Aditya Birla Minacs Philippines, Inc. (A Wholly Owned Subsidiary of Aditya Birla Minacs Worldwide Ltd.)

Transcription

1 Aditya Birla Minacs Philippines, Inc. (A Wholly Owned Subsidiary of Aditya Birla Minacs Worldwide Ltd.) Financial Statements March 31, 2014 and 2013 and Independent Auditors Report A member firm of Ernst & Young Global Limited

2 SyCip Gorres Velayo & Co Ayala Avenue 1226 Makati City Philippines Tel: (632) Fax: (632) ey.com/ph BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015 SEC Accreditation No FR-3 (Group A), November 15, 2012, valid until November 16, 2015 INDEPENDENT AUDITORS REPORT The Board of Directors Aditya Birla Minacs Philippines, Inc. Report on the Financial Statements We have audited the accompanying financial statements of Aditya Birla Minacs Philippines, Inc., a wholly owned subsidiary of Aditya Birla Minacs Worldwide Ltd., which comprise the balance sheets as at March 31, 2014 and 2013, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended, and a summary of significant accounting 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 in accordance with Philippine Financial Reporting Standards for Small and Medium-sized Entities, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. A member firm of Ernst & Young Global Limited

3 - 2 - Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Aditya Birla Minacs Philippines, Inc. as at March 31, 2014 and 2013, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards for Small and Medium-sized Entities. Report on the Supplementary Information Required Under Revenue Regulations Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations in Note 20 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of Aditya Birla Minacs Philippines, Inc. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Catherine E. Lopez Partner CPA Certificate No SEC Accreditation No AR-2 (Group A), February 14, 2013, valid until February 13, 2016 Tax Identification No BIR Accreditation No , April 11, 2012, valid until April 10, 2015 PTR No , January 2, 2014, Makati City April 10, 2014 A member firm of Ernst & Young Global Limited

4 ADITYA BIRLA MINACS PHILIPPINES, INC. (A Wholly Owned Subsidiary of Aditya Birla Minacs Worldwide Ltd.) BALANCE SHEETS March 31 ASSETS Current Assets Cash P=68,957,100 P=48,822,179 Receivables (Note 5) 97,405,671 99,469,012 Derivative asset (Note 19) 40,370 16,767,685 Prepaid expenses and other current assets (Notes 6 and 17) 9,863,446 4,619,887 Total Current Assets 176,266, ,678,763 Noncurrent Assets Property and equipment (Note 7) 24,562,264 34,836,491 Other noncurrent assets (Notes 8 and 17) 17,037,633 19,866,354 Total Noncurrent Assets 41,599,897 54,702,845 TOTAL ASSETS P=217,866,484 P=224,381,608 LIABILITIES AND EQUITY Current Liabilities Bank loans (Note 9) P= P=71,522,500 Accounts payable and accrued expenses (Note 10) 56,810,797 64,573,771 Derivative liability (Note 19) 31,024, ,279 Income tax payable 1,292, ,228 Deposit for future stock subscription (Note 18) 1,216,000 Total Current Liabilities 89,126, ,693,778 Noncurrent Liabilities Accrued lease (Note 17) 9,656,448 10,832,129 Payable to Parent Company (Note 14) 8,054,113 Accrued retirement benefits (Note 15) 5,895,462 7,703,455 Total Noncurrent Liabilities 15,551,910 26,589,697 Total Liabilities 104,678, ,283,475 Equity Common stock - P=100 par value (Note 18) Authorized - 1,000,000 shares Issued and outstanding - 969,232 shares 96,923,200 96,923,200 Reserve for fair value changes on forward currency contracts (Note 19) (30,983,655) 16,486,406 Retained earnings (deficit) 47,248,140 (53,311,473) Total Equity 113,187,685 60,098,133 TOTAL LIABILITIES AND EQUITY P=217,866,484 P=224,381,608 See accompanying Notes to Financial Statements.

5 ADITYA BIRLA MINACS PHILIPPINES, INC. (A Wholly Owned Subsidiary of Aditya Birla Minacs Worldwide Ltd.) STATEMENTS OF COMPREHENSIVE INCOME Years Ended March 31 SERVICE INCOME (Note 14) P=707,599,414 P=537,427,496 COST OF SERVICES (Note 11) 509,912, ,507,919 GROSS INCOME 197,687, ,919,577 General and administrative expenses (Note 12) (83,420,373) (60,196,730) Foreign exchange gains (losses) - net (9,390,007) 9,022,192 Interest expense and bank charges (Note 9) (2,423,489) (629,446) Interest income 48,345 57,851 Other income (Note 17) 1,460, ,035 INCOME BEFORE INCOME TAX 103,962,565 62,617,479 PROVISION FOR INCOME TAX - Current (Note 16) 3,402, ,107 NET INCOME 100,559,613 62,509,372 OTHER COMPREHENSIVE INCOME (LOSS) Fair value gain (loss) on derivative contracts (Note 19) (47,470,061) 16,486,406 TOTAL COMPREHENSIVE INCOME P=53,089,552 P=78,995,778 See accompanying Notes to Financial Statements.

6 ADITYA BIRLA MINACS PHILIPPINES, INC. (A Wholly Owned Subsidiary of Aditya Birla Minacs Worldwide Ltd.) STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED MARCH 31, 2014 AND 2013 Capital Stock Preferred Stock (Note 18) Deposits for Future Stock Subscription (Note 18) Reserve for Fair Value Changes on Forward Currency Contracts (Note 19) Retained Earnings (Deficit) BALANCES AT MARCH 31, 2012 P=96,923,200 P= P=21,587,950 P= (P=115,820,845) P=2,690,305 Issuance of preferred stock 20,000,000 (20,000,000) Redemption of preferred stock (20,000,000) (371,950) (20,371,950) Total comprehensive income for the year 16,486,406 62,509,372 78,995,778 Reclassification of deposit for future stock subscription to current liability (1,216,000) (1,216,000) BALANCES AT MARCH 31, ,923,200 16,486,406 (53,311,473) 60,098,133 Total comprehensive income for the year (47,470,061) 100,559,613 53,089,552 BALANCES AT MARCH 31, 2014 P=96,923,200 P= P= (P=30,983,655) P=47,248,140 P=113,187,685 Total See accompanying Notes to Financial Statements.

7 ADITYA BIRLA MINACS PHILIPPINES, INC. (A Wholly Owned Subsidiary of Aditya Birla Minacs Worldwide Ltd.) STATEMENTS OF CASH FLOWS Years Ended March 31 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=103,962,565 P=62,617,479 Adjustments for: Depreciation and amortization (Notes 11 and 12) 14,817,826 16,893,526 Unrealized foreign exchange gain - net (1,077,900) (528,354) Movements in accrued retirement benefits (Note 15) (1,807,993) 4,371,055 Interest expense (Note 9) 2,092, ,446 Accretion of interest on refundable deposit (Note 17) (395,819) (376,349) Interest income (48,345) (57,851) Operating income before working capital changes 117,543,308 83,170,952 Decrease (increase) in: Receivables 3,141,241 3,364,537 Prepaid expenses and other current assets (5,243,559) (624,252) Decrease in accounts payable and accrued expenses (8,269,331) (20,201,801) Net cash flows from operations 107,171,659 65,709,436 Income taxes paid (2,211,113) (7,879) Net cash flows from operating activities 104,960,546 65,701,557 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (Notes 7 and 10) (4,037,242) (2,263,748) Decrease in other noncurrent assets 3,224,540 5,062,409 Interest received 48,345 57,851 Decrease in accrued lease (1,175,681) (34,681) Net cash flows from (used in) investing activities (1,940,038) 2,821,831 CASH FLOWS FROM FINANCING ACTIVITIES Availment (payment) of bank loans (Note 9) (71,522,500) 71,564,725 Interest paid (2,092,974) (251,446) Increase (decrease) in loans from Parent Company (8,054,113) 1,969,179 Return of deposit for future stock subscription (Note 18) (1,216,000) Redemption of preferred stock (Note 18) (20,371,950) Payment of loans (107,300,000) Net cash flows used in financing activities (82,885,587) (54,389,492) NET INCREASE IN CASH 20,134,921 14,133,896 CASH AT BEGINNING OF THE YEAR 48,822,179 34,688,283 CASH AT END OF THE YEAR P=68,957,100 P=48,822,179 See accompanying Notes to Financial Statements.

8 ADITYA BIRLA MINACS PHILIPPINES, INC. (A Wholly Owned Subsidiary of Aditya Birla Minacs Worldwide Ltd.) NOTES TO FINANCIAL STATEMENTS 1. Corporate Information Aditya Birla Minacs Philippines, Inc. (the Company) was registered with the Philippine Securities and Exchange Commission (SEC) on November 3, 2006 with the primary purpose of carrying on and undertaking the business of setting up and operating a center for sales and customer interaction services and business process outsourcing services; providing system integration and software development services which are ancillary thereto; and carrying on the business in computer hardware and software related matters and fields, including the design, development, manufacture, production, marketing, selling, leasing and integration of computer hardware and software systems, the provision of customized software development consultancy and services, and the import and export of computer hardware technology. The Company started its commercial operations on March 5, The Company is a wholly owned subsidiary of Aditya Birla Minacs Worldwide Ltd. (ABMW or Parent Company). The ultimate parent company is Aditya Birla Nuvo Limited (ABNL). ABMW and ABNL are companies incorporated in India. The Company s principal place of business is at 1800 Eastwood Ave. Bldg., 10/F Eastwood City Cyberpark, 188 E. Rodriguez, Jr. Ave., Bagumbayan, Quezon City. The Company also has a contact center in 3/F 377 Goodland Building, Senator Gil Puyat Avenue, Makati City, which started commercial operations on July 1, The financial statements were approved for issue by the Board of Directors (BOD) on April 10, Registration with the Philippine Economic Zone Authority (PEZA) The Company is registered with PEZA as an Ecozone Information Technology (IT) Enterprise, engaged in providing customer contact center services at Eastwood City Cyberpark and Amberbase Facility in Goodland Building. The Company is entitled to all incentives granted to pioneer projects under Republic Act (RA) No. 7916, as amended, and the PEZA IT Guidelines, subject to certain terms and conditions, including, among others, the following: Eastwood Site a. The Company s project shall be entitled to six (6) years income tax holiday (ITH) incentive, in accordance with the 2006 Investment Priorities Plan. The project s entitlement to the said incentive shall be subject to validation by PEZA based on the Company s audited financial statements covering the first year of its operations showing the investment cost per seat for its project is equivalent to at least United States (US) $2,500, inclusive of the cost of equipment, office furniture and fixtures, building improvements and renovations, fixed assets, except land, building and working capital, and complies with the minimum US$2.5 million investment required for pioneer status. In case the Company does not attain the said investment cost per seat, the Company s project shall be granted 5% gross income incentive and other incentives under RA 7916, as amended,

9 - 2 - instead of the ITH incentive. On the other hand, if the Company complies with the minimum US$2,500 investment cost per seat but fails to comply with the minimum US$2.5 million investment required for pioneer status, the Company shall instead be entitled to only four (4) years ITH incentive. Entitlement of the project to the 5th and 6th years of ITH from the date of start of commercial operations shall be subject to the issuance by the PEZA Director General of a written validation of the project cost. b. The Company s operations shall be limited to its PEZA-approved projects. Any expansion of this project or other additional activities to be undertaken by the Company shall require prior PEZA clearance. On October 31, 2013, the Company received a Notice of Confirmation for the entitlement of Eastwood Site to ITH issued by the Office of the PEZA Director General. Upon validation of the project cost, the Company failed to meet the minimum investment requirement of US$2.5 million to be entitled to the 6-year ITH incentive. However, the Company met the minimum investment cost per seat of US$2,500 and is entitled only to 4-year ITH incentive beginning March On February 3, 2012, the Company s ITH period for its Eastwood site has already expired and as such, the operations in Eastwood was subjected to 5% gross income tax (GIT). Makati Site The project shall be entitled to four (4) years ITH incentive, among other incentives under RA 7916, as amended. Entitlement to the said ITH shall be subject to the following conditions, among others: a. The investment cost per seat based on the lapsing schedule covering the first year of operations for this project is equivalent to at least US$2,500, inclusive of the cost of equipment, office furniture and fixtures, building improvements and renovations, fixed assets, except land, building and working capital. b. The ITH incentive is premised on the Company s used of IT equipment valued at P=18.31 million that will be used for the first time in the Philippines (i.e., have not been used by nor merely transferred from other IT facilities in the Philippines). c. There shall be no merging of operations of the Company s new project with its existing operations until such time that the ITH of the projects have expired. d. The Company shall maintain separate books of accounts for each project still availing of the ITH incentive. For purposes of compliance of the above conditions, the Company shall secure a written verification/confirmation from the PEZA after the first year of operations, that it has met the said requirements. The 4-year ITH incentive for the Company s Makati site will expire on June 30, 2016.

10 Summary of Significant Accounting and Financial Reporting Policies Basis of Preparation The financial statements of the Company are presented using the historical cost convention and are presented in Philippine peso (Peso), the Company s functional currency. All values are rounded off to the nearest Peso, unless otherwise indicated. Statement of Compliance The financial statements of the Company have been prepared in accordance with the Philippine Financial Reporting Standards for Small and Medium-sized Entities (PFRS for SMEs). Cash Cash includes cash on hand and in banks. Cash in banks earn interest at their respective bank deposit rates. Receivables Receivables, which are based on normal credit terms and do not bear interest, are recognized and carried at original invoice amounts. Where credit is extended beyond normal credit terms, receivables are measured at amortized cost using the effective interest rate method. At the end of each reporting period, the carrying amounts of receivables are reviewed to determine whether there is any objective evidence that the amounts are not recoverable. If so, an impairment loss is recognized immediately in profit or loss. Impairment loss on receivables is measured as the difference between the carrying value and the revised cash flows discounted at the original effective interest rate. The carrying amount of the asset shall be reduced either directly or through the use of an allowance account. The amount of the loss shall be recognized in profit or loss. Financial Instruments The Company s financial instruments are classified as either basic financial assets and liabilities or other financial assets and liabilities. As of March 31, 2014 and 2013, the Company s basic financial assets comprise cash and receivables while basic financial liabilities consist of accounts payable and accrued expenses, bank loans and payable to parent company. As of March 31, 2014 and 2013, other financial assets and financial liabilities consist of derivative asset and derivative liability. The Company recognizes financial assets and liabilities when it becomes a party to the contractual provisions of the instrument. Initial Measurement Basic financial instruments are measured at their transaction price including transactions costs, except for financial instruments measured at fair value through profit or loss (FVPL). If the arrangement constitutes a financing transaction, financial instruments are measured at the present value of future payments discounted at a market rate of interest for a similar debt instrument. Other financial instruments are initially measured at fair value, which is usually their transaction price excluding transaction costs. Subsequent Measurement For basic financial instruments, at the end of each reporting period: Debt instruments are measured at amortized cost using the effective interest rate; Commitments to receive a loan are measured at cost less impairment; and

11 - 4 - Investments in non-convertible preference shares and non-puttable ordinary, and preference shares that are publically traded or their fair value can otherwise be reliably measured, are measured at FVPL if a public market exists, otherwise at cost less impairment. All other financial instruments are measured at fair value, with changes in fair value recognized in profit or loss, at the end of each reporting period. However, equity instruments (and related contracts that would result in delivery of such instruments) that are not publicly traded and whose fair value cannot be reliably determined, are measured at cost less impairment. Amortized Cost The effective interest method is used to calculate the amortized cost of a financial asset or a financial liability and to allocate the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, future credit losses are excluded. Fees, transaction costs and other premiums or discounts are amortized over the life of the instrument (or shorter if they relate to a shorter period). Impairment of Financial Assets At each reporting date, an assessment is made as to whether there is objective evidence of a possible impairment on the Company s financial assets. Objective evidence of impairment includes observable data from loss events including, but not limited to significant financial difficulty of the issuer, breach of contract or default. Impairment loss of financial assets at amortized cost is the difference between the carrying value and the revised cash flows discounted at the original effective interest rate. The impairment of financial assets at cost less impairment is the difference between the carrying value and the best estimate of the amount that would be received if the asset were sold at the reporting date. The amount of loss is recognized in profit or loss. If, in a subsequent period, the amount of an impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss will be reversed either directly or through an allowance account. Any subsequent reversal of an impairment loss is recognized in profit or loss to the extent that the carrying value of the asset does not exceed its amortized cost at reversal date. Fair Value PFRS for SMEs makes use of a fair value hierarchy. Fair value hierarchy represents quoted prices in an active market, prices in recent transactions for the identical assets (adjusted if necessary), and use of a valuation technique (that reflects how the market would expect to price the asset and the inputs reasonably represent market expectations). Fair value, where there is no active market, is only considered reliable if the variability in the range of fair values is not significant and the probabilities of various estimates can be reasonably assessed. The fair value of a liability cannot be below the amount in a demand feature discounted at the reporting date.

12 - 5 - Derecognition The Company derecognizes a financial asset when: The contractual rights to the cash flows from the financial asset expire or are settled; The entity transfers to another party substantially all of the risks and rewards of ownership of the financial asset; and The Company, despite having retained some significant risks and rewards of ownership, has transferred control of the asset to another party and the other party has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally without the need to impose additional restrictions on the transfer. The Company derecognizes a financial liability when extinguished such as when the obligation is discharged, is cancelled or expires. Hedge Accounting To qualify for hedge accounting, an entity must meet the following conditions: The entity designates and documents the hedging relationship, clearly identifying the risk being hedged, the hedged item and hedging instrument; The hedged risk is one of the specified risks in the standard; The hedging instrument is as specified in the standard; and The entity expects the hedge to be highly effective. Hedged Risks PFRS for SMEs only permits hedge accounting when the hedged risk is one of the following risks: Interest rate risk of a debt instrument measured at amortized cost; Foreign exchange or interest rate risk in a firm commitment or a highly probable forecast transaction; Price risk of a commodity that it holds or in a firm commitment or highly probable forecast transaction to purchase or sell a commodity; and Foreign exchange risk in a net investment in a foreign operation. Hedging Instrument The hedge accounting is only permitted if the hedging instrument meets all of the following: It is an interest rate swap, a foreign currency swap, a foreign currency forward exchange contract or a commodity forward exchange contract that is expected to be highly effective; It involves a party external to the reporting entity; Its notional amount equals the designated amount of the hedged item; It has a specified maturity date not later than the maturity of the hedged item; The expected settlement of the commodity commitment; The occurrence of the highly probable forecast transaction; and It has no prepayment of early termination or extension features. As of March 31, 2014 and 2013, as allowed by PFRS for SMEs, the Company s derivative asset and derivative liability pertaining to its forward currency contracts qualify for hedge accounting and have been designated as effective hedges.

13 - 6 - Discontinuing Hedge Accounting Hedge accounting is discontinued when: The hedging instrument expires or is sold; The hedge no longer meets the conditions for hedge accounting; In the hedge of a forecast transaction, when the transaction is no longer highly probable; and The Company revokes the designation. Prepaid Expenses Prepaid expenses are amounts paid in advance for goods and services that are yet to be delivered and from which future economic benefits are expected to flow to the Company within its normal operating cycle or within 12 months from the balance sheet date. Property and Equipment Property and equipment are carried at cost, less accumulated depreciation and any impairment in value. The initial cost of property and equipment consists of its purchase price, including import duties, taxes and any directly attributable cost of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally charged to profit or loss in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of property and equipment. Depreciation of property and equipment commences when the asset is ready for its intended use. It is computed using the straight-line method over the estimated useful lives of the assets as follows: Category Years Computer equipment 3 Furniture and fixtures 3 to 5 Office and communication equipment 5 Leasehold improvements are amortized over the life of the assets (average of two years) or the term of the lease, whichever is shorter. The estimated useful lives of the assets and depreciation method used are reviewed periodically to ensure that these are consistent with the expected pattern of economic benefits from items of property and equipment. When assets are sold or retired, their costs, accumulated depreciation and any impairment in value are eliminated from the accounts. Any gain or loss resulting from their disposal is recognized in profit or loss. Impairment of Nonfinancial Assets The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists, the recoverable amount of the asset is estimated and the asset or cash-generating unit to which the asset belongs is written down to its recoverable amount. The recoverable amount of the asset is the greater of fair value less costs to sell and value in use. Fair value less cost to sell is the amount obtainable from the sale of an asset in an arm s length transaction

14 - 7 - between knowledgeable and willing parties, less cost of disposal. Value in use, on the other hand, is determined using the estimated future cash flows discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Any impairment loss is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Capital Stock Capital stock is carried at par value of the shares issued. When the shares are sold at a premium, the difference between the proceeds and the par value is credited to additional paid-in capital. When the shares are issued for a consideration other than cash, the proceeds are measured by the fair value of the consideration received. In case the shares are issued to extinguish or settle the liability of the Company, the shares shall be measured either at the fair value of the shares issued or fair value of the liability settled, whichever is more readily determinable. Deposit for Future Stock Subscription Contributions from stockholders that are intended as payment for future capital stock subscriptions are recognized as deposits for future stock subscription. The deposits are reduced and the corresponding shares of stock are issued when the regulatory requirements have been complied with. These deposits are classified under liabilities. Retained Earnings (Deficit) Retained Earnings (Deficit) represents the cumulative balance of the net income or loss, net of any dividend declaration. Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the amount of revenue can be reliably measured, regardless of when the amount is received. Revenue is measured at the fair value of the consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognized: Service Income is recognized as related services are performed based on agreements with the customers. Interest Income is recognized as the interest accrues. Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease expense is recognized in profit or loss on a straightline basis over the lease term. Retirement Benefits Cost The cost of providing retirement benefits is determined using the projected unit credit method. This method reflects services rendered by employees up to the date of valuation and incorporates assumptions concerning employees projected salaries. Retirement benefits cost includes current service cost, interest cost, experience adjustments and changes in actuarial assumptions to the

15 - 8 - extent that benefits are already vested immediately. Past service cost is immediately expensed. Actuarial gains and losses are recognized in their entirety in profit or loss. Gains or losses on the curtailment or settlement of retirement benefits are recognized when the curtailment or settlement occurs. Foreign Currency-denominated Transactions Transactions denominated in foreign currencies are recorded in Peso using the exchange rate prevailing at the date of the transaction. Outstanding monetary assets and liabilities denominated in foreign currencies are translated to Peso using the closing exchange rate at the balance sheet date. Foreign exchange gains or losses are credited to or charged against profit or loss. Income Taxes Current Income Tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that have been enacted or substantively enacted at the balance sheet date. As disclosed in Note 2, the Company is subject to various income tax rates due to its registration with PEZA. Deferred Income Tax Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of the excess minimum corporate income tax (MCIT) over regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO) that are expected to reduce taxable profits in the future. A valuation allowance is recognized against deferred income tax assets so that the net carrying amount equals the highest amount that is more likely than not to be recovered based on current or future taxable profits. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and the valuation allowance is adjusted to reflect the current assessment of future taxable profits. Such adjustment is recognized in profit or loss, except that an adjustment attributable to an item of income or expense recognized as other comprehensive income is recognized in other comprehensive income. Deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to offset current income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

16 - 9 - Borrowing Costs Borrowing costs are interest and other charges that are incurred by the Company when borrowing funds. These are generally expensed as incurred. Provisions and Contingencies Provisions are recognized when: (1) the Company has a present obligation (legal or constructive) as a result of a past event; (2) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (3) a reliable estimate of the amount of the obligation can be made. Contingent liabilities are not recognized in the financial statements. They are disclosed in the notes to financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but is disclosed in the notes to financial statements when an inflow of economic benefits is probable. Events after the Balance Sheet Date Post year-end events that provide additional information about the Company s position at the balance sheet date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to financial statements when material. 4. Significant Accounting Judgments, Estimates and Assumptions The preparation of the financial statements in compliance with PFRS for SMEs requires management to make judgments, estimates and assumptions that affect the amounts reported and disclosed in the financial statements. The judgments, estimates and assumptions used in the preparation of the financial statements are based upon management s evaluation of relevant facts and circumstances as of the date of the financial statements. Future events may occur which can cause the assumptions used in arriving at those judgments and estimates to change. The effects of any changes will be reflected in the financial statements as they become reasonably determinable. Judgments In the process of applying the Company s accounting policies, management has made the following judgments apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements: Determination of Functional Currency Based on the economic substance of the underlying circumstances relevant to the Company, the functional currency is determined to be the Peso. It is the currency that mainly influences its service and rental costs. Operating Lease - Company as Lessee The Company has entered into property lease agreements, where it has determined that the significant risks and rewards related to the properties are retained with the lessors. As such, the lease agreements are accounted for as operating leases (see Note 17). Impairment of Nonfinancial Assets Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the property and equipment may be impaired or an impairment loss previously recognized no longer exists or decreased. If any such indication exists, the recoverable amount of the asset is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its estimated recoverable amount.

17 Based on management s assessment, there were no indications of impairment on the Company s property and equipment as of March 31, 2014 and The carrying value of the Company s property and equipment, net of accumulated depreciation, amounted to P=24,562,264 and P=34,836,491 as of March 31, 2014 and 2013, respectively (see Note 7). Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Estimation of Useful Lives of Property and Equipment The Company estimates the useful lives of its property and equipment based on the period over which the assets are expected to be available for use. The Company reviews annually the estimated useful lives of property and equipment based on factors that include asset utilization, internal technical evaluation, technological changes, environmental and anticipated use of the assets tempered by related industry benchmark information. There was no change in the estimated useful lives of the property and equipment in both years. The carrying value of the Company s property and equipment, net of accumulated depreciation, amounted to P=24,562,264 and P=34,836,491 as of March 31, 2014 and 2013, respectively (see Note 7). Estimation of Retirement Benefits Cost The determination of the obligation and cost of accrued retirement benefits is dependent on the assumptions used by the actuary in calculating such amounts. Those assumptions are described in Note 15 and include, among others, discount rates and salary increase rates. The carrying value of the Company s accrued retirement benefits amounted to P=5,895,462 and P=7,703,455 as of March 31, 2014 and 2013, respectively (see Note 15). Estimation of Valuation Allowance for Deferred Income Tax Assets The carrying amounts of deferred income tax assets are reviewed at each balance sheet date and the valuation allowance is adjusted to reflect the current assessment of future taxable profits. In 2014 and 2013, management recognized valuation allowance of P=482,822 and P=541,607, respectively, on deferred income tax assets since it is not probable that taxable profits will be available against which the future income tax deductions can be utilized. (see Note 16) 5. Receivables Trade P=93,940,256 P=96,538,662 Advances to employees and others 3,465,415 2,930,350 P=97,405,671 P=99,469,012

18 Prepaid Expenses and Other Current Assets Deposits (Note 17) P=4,168,169 P=3,495,712 Prepaid expenses 5,459,521 1,094,382 Prepaid insurance 235,756 29,793 P=9,863,446 P=4,619, Property and Equipment 2014 Office and Computer Furniture and Communication Leasehold Equipment Fixtures Equipment Improvements Total Cost Beginning of year P=56,203,000 P=32,850,572 P=48,287,425 P=31,032,718 P=168,373,715 Additions 3,826, ,557 25, ,540 4,543,599 End of year 60,029,698 33,358,129 48,313,229 31,216, ,917,314 Accumulated Depreciation Beginning of year 47,113,552 28,031,084 28,933,698 29,458, ,537,224 Depreciation (Notes 11 and 12) 5,278,607 1,063,475 7,252,670 1,223,074 14,817,826 End of year 52,392,159 29,094,559 36,186,368 30,681, ,355,050 Net Book Values P=7,637,539 P=4,263,570 P=12,126,861 P=534,294 P=24,562, Office and Computer Furniture and Communication Leasehold Equipment Fixtures Equipment Improvements Total Cost Beginning of year P=54,727,820 P=32,828,572 P=47,964,838 P=30,837,718 P=166,358,948 Additions 1,475,180 22, , ,000 2,014,767 End of year 56,203,000 32,850,572 48,287,425 31,032, ,373,715 Accumulated Depreciation Beginning of year 42,560,482 25,731,938 20,356,661 27,994, ,643,698 Depreciation (Notes 11 and 12) 4,553,070 2,299,146 8,577,037 1,464,273 16,893,526 End of year 47,113,552 28,031,084 28,933,698 29,458, ,537,224 Net Book Values P=9,089,448 P=4,819,488 P=19,353,727 P=1,573,828 P=34,836,491 Fully depreciated property and equipment still used in operations amounted to P= million and P= million as of March 31, 2014 and 2013, respectively. 8. Other Noncurrent Assets Deposits (Note 17) P=14,045,133 P=16,873,854 Advance rental 2,992,500 3,068,023 P=17,037,633 P=19,941, Bank Loans In February 2013, the Company obtained various unsecured short-term loans from a local bank which bear interest per annum ranging from 2.24% to 2.26% to meet working capital requirements. These loans were fully settled in Interest expense on these loans amounted to P=2.09 million and P=251,446 in 2014 and 2013, respectively.

19 Accounts Payable and Accrued Expenses Accounts payable P=9,677,130 P=13,869,665 Accrued expenses 41,402,759 27,118,401 Advances from affiliates (Note 14) 18,003,185 Others 5,730,908 5,582,520 P=56,810,797 P=64,573,771 Accounts payable as of March 31, 2014 includes unpaid invoices for the acquisition of certain items of property and equipment totaling P=506,357 (nil in 2013). Accrued expenses consist of accruals for 13 th month pay, leave encashment, technology charges and other expenses. 11. Cost of Services Personnel costs (Note 13) P=350,185,348 P=282,286,896 Rent and utilities (Note 17) 63,597,129 61,223,774 Technology charges 39,309,727 29,621,615 Staff welfare 18,590,101 18,459,355 Depreciation and amortization (Note 7) 14,249,061 16,107,356 Outside services 10,834,161 10,631,595 Recruitment 7,694,270 2,893,769 Repairs and maintenance 4,899,471 1,776,813 Training 552, ,746 P=509,912,161 P=423,507, General and Administrative Expenses Personnel costs (Note 13) P=26,144,072 P=21,128,110 Transportation and travel 20,347,588 4,372,813 Shared cost (Note 14) 13,911,248 15,005,309 Professional fees 8,840,217 7,560,727 Utilities 4,085,368 1,401,130 Accommodations 2,193, ,160 Rent (Note 17) 2,045,723 2,445,277 Insurance 866,734 1,167,244 Depreciation and amortization (Note 7) 568, ,170 Others 4,417,596 5,488,790 P=83,420,373 P=60,196,730

20 Personnel Costs Salaries, wages and bonuses P=377,687,896 P=293,975,950 Retirement benefits cost (income) (Note 15) (1,807,993) 4,371,055 Other short-term employee benefits 449,517 5,068,001 P=376,329,420 P=303,415, Related Party Transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Category Parent Company Shared costs/payable to Parent Company Amount/Volume Income (Expense) Outstanding Balance Receivable (Payable) Terms Conditions P=13,911,248 P=15,005,309 P= (P=18,003,185) Noninterest-bearing and due and demandable Loans (8,054,113) Due and demandable Unsecured Unsecured a. Shared costs charged by ABMW amounted to P=13.91 million and P=15.01 million in 2014 and 2013, respectively, and are included under general and administrative expenses. These pertain to the salaries and other benefits of top management of ABMW which are allocated to all subsidiaries. The amount outstanding as of March 31, 2013 of P=18.00 million (nil in 2014) is included in Accounts payable and accrued expenses. b. The Company availed of various loans from ABMW to finance its working capital requirements. The loans bear interest at LIBOR + 1% and are payable in 60 months (including the interest and other related charges). The outstanding loan as of March 31, 2013 amounting to P=8.05 million has been paid in full in September c. The Company has various service agreements which are carried out together with its affiliates based in Bangalore, India and Toronto, Canada. These agreements are effective for three years, subject to renewal terms, and primarily cover after-sale support/call center services. Rates are determined based on the statement of work agreed with client and are normally expressed per minute or per hour. Revenue recognized for these agreements amounted to P= million and P= million for the years ended March 31, 2014 and 2013, respectively. d. The compensation of key management personnel consists of: Salaries and wages P=6,339,518 P=10,296,667 Short-term employee benefits 750, ,221 Retirement benefits (Note 15) 40, ,327 P=7,130,457 P=11,361,215

21 Retirement Benefits Cost The Company provides for retirement benefits in accordance with RA 7641, Retirement Pay Law. The following tables summarize the components of net retirement benefits cost recognized in the statements of comprehensive income and the amounts recognized in the balance sheets based on the actuarial valuation report as of March 31, The components of retirement benefits cost (income) which were charged to operations follow: Current service cost P=3,979,545 P=1,652,100 Interest cost 322, ,900 Net actuarial loss (gain) (6,110,313) 2,499,055 (P=1,807,993) P=4,371,055 The movements in accrued retirement benefits of the Company follow: Balance, April 1 P=7,703,455 P=3,332,400 Retirement benefits costs for the year (1,807,993) 4,371,055 Balance, March 31 P=5,895,462 P=7,703,455 Changes in the present value of the defined benefit obligation follow: Balance, April 1 P=7,703,455 P=3,332,400 Current service cost 3,979,545 1,652,100 Interest cost 322, ,900 Actuarial loss (gain) arising from: Experience adjustments (3,668,627) (464,025) Changes in assumptions (2,441,686) 2,963,080 Balance, March 31 P=5,895,462 P=7,703,455 The assumptions used to determine retirement benefits costs of the Company as of March 31 are as follows: Discount rate 5.80% 4.19% Salary increase rate 8.00% 8.00% 16. Income Taxes a. The provision for current income tax is composed of the following GIT P=3,075,718 P=100,228 RCIT 319,505 Final tax 7,729 7,879 P=3,402,952 P=108,107

22 b. The Company s deferred income tax asset amounting to P=484,822 and P=541,607 as of March 31, 2014 and 2013, respectively, pertain to accrued lease. This was provided with full valuation allowance as of March 31, 2014 and c. The reconciliation between the provision for income tax at statutory rates and the provision for income tax as shown in the statements of comprehensive income is as follows: Statutory income tax at 5% of gross profit P=9,884,363 P=5,695,979 Additions to (reductions in) income tax resulting from the tax effects of: Income subjected to ITH incentive (7,080,142) (5,594,017) Income subjected to RCIT 319,505 Realized foreign exchange gain 212,713 Decrease (increase) in accrued lease 58,784 (1,734) Final tax on interest income 7,729 7,879 Provision for income tax P=3,402,952 P=108, Lease Commitments The Company has various lease agreements for its office space and condominium units with terms ranging from three months to five years. These leases are renewable on terms mutually agreed by the parties. Certain lease agreements require the Company to pay security deposits. These are included under Prepaid expenses and other current assets and Other noncurrent assets in the balance sheets. Accretion of interest on security deposits amounted to P=0.40 million and P=0.38 million in 2014 and 2013, respectively, and are included under Other income in the statements of comprehensive income. The Company s lease agreements covering the two office facilities are subject to annual escalation of 8% and 10%, with one month and three months rent-free period, respectively. Future minimum rentals payable under these non-cancelable operating lease arrangements are as follows: Within one year P=52,671,675 P=50,778,000 After one year but not more than five years 53,140, ,812,209 P=105,812,209 P=156,590,209 Rent expense amounted to P=53.30 million and P=52.55 million in 2014 and 2013, respectively. As of March 31, 2014 and 2013, accrued lease amounted to P=9.66 million and P=10.83 million, respectively. 18. Equity On March 19, 2012, the BOD approved the amendment of the Articles of Incorporation of the Company to increase its capitalization from P= million to P= million and to allow for issuance of preferred shares. The said capital stock shall be divided into one million common shares with par value of P=100 per share and 500,000 preferred shares with par value of P=100 per share.

23 On the same date, the BOD also approved the allotment of 200,000, 0% redeemable preferred shares with par value of P=100 per share to ABMW. The Company shall have the right but not the obligation to redeem the preferred shares after June 30, 2012 based on the Subscription Agreement between the Company and ABMW. On March 23, 2012, the Company received a deposit from ABMW for future stock subscription on its preferred shares amounting to P=21.59 million (US$500,000). On November 12, 2012, the SEC approved the increase in the Company s authorized capital stock. On the same date, the Company issued 200,000 preferred shares with a total par value of P=20.00 million which is equal to the subscribed amount approved by the Philippine SEC. On January 22, 2013, the Company redeemed all of its preferred shares at P=20.37 million. The difference of P=0.37 million between the total par value of the shares redeemed of P=20.00 million and the redemption amount of P=20.37 million was recognized as a reduction from Deposit for future stock subscription. As agreed between the parties, the remaining amount of the deposit for future stock subscription shall be returned to ABMW. The Company accordingly reclassified this as part of its current liabilities in the 2013 balance sheet. Subsequently on May 29, 2013, the remaining deposit was returned to ABMW. 19. Financial Assets and Financial Liabilities As of March 31, the Company s financial assets and financial liabilities consist of the following: Financial assets measured at amortized cost: Cash in banks P=68,816,168 P=48,739,277 Receivables 97,405,671 99,469,012 Refundable deposits 8,914,804 8,919,612 Financial asset measured at fair value - Derivative asset 40,370 16,767,685 P=175,177,013 P=173,895,586 Financial liabilities measured at amortized cost: Bank loans P= P=71,522,500 Account payable and accrued expenses: Trade 9,677,130 13,869,665 Accrued expenses 41,402,759 27,118,401 Advances from an affiliate 18,003,185 Payable to Parent Company 8,054,113 Financial liability measured at fair value - Derivative liability 31,024, ,279 P=82,103,914 P=138,849,143 The Company enters into sell US$, buy Philippine peso foreign currency forward contracts to manage the foreign currency risk arising from its US$ denominated assets. These currency forwards are accounted for as fair value hedges. The Company has outstanding currency forward contracts with an aggregate notional amount of US$13.85 million and US$14.1 million as of March 31, 2014 and 2013, respectively. The