratio was better at0.50x (versus year-end 2011s 0.59x), since decrease in net debt complemented the rise in equity.
Outlook for the Upcoming Year/ Known Trends, Events, Uncertainties which may have MaterialImpact on RegistrantNotwithstanding external and uncontrollable economic and business factors that affect itsbusinesses, AEV believes that it is in a good position to benefit from the opportunities that mayarise in 2012. Its sound financial condition, coupled with a number of industry and companyspecific developments, should bode well for AEV and its investee companies. These developmentsare as follows:
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Power (Generation Business)1. Continued growth in the Power Groups attributable capacity76.8%-owned subsidiary AboitizPower ended the first nine months of 2012 with a totalattributable generating capacity of 2,353 MW. The company aims to continue growing its portfolioof generation assets by implementing the following projects.
- Rehabilitation of the Binga Hydro Power Project
In 2011, AboitizPower, together with its partner SN Power Invest AS (SN Power), commencedthe programmed rehabilitation of the 100 MW Binga hydropower plant, which is consisted offour units with a capacity of 25 MW each. The program involves the increase of each unitscapacity by 5 MW. Rehabilitation of the first unit and second units were completed inDecember 2011 and July 2012, respectively. Rehabilitation works on the third unit is underwaywith expected completion in the first quarter of 2012. Works on the fourth unit will commencethereafter with expected completion targeted in the fourth quarter of 2013. Full completion
will result to Bingas total capacity reaching 120 MW, from the current 110 MW. AboitizPowerhas an effective stake of 50% in this facility.
- Rehabilitation of the Tiwi-Makban Geothermal Power Facilities
AboitizPowers 100%-owned AP Renewables, Inc. (APRI) is currently undertaking therehabilitation of several units of the Tiwi-Makban geothermal power plant complex. Works onthe Tiwi facilities are targeted for completion by the fourth quarter of 2012, while those forMakban are seen to be finished by April 2013. Enhancements in the plants availability rate areexpected following the completion of the refurbishment, rehabilitation and resourceimprovements.
- Greenfield and Brownfield developments
600 MW Coal-fired Power Plant in Subic. This is a project by Redondo Peninsula Energy, Inc.(RP Energy), a joint venture with Meralco PowerGen Corporation (MPGC) and TaiwanCogeneration International Corporation (TCIC). The project involves the construction andoperation of a 2x300 MW circulating-fluidized-bed (CFB) coal-fired power plant in the SubicBay Freeport Zone. RP Energy is awaiting the issuance of the amended EnvironmentalCompliance Certificate to cover two high-efficiency 300-MW units with main steam reheatsystems. In the meantime, site preparation and the finalization of the EPC contract areunderway, while suppliers of the main equipment (i.e. CFB boilers and turbines) have alreadybeen identified. Commercial operation of the power plant is estimated to commence within
2016. AboitizPower, through its wholly owned subsidiary, Therma Power, Inc., has an equityinterest of roughly 25% in RP Energy.
300 MW Coal-fired Power Plant in Davao. AboitizPower, through 100%-owned subsidiaryTherma South, Inc. (TSI), is putting up a 2x150 MW coal-fired power plant in Davao, which isthe biggest load center in the island of Mindanao. The project broke ground in the thirdquarter of 2012. The first generating unit (150 MW) is expected to be completed 34 monthsafter (or March 2015), with the second unit (150 MW) to follow in 3 months (or June 2015).
400 MW Coal-fired Power Plant in Pagbilao, Quezon. On September 27, 2011, AboitizPowersigned a Memorandum of Understanding with Marubeni Corporation (Marubeni) to formalizetheir intention to jointly develop, construct and operate a coal-fired power plant with a
capacity of approximately 400 MW. The proposed location will be within the premises of theexisting 700 MW Pagbilao Unit I and II Coal Fired Thermal Power Plant in Quezon. The terms
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and conditions of the joint investment will be finalized in a definitive agreement to be agreedupon by the parties. Marubeni is part-owner of Team Energy Corporation, which owns andoperates the Pagbilao Power Plant under a build-operate-transfer contract with the NationalPower Corporation. On the other hand, AboitizPower, through wholly owned subsidiaryTherma Luzon, Inc., is the Independent Power Producer Administrator of the Pagbilao Power
Plant under the IPP Administration Agreement with PSALM.150 MW Coal-fired Power Plant in Misamis Oriental. On June 28, 2010, AboitizPower and itspartners in STEAG State Power, Inc., owner of the 232 MW coal plant located at the PhividecIndustrial Estate in Villanueva, Misamis Oriental, firmed up their collective intention to developa third unit of approximately 150 MW capacity adjacent to the existing facility. AboitizPowerand its partners agreed to maintain their shareholdings in the same proportions in the newcorporation to be established for the planned additional capacity. Certain essential facilities,such as the jetty, coal handling facilities and stockyards and the 138-kV interconnection withthe Mindanao Grid are to be shared with the existing facilities. Depending on the interest themarket demonstrates, the agreement contemplates the possibility of putting up another unit.
13.7 MW Tudaya 1 and 2 Hydro Power Plant Project. AboitizPowers wholly owned subsidiaryHedcor Tudaya, Inc. (Hedcor Tudaya) has implemented a Greenfield project involving theconstruction of run-of-river power plants to be located in the upper and downstream sectionsof the existing Sibulan hydro power plants, tapping the same water resource, which are theSibulan and Baroring rivers. The two plants will have a combined capacity of 13.7 MW. With theECC, local communities endorsements and RE contracts in place, both Tudaya 1 and 2commenced construction in the third quarter of 2012. Completion is estimated to becompleted by the first quarter of 2014.
13.2 MW Sabangan Hydro Power Plant Project. This involves the construction and operation ofa hydropower plant facility in Mt. Province, a province located in Northern Luzon. This projectwill be undertaken by a wholly owned subsidiary of AboitizPower, Hedcor Sabangan, Inc. Theproject was granted an ECC by the DENR in 2011. Engineering and design are underway and areexpected to be completed by fourth quarter of 2012. Ground breaking is targeted in the firstquarter of 2013, with completion expected after a 2-year construction period.
11.5 MW Hedcor Tamugan Hydro Power Plant Project. In 2010, wholly owned subsidiary, HedcorTamugan, Inc. (Hedcor Tamugan), has reached an agreement with the Davao City WaterDistrict on the use of the Tamugan river. Originally planned as a 27.5 MW run-of-river facility,Hedcor Tamugan submitted a new proposal, which involves the construction of an 11.5 MWhydropower plant. Hedcor Tamugan is waiting for the Davao City council to approve theproject. Once approval and permits are secured, the two-year construction period willcommence.
Other Greenfield and Brownfield developments. AboitizPower, together with its subsidiariesand associate company, is conducting feasibility studies for potential Greenfield andBrownfield projects.
The SN Aboitiz Power Group (SNAP Group) is in the process of evaluating severalhydropower plant projects. A Brownfield project is being evaluated for its Magathydropower plant, which involves the construction of a pumped storage facility thatcould potentially increase its capacity by at least 90 MW. The SNAP Group is likewiseevaluating several Greenfield hydropower plant projects that have at least 70 MW ofpotential capacity each.
Hedcor is conducting feasibility studies for potential hydropower projects located inLuzon, Visayas, and Mindanao. Based on current findings, Hedcor sees the potential of
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building plants with capacities ranging from 10 MW to 50 MW. When the projects passthe evaluation stage and once permits are secured, the two-year construction periodfor the hydropower plant facilities will commence.
2. Participation in the Governments Privatization Program for its Power AssetsAboitizPower continues to closely evaluate the investment viability of the remaining powergeneration assets that Power Sector Assets and Liabilities Management Corporation (PSALM)intends to auction off.
AboitizPower is also keen on participating in PSALMs public auction for the Independent PowerProducer (IPP) Administrator contracts, which involves the transfer of the management and controlof total energy output of power plants under contract with NPC to the IPP administrators.
Distribution BusinessAboitizPower remains optimistic that it will realize modest growth on its existing distribution
utilities. It continually seeks efficiency improvements in its operations to maintain healthymargins.
The implementation of the rate adjustment formula for the distribution companies under the PBRis on a staggered basis. In addition to annual adjustments, PBR allows for rate adjustments inbetween the reset periods to address extraordinary circumstances. There is also a mandatory rate-setting every four years wherein possible adjustments to the rate take into account currentsituations.
Cotabato Lights 4-year regulatory period commenced on April 1, 2009 and ends on March 30,2013. The company is currently in its fourth year of its first regulatory period. It is likewiseundergoing its reset process in preparation for its second 4-year regulatory period, which should
commence in April 2013. However, delays in the completion of the reset process are expected totake place due to the change in the ERCs engagement process for consultants, Cotabato Light isthe first distribution utility in the AboitizPower group to implement this incentive-based scheme.
VECO and Davao Light are part of the third group (Group C) of private distribution utilities thatshifted to PBR, which implemented their approved rate structures in August 2010. Both utilities areawaiting approval and implementation of their rates for the third year of its regulatory period,which began on July 1, 2011. All under-recoveries from said date should be allowed to be recoupedin the next regulatory year.
SFELAPCO and SEZ are part of the fourth batch (Group D) of private distribution utilities to enter
PBR. In July 2011, the ERC released the final determination on the applications for annual revenuerequirements and performance incentive schemes for the regulatory period October 2011 toSeptember 2015. Implementation of approved rates took place in January 2012 and March 2012 forSEZ and SFELAPCO, respectively. All under-recoveries since October 2011 are allowed to berecouped in the next regulatory year.
Market and Industry DevelopmentsOpen Access and Retail CompetitionPer EPIRA, the conditions for the commencement of the Open Access and Retail Competition are asfollows:
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(a) Establishment of the WESM;(b)Approval of unbundled transmission and distribution wheeling charges;(c) Initial implementation of the cross subsidy removal scheme;(d) Privatization of at least 70% of the total capacity of generating assets of NPC in Luzon
and Visayas; and
(e)
Transfer of the management and control of at least 70% of the total energy output ofpower plants under contract with NPC to the IPP administrators.
Under the Open Access and Retail Competition, an eligible contestable customer, which is definedas an end-user with a monthly average peak demand of at least 1 MW for the preceding 12 months,will have the option to source their electricity from eligible suppliers that have secured a RetailElectricity Supplier license from the ERC. Eligible suppliers shall include the following:
- Generation companies that own, operate or control 30% or less of the installed generatingcapacity in a grid and/or 25% or less of the national installed capacity
- NPC-Independent Power Producers with respect to capacity which is not covered by contracts
- IPP Administrators with respect to the uncontracted energy which is subject to theiradministration and management
- Retail Electricity Suppliers (RES) duly licensed by the ERC
The implementation of the Open Access and Retail Competition presents a big opportunity forAboitizPower, as it has two wholly owned subsidiaries (i.e. Aboitiz Energy Solutions, Inc. andAdvent Energy, Inc.) that are licensed retail suppliers, which can enter into contracts with theeligible contestable customers. Moreover, AboitizPowers generation assets that haveuncontracted capacity will be able to have direct access to eligible contestable customers throughAboitizPowers licensed RES.
In June 2011, the ERC declared December 26, 2011 as the Open Access Date to mark thecommencement of the full operations of the competitive retail electricity market in Luzon andVisayas. However, after careful deliberation, the ERC acknowledged that not all the necessaryrules, systems and infrastructures required for the implementation of the Open Access and RetailCompetition have been put in place to meet the contemplated timetable for implementation. InOctober 2011, the ERC announced the deferment of the Open Access Date. A definitive timelineleading to the eventual implementation will be issued by the ERC after consultation with all thestakeholders.
Financial ServicesUnionBanks initiatives on strengthening its customer franchise will continue to be at the forefrontas it prioritizes customer engagement through enhanced retail focus and stronger salesmanagement approach. UnionBank will continue to invest in technology, cultivate partnershipsand develop relevant and expert financial solutions that challenge convention, and rationalizebranch network expansion in strategic areas to maximize growth channels with respect to bothdeposits and loan accounts.
UnionBank will continue to focus on improving the performance of its earning assets portfolio,with loan asset acquisition in the retail, middle-market and corporate sectors. The bank willimplement a disciplined asset allocation built on good governance and effective risk managementto ensure momentum of recurrent income stream. UnionBank will continue to focus on improving
its deposit liabilities mix by targeting low-cost funds (i.e. CASA).
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UnionBank will, likewise, continue to enhance operating efficiencies through cost containmentefforts and improvements in its business processes to align with best and leading practices.
CitySavings will continue to strengthen its market position in its present niche by improving itsproducts and services further. CitySavings plans to expand its branch network by putting up new
branches and extension offices in areas outside of its present coverage. On top of the recentlyopened branch in Legazpi City, Albay, in the third quarter of 2012, the bank is targeting to add five(5) more branches to its network within the year, all to be located in Luzon, bringing in a total of 38branches by year end.
To support its expansion program, CitySavings is in the process of putting in place a new corebanking system called Finacle, which is designed to improve processes and systems to better servethe banks growing clientele. With this system, operating efficiencies are seen to be enhanced asbranch processes will be standardized and backroom operations will be automated. The system isbeing implemented in phases, with full completion of the initiative expected by 3Q 2013.
Food ManufacturingIn line with the logistics initiatives to mitigate higher freight cost, Pilmico implemented dredgingworks in its harbor in Iligan, which were completed in the third quarter of 2012. With theconstruction of a new mooring structure, this has enabled the harbor to accommodate highertonnage vessels. This, together with the pneumatic unloader that was completed, should result tothe improvement in the facilitys unloading rate to 10,500 metric tons per day (MTPD) from 7,500MTPD.
Construction of additional silos to support the storage requirements of the second production lineof its Iligan feedmill has been completed in the second quarter of 2012.
For the Farms business, the companys goal is to increase its sow capacity by 30% by 2014, with70% of the finishing farms owned and operated by the company. In support of this initiative,construction of a new nursery farm has been completed. Additionally, it will continue to expandthe existing breeder farm and increase the capacity of the growing-finishing farms.
PART II--OTHER INFORMATIONThere are no significant information on the company which requires disclosure herein and/or werenot included in SEC Form 17-C.
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CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2012 AND DECEMBER 31, 2011
(Amounts in Thousands)UNAUDITED AUDITED
SEP 2012 DEC 2011
ASSETS
Current Assets
Cash and cash equivalents 30,835,560 29,543,492
Trade and other receivables - net 23,648,584 22,024,385
Inventories - net 5,396,922 4,932,659
Other current assets 2,797,209 2,220,068
Total Current Assets 62,678,275 58,720,604
Noncurrent Assets
Property, plant, and equipment - net 86,913,714 82,608,589
Intangible asset - service concession right 3,991,151 4,162,768
Investment properties - net 400,108 341,381
Investments and advances 50,719,509 48,762,926
Available-for-sale (AFS) investments 72,324 74,569
Goodwill 1,641,587 1,639,518
Pension asset 140,375 190,270
Deferred income tax assets 434,810 268,664
Other noncurrent assets - net 4,305,315 4,222,586Total Noncurrent Assets 148,618,893 142,271,271
TOTAL ASSETS 211,297,168 200,991,875
LIABILITIES AND EQUITY
Current Liabilities
Bank loans 5,558,345 5,301,008
Trade and other payables 14,413,104 12,667,610
Current portion of derivative liability - 7,580
Income tax payable 354,950 222,895
Current portion of long-term debt 801,000 1,604,750
Current portion of obligations on Power Distribution System 40,000 40,000
Current portion of payable to preferred shareholder of a subsidiary 16,902 16,902
Total Current Liabilities 21,184,301 19,860,745
Noncurrent LiabilitiesDeposit liabilities of CSB 4,934,787 4,472,252
Long-term debt - net of current portion 21,800,411 26,077,970
Obligations under finance lease - net of current portion 54,971,112 52,714,959
Obligations on Power Distribution System - net of current portion 222,394 237,046
Customers' deposits 2,375,540 2,170,028
Payable to preferred shareholder of a subsidiary 26,997 46,068
Pension liability 47,540 37,092
Deferred income tax liability 715,456 397,988
Total Noncurrent Liabilities 85,094,237 86,153,403
Total Liabilities 106,278,538 106,014,148
Equity Attributable to Equity Holders of the Parent
Capital stock 5,694,600 5,694,600
Additional paid-in capital 6,110,957 6,110,957
Net unrealized gains on AFS investments 2,951 9,638
Cumulative translation adjustments (99,720) (43,705)
Share in cumulative translation adjustments of associates (431,881) (417,661)
Share in net unrealized gains (losses) on AFS investments and underwriting
accounts of associates 851,467 1,116,923
Gain on dilution 5,376,176 5,376,176
Acquisition of non-controlling interest (1,165,931) (527,203)
Retained earnings 70,351,502 61,053,322
Treasury stock at cost (1,295,163) (1,295,163)
85,394,959 77,077,884
Non-controlling Interests 19,623,672 17,899,843
Total Equity 105,018,631 94,977,727
TOTAL LIABILITIES AND EQUITY 211,297,168 200,991,875
ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2012 AND 2011
(Amounts in Thousands)
(UNAUDITED)
JAN-SEP/12 JAN-SEP/11 JUL-SEP/12 JUL-SEP/11
REVENUES 60,791,174 54,444,935 20,446,520 18,557,087
COSTS AND EXPENSES 43,760,368 36,876,190 14,209,468 12,472,291
GROSS PROFIT 17,030,806 17,568,745 6,237,052 6,084,796
OTHER INCOME (CHARGES)
Share in net earnings of associates 10,576,794 8,072,806 3,466,038 3,266,255
Interest income 685,114 676,475 246,019 252,463
Interest expense (6,015,351) (5,705,635) (2,073,607) (1,943,274)
Dividends on redeemable preferred - (94,731) - (31,702)
Other income 1,701,224 708,816 368,266 31,362
6,947,781 3,657,732 2,006,716 1,575,104
INCOME BEFORE INCOME TAX 23,978,587 21,226,477 8,243,768 7,659,900
PROVISION FOR INCOME TAX 1,282,455 1,119,379 454,804 380,017
NET INCOME 22,696,132 20,107,098 7,788,964 7,279,883
ATTRIBUTABLE TO:
EQUITY HOLDERS OF THE PARENT 18,022,738 16,041,635 6,212,531 5,824,722
NON-CONTROLLING INTERESTS 4,673,394 4,065,463 1,576,433 1,455,161
22,696,132 20,107,098 7,788,964 7,279,883
Earnings Per Common Share **
Basic, for income for the period attributable to ordinary
holders of the parent 3.264 2.905 2.204 2.071
** Refer to Disclosure H for the computation of Earnings per Common Share.
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE PERIODS SEPTEMBER 30, 2012 AND 2011
(Amounts in Thousands)
(UNAUDITED)
JAN-SEP/12 JAN-SEP/11 JUL-SEP/12 JUL-SEP/11
Profit for the period attributable to:
Equity holders of the parent 18,022,738 16,041,635 6,212,531 5,824,722
Non-controlling interests 4,673,394 4,065,463 1,576,433 1,455,161
Profit for the period 22,696,132 20,107,098 7,788,964 7,279,883
Other comprehensive income:
Net unrealized valuation gains (losses) on AFS investments 2,541 15,214 682 (649)
Movement in cumulative translation adjustments of associates (72,027) (105,225) 31,437 16,910
Share in movement in net unrealized valuation gains (losses) on AFS
investments of an associate (268,606) (967,185) 427,783 (993,587)Share in movement in cumulative translation adjustments of
associates (18,830) (135) - 6,786
Other comprehensive income (loss) for the period, net of tax
(Schedules A & B) (356,922) (1,057,330) 459,902 (970,540)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 22,339,210 19,049,768 8,248,866 6,309,343
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent 17,680,360 15,041,061 6,632,089 4,848,387
Non-controlling interests 4,658,850 4,008,707 1,616,777 1,460,956
22,339,210 19,049,768 8,248,866 6,309,343
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 2012 AND 2011
(Amounts in Thousands)
(UNAUDITED)
JAN-SEP/12 JAN-SEP/11 JUL-SEP/12 JUL-SEP/11
CASH FLOWS FROM OPERATING ACTIVITIES:Income before income tax 23,978,587 21,226,477 8,243,768 7,659,900
Adjustments for:
Share in net earnings of associates (10,576,794) (8,072,807) (3,466,038) (3,266,255)
Depreciation and amortization 2,759,514 2,801,215 931,271 994,752
Interest income (685,114) (676,475) (246,019) (252,463)
Interest expense and dividends on redeemable preferred shares 6,015,351 5,800,366 2,073,607 1,974,976
Amortization of computer softwares and other intangibles 19,111 - 7,111 -
Dividend income (561) (1,286) (89) (1,286)
Reversal of provision for investment in shares of stock - (40,247) - -
Provision for impairment loss on receivables 91,130 35,223 20,574 15,197
Unrealized fair valuation losses (gains) on derivatives (736) 7,922 670
Provision for retirement benefits 9,896 5,336 3,299 1,778
Write-off of project costs and others - 641 - 590
Unrealized foreign exchange loss (gain) (1,277,537) (83,270) (270,260) 199,500
Gain on sale of investments in shares of stock (39,383) - (86) -
Loss on sale of available for sale investments 1,259 1,259 - 1,259
Gain on sale of property, plant & equipment (7,628) (2,192) (383) (211)
Operating income before working capital changes 20,287,095 21,002,161 7,296,754 7,328,406
Changes in:
Increase in operating current assets (2,812,447) (3,626,162) (1,992,837) (481,304)
Increase (decrease) in operating current liabilities 2,519,729 177,089 84,646 (1,858,010)
Cash provided by operations 19,994,377 17,553,088 5,388,563 4,989,091
Income and final taxes paid (858,563) (750,630) (301,884) (147,701)
Service fees paid (40,000) - (40,000)
Net cash provided by operating activities 19,095,814 16,802,458 5,046,679 4,841,391
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received 8,555,156 4,503,815 3,498,746 748,548
Interest received 754,889 629,632 252,655 226,177
Additions to investments (576,233) (1,593,128) (497,266) (1,296,671)
Collection of advances to associates 62,991 378,493 61,068 589,146Acquisitions of property, plant and equipment - net (7,115,738) (5,781,805) (3,126,832) (1,750,738)
Disposals (acquisitions) of available for sale investments (5,702) 33,695 (7,438) (2,083)
Acquisition of a subsidiary, net of cash acquired (933,702) (563,567) - -
Proceeds from sale of investments in shares of stock 330,805 0 86 0
Increase in intangible assets (3,371) (196,979) (135,843) (119,868)
Decrease (increase) in other assets (122,796) (1,330,513) 92,117 (1,652,819)
Net cash provided by (used in) investing activities 946,299 (3,920,357) 137,293 (3,258,308)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (settlements of) bank loans 257,337 (2,324,326) 630,183 (244,668)
Proceeds from (payments of) long-term debt (5,081,309) 6,932,232 (4,262,262) 218,494
Payments of finance lease obligation (815,985) (814,536) (269,900) (273,521)
Payments of payable to preferred shareholders of a subsidiary (29,697) (35,296) (5,177) (4,226)
Interest and dividends on redeemable preferred shares paid (1,683,842) (1,700,030) (617,788) (645,684)
Increase (decrease) in derivative liabilities/ Decrease (increase) in
derivative assets (6,844) 7,810 76Cash dividends paid to equity holders of the parent (8,724,557) (8,724,557)
Cash dividends and other accounts paid to non-controlling interest (2,613,098) (2,840,886) (357,616) (28,066)
Net cash used in financing activities (18,697,996) (9,499,590) (4,882,560) (977,595)
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,344,117 3,382,511 301,413 605,487
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH &
CASH EQUIVALENTS (52,049) 34,085 2,776 40,388
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,543,492 26,097,203 30,531,371 28,867,924
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD 30,835,560 29,513,799 30,835,560 29,513,799
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE PERIODS ENDED SEPTEMBER 30, 2012 AND DECEMBER 31, 2011
Additional Paid-in
Net Unrealized
Valuation
Gains (Losses)
on AFS
Cumulative
Translation
Share in
Cumulative
Translation
Adjustments of
Share in Net
Unrealized Gains
(Losses) on AFS
Investments &
Underwriting
Accounts of an Gain on
Acquisition of Non-
controlling Reta ine d Trea sury Non-c ont rolling
Common Preferred Capital Investments Adjustments Associates Associate Dilution Interest Earnings Stock Total Interests Total
Balances at December 31, 2011 5,694,600 - 6,110,957 9,638 (43,705) (417,661) 1,116,924 5,376,176 (527,203) 61,053,322 (1,295,163) 77,077,884 17,899,843 94,977,727
Changes in equity for Jan-Sept 2012:
Acquisition of non-controlling interest (638,727) (638,727) 1,115 (637,613)
Cash dividends (8,724,557) (8,724,557) (8,724,557)
Changes in non-controlling interest - (675,673) (675,673)
Cash dividends paid to non-controlling interest - (2,260,463) (2,260,463)
Total comprehensive income for the year (6,687) (56,014) (14,220) (265,457) 18,022,738 17,680,360 4,658,850 22,339,210
Balances at September 30, 2012 5,694,600 - 6,110,957 2,951 (99,720) (431,881) 851,467 5,376,176 (1,165,931) 70,351,502 (1,295,163) 85,394,958 19,623,673 105,018,631
Additional Paid-in
Net Unrealized
Valuation
Gains (Losses)
on AFS
Cumulative
Translation
Share in
Cumulative
Translation
Adjustments of
Share in Net
Unrealized Gains
(Losses) on AFS
Investments &
Underwriting
Accounts of an Gain on
Acquisition of Non-
controlling Reta ine d Trea sury Non-c ont rolling
Common Preferred Capital Investments Adjustments Associates Associate Dilution Interest Earnings Stock Total Interests Total
Balances at December 31, 2010 5,694,600 - 6,110,957 7,443 0 44,606 314,840 5,376,176 (527,203) 48,586,535 (1,295,163) 64,312,791 14,004,637 78,317,428
Changes in equity for Jan-Dec 2011:
Changes in non-controlling interest - 1,082,900 1,082,900
Cash dividends (8,724,557) (8,724,557) (8,724,557)
Cash dividends paid to non-controlling interest - (2,374,427) (2,374,427)
Total comprehensive income for the year 2,195 (43,705) (462,267) 802,084 21,191,344 - 21,489,650 5,186,733 26,676,384
Balances at December 31, 2011 5,694,600 - 6,110,957 9,638 (43,705) (417,661) 1,116,924 5,376,176 (527,203) 61,053,322 (1,295,163) 77,077,883 17,899,843 94,977,727
Share Capital
Share Capital
Attributable to owners of the parent
Attributable to owners of the parent
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE PERIODS ENDED SEPTEMBER 30, 2011
Additional Paid-
in
Net Unrealized
Valuation
Gains (Losses)
on AFS
Cumulative
Translation
Share in
Cumulative
Translation
Adjustments of
Share in Net
Unrealized Gains
(Losses) on AFS
Investments &
Underwriting
Accounts of an Gain on
Acquisition of
Minority Retained Treasury N on-controlling
Common Preferred Capital Investments Adjustments Associates Associate Dilution Interest Earnings Stock Total Interests Total
Balances at December 31, 2010 5,694,600 - 6,110,957 7,443 0 44,606 314,840 5,376,176 (527,203) 48,586,535 (1,295,163) 64,312,790 14,004,637 78,317,428
Changes in equity for Jan-Sept 2011:
Acquisition of non-controlling interest 323,679 323,679 99,974 423,654
Cash dividends (8,724,557) (8,724,557) (8,724,557)
Changes in non-controlling interest - 1,190,168 1,190,168
Cash dividends paid to non-controlling interest - (2,320,926) (2,320,926)
Total comprehensive income for the year - - (1,886) (31,989) (966,700) 16,041,635 15,041,061 4,008,707 19,049,768
Balances at September 30, 2011 5,694,600 - 6,110,957 5,557 0 12,617 (651,860) 5,376,176 (203,524) 55,903,613 (1,295,163) 70,952,973 16,982,559 87,935,533
Share Capital
Attributable to owners of the parent
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ABOITIZ EQUITY VENTURES, INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULES AND DISCLOSURESAT SEPTEMBER 30, 2012 AND DECEMBER 31, 2011
(peso amounts in thousands)
A. COMPONENTS OF OTHER COMPREHENSIVE INCOME
JAN-SEP/12 JAN-SEP/11
Available-for-sale financial assets:
Net unrealized valuation gains arising during the period 2,541 15,214
Less: Reclassification adjustments for losses included in profit or loss - 2,541 - 15,214
Exchange differences in translating foreign-denominated transactions (72,027) (105,225)
Share in movement in net unrealized valuation losses on AFS investments of an associate (268,606) (967,185)
Share in movement in cumulative translation adjustments of associates (18,830) (135)
Other comprehensive loss (356,922) (1,057,331)
Income tax relating to components of other comprehensive income - -
Other comprehensive loss for the period (356,922) (1,057,331)
B. TAX EFFECTS RELATING TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME
JAN-SEP/12 JAN-SEP/11
Before-Tax
Amount
Tax (Expense)
Benefit
Net-of-Tax
Amount
Before-Tax
Amount
Tax
(Expense)
Benefit
Net-of-Tax
Amount
Available-for-sale financial assets 2,541 - 2,541 15,214 - 15,214
Exchange differences in translating foreign-denominated transactions (72,027) - (72,027) (105,225) - (105,225)Share in movement in net unrealized valuation losses on AFS investments of an associate (268,606) - (268,606) (967,185) - (967,185)
Share in movement in cumulative translation adjustments of associates (18,830) - (18,830) (135) - (135)
Other comprehensive loss for the period (356,922) - (356,922) (1,057,331) - (1,057,331)
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C. INVESTMENTS AND ADVANCES
% OWNERSHIP
2012 SEP 2012 DEC 2011
Investments in shares of stock
At equity
Acquisition cost:
Union Bank of the Philippines 44.52% 6,893,544 6,064,163
Accuria, Inc. 49.54% 719,739 719,739
Western Mindanao Power Corporation 20.00% 79,099 263,665
Cebu International Container Terminal, Inc. 20.00% 240,125 240,125
Hijos de Escao, Inc. 46.73% 858,070 858,070
San Fernando Electric Light & Power Co., Inc. 20.29% 180,864 180,864
Pampanga Energy Ventures, Inc. 42.84% 209,465 209,465
Southern Philippines Power Corporation 20.00% 99,166 152,587
Visayan Electric Co., Inc. 55.25% 659,733 658,153
Manila Oslo Renewable Enterprise, Inc. 83.33% 9,290,416 9,545,143
East Asia Utilities Corporation 50.00% 180,616 217,551
STEAG State Power Inc. 34.00% 4,400,611 4,400,611
Redondo Peninsula Energy Corporation 25.00% 5,000 5,000
Cebu Energy Development Corp. 44.00% 2,438,621 2,438,621
South Western Cement Corporation 20.00% 28,995 28,995Luzon Hydro Corporation 100.00% - -
Cordillera Hydro Corporation 35.00% 88 88
CSB Land, Inc. 40.00% 2,000 2,000
CSB Holdings, Inc. 40.00% 1,000 1,000
Hapag-Lloyd Philippines, Inc. 15.00% 1,800 1,800
Jebsens People Solutions AS 50.00% 3,600 3,600
JAIB, Inc. 49.00% 1,884 1,884
Balance at end of period 26,294,438 25,993,126
Accumulated share in net earnings:
Balance, beginning of year 20,231,696 16,339,566
Share in net earnings for the period 10,576,794 11,229,066
Disposals during the period (16,501) (0)Step-acquisition to subsidiary - (196,403)
Cash dividends received and receivable (8,554,595) (7,140,532)
Balance, end of period 22,237,395 20,231,696
Gain on dilution 1,014,136 1,014,136
Share in net unrealized gains on available-for-sale investments of
an associate 854,060 1,122,666
Share in cumulative translation adjustments of associates (565,583) (546,753)
49,834,446 47,814,872
Allowance for impairment losses (28,995) (28,995)
Investments, at equity 49,805,451 47,785,876
Advances to investees 914,058 977,049
50,719,509 48,762,925
D. ACCOUNTS PAYABLE & ACCRUED EXPENSE
Trade 3,783,823
Others 10,629,281
TOTAL 14,413,104
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E. SHORT-TERM LOANS
Effective
Interest Rate
Financial institutions - unsecured:
Peso loans 3.75% - 4.00% 5,397,800 5,084,000
US dollar loans 4% - 4.13% 160,545 217,008
5,558,345 5,301,008
F. LONG-TERM LOANS
Effective
Interest Rate
Company:
Financial institutions - unsecured
Peso denominated loans 3,986,050 3,991,150
3,986,050 3,991,150
Subsidiaries:
AP and subsidiaries
AP Parent
Financial and non-institutions - unsecured
Fixed rate notes 9.33% 543,200 543,200
Fixed rate notes 8.23% - 5,000,000
Fixed rate notes 6.17% 5,000,000 5,000,000
Retail Bonds
5 year bonds 8.70% - 2,294,420
3 year bonds 8.00% - 705,580
CPPC
Financial institution 3.84% - 4.65% 266,667 426,667HEDCOR, INC.
Financial institution - secured 8.36% 419,900 484,500
HEDCOR SIBULAN, INC.
Financial institutions - secured 8.52% 3,043,895 3,306,947
SEZC
Financial institution - secured 5.61% - 6.06% 508,500 565,000
LHC
Financial institution - secured 2.00% - 3.51% 2,208,014 521,257
BEZC
Financial institution - secured 7.50% 0 70,000
11,990,176 18,917,571
Less deferred financing costs 72,317 112,589
11,917,859 18,804,982
PILMICO and subsidiary
PILMICO
Financial institutions - secured 4.96% - 7.10% 1,290,000 1,369,304
PANC
Financial institution - secured 6.47% 600,000 600,000
1,890,000 1,969,304
Less deferred financing costs 9,128 8,069
1,880,872 1,961,235
CITY SAVINGS BANK
Financial institutions 5.96% - 7.57% 4,149,754 2,240,092
Non-financial institutions 4.75% - 8.5% 666,876 699,919
4,816,630 2,940,011
Less deferred financing costs 0 14,658
4,816,630 2,925,353
Total 22,601,411 27,682,720
Less: Current portion 801,000 1,604,750
21,800,411 26,077,970
G. DEBT SECURITIES
MATURITY INTEREST RATE AMOUNT
5-year bonds to mature on May 1, 2014 8.7%/p.a. 2,294,420
3-year bonds to mature on April 30, 2012 8.0%/p.a. 705,580
H. EARNINGS PER SHARE
Earnings per common share amounts were computed as follows:
SEP 2012 SEP 2011a. Net income attributable to equity holders of the parent 18,022,738 16,041,635
b. Average number of outstanding shares 5,521,871,821 5,521,871,821
c. Earnings per share (a/b) 3.264 2.905
On April 30, 2012, the above bonds were fully repaid. AP's payment comprised both the final settlement of the maturing 3-
year bonds and the early redemption of the 5-year bonds.
In April, 2009, AP, a 76.83%-owned subsidiary, registered and issued peso-denominated fixed-rate retail bonds amount
to P3 billion under the following terms:
SEP 2012 DEC 2011
SEP 2012 DEC 2011
5.23% - 8.25%
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Financial information on the operations of the business segment is summarized as follows:
Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011
EVENUES 47,006,237 41,396,722 1,578,546 1,346,365 11,527,085 10,991,854 - 378,062 864,873 521,611 (185,568) (189,678) 60,791,174 54,444,936
ESULT
Segment results 15,328,271 15,646,673 443,752 502,063 1,241,097 1,226,510 52,153 17,686 106,091 - 35,256 17,030,806 17,568,745
Unallocated corporate income
(expenses) 1,626,890 531,591 15,968 9,996 (25,341) 13,220 6,140 83,708 183,125 - (35,256) 1,701,225 708,816
NCOME FROM OPERATIONS 18,732,030 18,277,562
terest Expense & Dividends onedeemable Preferred (5,658,820) (5,378,437) - - (119,173) (92,574) (5,779) (237,358) (323,576) - - (6,015,351) (5,800,366)
terest Income 619,597 482,218 - - 4,193 4,094 4,857 61,324 185,306 - - 685,114 676,475
hare in net earnings of associates 7,797,211 5,846,282 2,762,035 2,228,380 127,933 144,984 2,794 15,351,062 13,737,114 (15,461,448) (13,886,748) 10,576,794 8,072,806
rovision for Income tax (928,914) (677,719) (139,886) (149,600) (194,620) (214,063) (22,130) (19,035) (55,866) - (1,282,455) (1,119,379)
ET INCOME 22,696,132 20,107,098
THER INFORMATION Sep 2012 Dec 2011 Sep 2012 Dec 2011 Sep 2012 Dec 2011 Sep 2012 Dec 2011 Sep 2012 Dec 2011 Sep 2012 Dec 2011 Sep 2012 Dec 2011
egment assets 39,483,354 36,177,995 15,544,417 12,674,913 5,225,016 5,166,308 2,462,829 4,838,192 (37,340) (136,804) 62,678,275 58,720,604
vestments and advances 28,655,267 29,206,192 22,167,800 19,677,649 1,258,085 1,130,152 65,624,579 58,024,800 (66,986,224) (59,275,867) 50,719,508 48,762,925
nallocated corporate assets 91,848,900 88,238,253 343,864 323,866 2,905,612 2,668,037 2,157,495 1,634,678 643,514 643,512 97,899,385 93,508,345
onsolidated total assets - - - - - 211,297,168 200,991,875
egment liabilities 80,120,831 82,768,086 13,683,494 11,086,268 6,016,156 5,705,399 5,851,454 5,923,678 (511,343) (127,257) 105,160,592 105,356,173
nallocated corporate liabilities 950,743 567,636 50,275 74,317 79,370 - 37,558 16,022 - 1,117,946 657,975
onsolidated total liabilities 106,278,538 106,014,148
Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011 Jan-Sept 2012 Jan-Sept 2011
epreciation 2,435,188 2,514,519 39,024 33,187 186,131 170,081 16,755 99,171 66,673 - 2,759,514 2,801,215
BUSINESS SEGMENT INFORMATION
Eliminations ConsolidatedPower Food Manufacturing Transport Services Parent Company and OthersFinancial Services
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J. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIE
As of September 30, 2012
< 1 year 1 - 5 years > 5 years Total
Floating rate - long-term debt 442,683 1,090,818 923,655 2,457,156
Fixed rate - long-term debt 358,317 13,326,534 6,459,404 20,144,255
Payable to preferred shareholders of a
subsidiary - floating 16,902 26,997 - 43,899
817,902 14,444,349 7,383,059 22,645,310
As of December 31, 2011
< 1 year 1 - 5 years > 5 years Total
Floating rate - long-term debt 409,153 533,429 - 942,582
Fixed rate - long-term debt 1,195,597 15,793,461 9,751,081 26,740,138
Payable to preferred shareholders of a
subsidiary - floating 16,902 46,068 - 62,970
1,621,652 16,372,957 9,751,081 27,745,690
Interest expenses recognized during the comparative periods are as follows:
SEP 2012 SEP 2011
Long term debt 1,494,645 1,501,339
Bank loans 77,770 91,568
Customers' deposits 1,500 4,235
Obligations under finance lease 4,401,724 4,059,704
Long-term obligation on PDS 25,348 12,955
Payable to preferred shareholder of a
subsidiary 10,626 8,231
Advances from related parties 3,739 27,604
6,015,352 5,705,635
The Groups principal financial instruments comprise cash and cash equivalents, AFS investments, bank loans, long-term debt,
obligations under finance lease and non-convertible, cumulative, redeemable preferred shares. The main purpose of these
financial instruments is to raise finances for the Groups operations and its investments in existing subsidiaries and associates
and in new projects. The Group has other financial assets and liabilities such as trade and other receivables and trade and other
payables and customer deposits which arise directly from operations.
The main risks arising from the Groups financial instruments are interest rate risk resulting from movements in interest rates thatmay have an impact on outstanding long-term debt; credit risk involving possible exposure to counter-party default on its cash
and cash equivalents, AFS investments and trade and other receivables; liquidity risk in terms of the proper matching of the type
of financing required for specific investments; and foreign exchange risk in terms of foreign exchange fluctuations that may
significantly affect its foreign currency denominated placements and borrowings. The Board of Directors reviews and agrees
policies for managing each of these risks and they are summarized below.
Interest rate risk. The Groups exposure to market risk for changes in interest rates relates primarily to its long-term debt
obligations. To manage this risk, the Group determines the mix of its debt portfolio as a function of the level of current interest
rates, the required tenor of the loan, and the general use of the proceeds of its various fund raising activities. As of September
30, 2012, 11.0% of the Groups long-term debt had floating interest rates ranging from 2.0% to 4.65%, and 89.0% are with fixed
rates ranging from 4.75% to 9.33%. As of December 31, 2011, 3.6% of the Groups long-term debt had floating interest rates
ranging from 3.22% to 6.40%, and 96.4% are with fixed rates ranging from 4.75% to 10.10%.
The following table set out the carrying amount, by maturity, of the Group's financial instruments that are exposed to interest rate
risk:
Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial
instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Group that
are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk.
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Increase/decrease Effect on income
in basis points before tax
Sep 2012 200 (18,775)
(100) 9,388
Sep 2011 100 (8,827)(50) 4,413
US Dollar Peso Equivalent1
US Dollar Peso Equivalent2
Current Financial AssetsCash and cash equivalents 134,802 5,621,260 16,704 732,310
Trade and other receivables 4,216 175,790 15,180 665,488
Amounts owed by related parties 885 36,888 885 38,781
Total Financial Assets 139,903 5,833,938 32,769 1,436,579
US Dollar Peso Equivalent US Dollar Peso Equivalent
Current Financial Liabilities
Bank loans 3,850 160,545 4,950 217,008
Trade and other payables 14,507 604,948 20,768 910,472
Long-term debt 52,950 2,208,020 11,889.99 521,257.00
Obligations under finance lease 647,611 27,005,379 609,712 26,729,764
Total Financial Liabilities 718,918 29,978,891 647,320 28,378,501
Net foreign currency denominated
assets (liabilities) (579,016) (24,144,954) (614,551) (26,941,922)1USD1 = 41.70
USD1 = 43.84
Increase Effect on
(decrease) income before
in US dollar rate income tax
US dollar denominated accounts 5% (1,207,248)
US dollar denominated accounts -5% 1,207,248
Equity price risk. Equity price risk is the risk that the fair value of traded equity instruments decrease as the result of the
changes in the levels of equity indices and the value of the individual stocks.
As of September 30, 2012 and December 31, 2011, the Groups exposure to equity price risk is minimal.
The increase in US dollar rate represents the depreciation of the Philippine peso while the decrease in US dollar rate represents
appreciation of the Philippine peso.
There is no other impact on the Groups equity other than those already affecting the consolidated statement of income.
Foreign exchange risk. The foreign exchange risk of the Group pertains significantly to its foreign currency denominated
borrowings, including obligations under finance lease. To mitigate the risk of incurring foreign exchange losses, foreign currency
holdings are matched against the potential need for foreign currency in financing equity investments and new projects. As of
September 30, 2012 and December 31, 2011, foreign currency denominated borrowings account for 35.30 % and 32.02%,
respectively, of total consolidated borrowings.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held
constant, of the Groups profit before tax (through the impact on floating rate borrowings) as of September 30, 2012 and 2011:
SEPTEMBER 30, 2012 DECEMBER 31, 2011
The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rates, with all other
variables held constant, of the Groups profit before tax as of September 30, 2012.
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In managing its long-term financial requirements, the policy of the Group, excluding CSB, is that not more than 25% of long term
borrowings should mature in any twelve-month period. As of September 30, 2012 and December 31, 2011, the portion of the total
long-term debt that will mature in less than one year is 1.08% and 2.02%, respectively. For its short-term funding, the policy of
the Group, except CSB, is to ensure that there are sufficient working capital inflows to match repayments of short-term debt.
Credit risk. For its cash investments, AFS investments and receivables, the Groups credit risk pertains to possible default by
the counterparty, with a maximum exposure equal to the carrying amount of these assets. With respect to cash and AFS
investments, the risk is mitigated by the short-term and or liquid nature of its cash investments mainly in bank deposits and
placements, which are placed with financial institutions of high credit standing. With respect to receivables, credit risk is
controlled by the application of credit approval, limit and monitoring procedures. It is the Groups policy to enter into transactions
with a diversity of credit-worthy parties to mitigate any significant concentration of credit risk. The Group ensures that sales are
made to customers with appropriate credit history and has internal mechanism to monitor the granting of credit and management
of credit exposures. The Group has no significant concentration risk to a counterparty or group of counterparties.
Liquidity risk. Liquidity risk is the risk that an entity in the Group will be unable to meet its obligations as they become due. The
Group, except City Savings Bank ("CSB") (which has a separate risk management policy), manages liquidity risk by effectively
managing its working capital, capital expenditure and cash flows, making use of a centralized treasury function to manage pooled
business unit cash investments and borrowing requirements. Currently the Group, except CSB, is maintaining a positive cash
position, conserving the Groups cash resources through renewed focus on working capital improvement and capital
reprioritization. The Group, except CSB, meets its financing requirements through a mixture of cash generated from its
operations and short-term and long-term borrowings. Adequate banking facilities and reserve borrowing capacities are
maintained. The Group is in compliance with all of the financial covenants per its loan agreements, none of which is expected to
present a material restriction on funding or its investment policy in the near future. The Group has sufficient undrawn borrowing
facilities, which could be utilized to settle obligations.
Cash and cash equivalents and trade and other receivables, which are all short-term in nature, have balances of P28,209,787
and P10,777,120 as of September 30, 2012 and P27,201,981 and P11,690,983 as of December 31, 2011, respectively. These
financial assets will be used to fund short-term and operational liquidity needs of the Group.
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Total Carrying
Value Total On demand Less than 1 year 1 to 5 years > 5 years
Financial Liabilities
OperatingTrade and other payables 10,481,027 7,847,048 50,906 7,796,142 - -
Customers deposits 2,375,540 2,375,540 - 8,046 63,754 2,303,740
Financing
Bank loans 5,558,345 5,558,345 - 5,558,345 - -
Long-term debt 17,784,781 19,198,725 - 1,077,253 14,869,685 3,251,787
Obligations under finance lease 54,971,112 106,915,224 - - 36,904,374 70,010,850
Obligations on power distribution system 262,394 600,000 - 40,000 200,000 360,000
Others
Payable to preferred shareholder of a subsidiary 43,899 42,526 - 15,529 26,997 -
Total 91,477,098 142,537,408 50,906 14,495,315 52,064,810 75,926,377
It is also the policy of the Group to closely monitor CSBs risk exposure.
The following table analyses the financial liabilities of the Group, except CSB, into relevant maturity groupings based on the remaining period at the balance sheet
date to the contractual maturity. The amounts disclosed in the table are the contractual undiscounted cash flows (amounts in thousands):
Contractual undiscounted principal payments
City Savings Bank closely monitors the current and prospective maturity structure of its resources and liabilities and the market condition to guide pricing and
asset/liability allocation strategies to manage its liquidity risks.
In addition, CSB manages liquidity risk by holding sufficient liquid assets of appropriate quality to ensure short-term funding requirements are met and by
maintaining a balanced loan portfolio which is repriced on a regular basis. It seeks to maintain sufficient liquidity to take advantage of interest rate and exchangerate opportunities when they arise.
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Gearing ratios of the Group as of September 30, 2012 and December 31, 2011 are as follows:
SEP 2012 DEC 2011
Bank Loans 5,558,345 5,301,008
Long - term debt 77,616,422 80,460,649
Cash and cash equivalents (30,835,560) (29,543,492)
Net Debt (a) 52,339,207 56,218,165
Equity attributable to equity holders of the
parent 105,018,631 94,977,727Equity and Net Debt (b) 157,357,837 151,195,892
Gearing Ratio (a/b) 33.26% 37.18%
K. FINANCIAL INSTRUMENTS
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets
Cash
Cash and cash equivalents 30,835,560 30,835,560 29,543,492 29,543,492
Loans and receivables
Trade and other receivables 23,648,584 23,648,584 22,024,386 22,024,386
54,484,144 54,484,144 51,567,877 51,567,877
AFS
AFS investments 72,324 72,324 74,569 74,569
Total 54,556,468 54,556,468 51,642,446 51,642,446
Certain entities within the Group that are registered with the BOI are required to raise minimum amount of capital in
order to avail of their registration incentives. As of September 30, 2012 and December 31, 2011, these entities have
complied with this requirement as applicable.
Capital management. Capital includes equity attributable to the equity holders of the parent. The primary objective
of the Groups capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in
order to support its business and maximize shareholder value.
Set out below is a comparison by category of carrying amounts and fair values of all of the Groups financial
instruments that are carried in the financial statements at other than fair values.
SEPTEMBER 30, 2012 DECEMBER 31, 2011
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To
maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to
shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No
changes were made in the objectives, policies or processes during the periods ended September 30, 2012 and
December 31, 2011.
The Group monitors capital using a gearing ratio, which is net debt divided by equity plus net debt. The Groups policy
is to keep the gearing ratio at 70% or below at the consolidated level. The Group determines net debt as the sum of
interest-bearing short-term and long-term obligations (comprised of long-term debt, obligations under finance lease,
redeemable preferred shares and payable to preferred shareholders of a subsidiary) less cash and short-term deposits
and temporary advances to related parties.
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AFS investments
fair value are observable, either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value
that are not based on observable market data
SEPTEMBER 30, 2012
Total Level 1 Level 2 Level 3AFS investments 24,382 24,382 - -
Derivative asset - - - -
Derivative liability - - - -24,382 24,382 - -
DECEMBER 31, 2011
Total Level 1 Level 2 Level 3
AFS investments 39,159 39,159
Derivative asset
Derivative liability 7,580 7,580 46,739 39,159 7,580 -
As of September 30, 2012 and December 31, 2011, the Group held the following financial instruments that are
measured and carried at fair value:
During the periods ended September 30, 2012 and December 31, 2011, there were no transfers between level 1 and
level 2 fair value measurements and transfers into and out of level 3 fair value measurement.
The fair value of long term obligation on power distribution system is calculated by discounting expected future cash
flows at prevailing market rates.
Redeemable preferred shares
The fair values of the redeemable preferred shares are based on the discounted value of future cash flows using theapplicable rates for similar types of borrowings.
The fair value of bill deposits approximates the carrying values as these deposits earn interest at the prevailing market
interest rate in accordance with regulatory guidelines. The timing and related amounts of future cash flows relating to
transformer and lines and poles deposits cannot be reasonably and reliably estimated for purposes of establishing
their fair values using an alternative valuation technique.
Obligations under Power Distribution System
The fair values of AFS investments are based on quoted market prices. The publicly-traded equity securities which
are owned by the group are all actively traded in the stock market.
Customers deposits
Level 2: other techniques for which all inputs which have a significant effect on the recorded
Fair Value Hierarchy
The Group uses the following hierarchy for determining the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Derivative asset and liabilities
The fair value is calculated by reference to prevailing interest rate differential and spot exchange rate as of valuation
date, taking into account its remaining term to maturity. The Group enters into derivative financial instruments with
financial institutions with investment grade credit ratings. Derivative valued using a valuation technique with market
observable inputs pertains to a foreign exchange forward contract. The most applied valuation technique is forward
pricing. The model incorporates various inputs including the credit quality of counterparty and foreign exchange spot
and forward rates.
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SEP 2012 DEC 2011
At beginning of period (7,580) 7,347
736 (19,797)
Fair value of settled instruments 6,844 4,870At end of period - (7,580)
Net changes in fair value of derivatives not designated as
accounting hedges
The gain (loss) from the net fair value changes relating to the forward contracts amounting to P736 thousand for theperiod ended September 30, 2012 and (P19.8 million) for the year ended 2011 are included as Foreign exchange
gains - net under Other income - net.
Derivative financial instruments
The Group enters into non-deliverable short-term forward contracts with counterparty banks to manage foreign
currency risks associated with foreign currency-denominated liabilities and purchases.
As of September 30, 2012 and December 31, 2011, the Group recognized derivative liability relating to these
contracts amounting to nil and P7.6 million, respectively.
The movements in fair value changes of all derivative instruments for the year ended September 30, 2012 and
December 31, 2011 are as follows:
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L. DISCLOSURES
1. Basis of Preparation, Statement of Compliance and Changes in Accounting Policies
Basis of Preparation
Changes in Accounting Policies
2. Seasonality of Interim Operations
The accounting policies adopted are consistent with those of the previous financial year except for the amended and
revised PFRS and Philippine Interpretations which the Group has adopted starting January 1, 2012. Adoption of the
following revised and amended PFRS and Philippine Interpretations and improvements to PFRS did not have any
significant impact to the Groups consolidated financial statements.
Operations of hydropower plants are generally affected by climatic seasonality. Seasonality and location have a
direct effect on the level of precipitation. In Luzon where rainy and summer seasons are more pronounced, higher
rainfall is normally experienced in the months of June to September. As such, the hydropower plants located in
Luzon operate at their maximum capacity during this period. In contrast, the hydropower plants in Mindanao
experience a well distributed rainfall throughout the year, with a slightly better precipitation during the months of
December to April. This provides continuous water flow and thus makes it favorable to all run-of-river hydropower
plants operations.
The consolidated financial statements of the Group have been prepared on a historical cost basis, except for
derivative financial instruments, AFS investments and investment properties which are measured at fair value, and
agricultural produce and biological assets which are measured at fair value less estimated point-of-sale costs. The
consolidated financial statements are presented in Philippine peso and all values are rounded to the nearest
thousand except for earnings per share and exchange rates and if otherwise indicated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial
Reporting Standards (PFRS).
PAS 12, Income Taxes - Recovery of Underlying Assets
The amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012. The amendment
clarified the determination of deferred tax on investment property measured at fair value. The amendment
introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in
PAS 40, Investment Property, should be determined on the basis that its carrying amount will be recovered through
sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured
using the revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the
asset.
PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements
The amendment to PFRS 7 is effective for annual periods beginning on or after July 1, 2011. The amendment
requires additional disclosure about financial assets that have been transferred but not derecognized to enable theuser of the Groups financial statements to understan