COVER SHEET 1 5 7 9 1 2 SEC Registration Number C E B U H O L D I N G S, I N C. A N D S U B S I D I A R I E S (Company s Full Name) 7 t h F l o o r, C e b u H o l d i n g s C e n t e r, D C e b u B u s i n e s s P a r k, C e b u C i t y (Business Address: No. Street City/Town/Province) Enrique B. Manuel, Jr. (032) 231-5301 (Contact Person) (Company Telephone Number) 1 2 3 1 A A F S Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting) (Secondary License Type, If Applicable) SEC Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings P=951 million Total No. of Stockholders Domestic Foreign To be accomplished by SEC Personnel concerned File Number LCU Document ID Cashier S T A M P S Remarks: Please use BLACK ink for scanning purposes.
SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001, January 25, 2010, valid until December 31, 2012 SEC Accreditation No. 0012-FR-2 (Group A), February 4, 2010, valid until February 3, 2013 INDEPENDENT AUDITORS REPORT The Stockholders and the Board of Directors Cebu Holdings, Inc. 7th Floor, Cebu Holdings Center Cebu Business Park, Cebu City We have audited the accompanying consolidated financial statements of Cebu Holdings, Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2011 and 2010, and the consolidated statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2011, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated 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 consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated 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
- 2 - Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Cebu Holdings, Inc. and its subsidiaries as at December 31, 2011 and 2010, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2011 in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO. Davee M. Zuñiga Partner CPA Certificate No. 88990 SEC Accreditation No. 0665-AR-1 (Group A), February 18, 2011, valid until February 17, 2014 Tax Identification No. 160-302-953 BIR Accreditation No. 08-001998-77-2009, June 1, 2009, valid until May 31, 2012 PTR No. 2153254, January 2, 2012, Cebu City March 2, 2012
CEBU HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in Thousands, except for Par Value, Authorized and Issued Shares) ASSETS December 31 2011 2010 Current Assets Cash and cash equivalents (Notes 4 and 24) P=1,214,231 P=897,353 Short-term cash investments (Notes 5 and 24) 2,956 25,820 Receivables (Notes 6, 16 and 24) 390,697 262,110 Real estate inventories - at cost (Note 7) 629,072 635,774 Sports club shares for sale - at cost 357,864 357,864 Other current assets (Note 8) 17,981 13,373 Total Current Assets 2,612,801 2,192,294 Noncurrent Assets Noncurrent portion of receivables - net (Notes 6, 16 and 24) 222,141 231,143 Deferred tax assets (Note 22) 9,579 10,938 Property and equipment (Note 9) 53,102 56,727 Investments in associates (Note 10) 690,354 393,575 Investment properties (Note 11) 3,156,905 3,055,801 Other noncurrent assets (Note 12) 386,431 97,912 Total Noncurrent Assets 4,518,512 3,846,096 P=7,131,313 P=6,038,390 LIABILITIES AND EQUITY Current Liabilities Accounts and other payables (Notes 13, 16, 21 and 24) P=769,716 P=789,217 Current portion of customers deposits (Notes 15 and 24) 304,578 266,036 Income tax payable 36,609 26,770 Current portion of long-term debt (Notes 14 and 24) 55,000 110,000 Total Current Liabilities 1,165,903 1,192,023 Noncurrent Liabilities Customers deposits and deferred credits - net of current portion (Notes 15 and 24) 12,788 30,742 Deferred tax liabilities (Note 22) 28,556 36,048 Long-term debt - net of current portion (Notes 14 and 24) 895,675 55,000 Total Noncurrent Liabilities 937,019 121,790 Total Liabilities 2,102,922 1,313,813 (Forward)
- 2 - December 31 2011 2010 Equity (Note 25) Equity attributable to equity holders of Cebu Holdings, Inc. Capital stock - P=1 par value Authorized - 3,000,000,000 shares Issued and outstanding - 1,920,073,623 shares P=1,920,073 P=1,920,073 Additional paid-in capital 856,685 856,685 Retained earnings 1,928,311 1,638,384 4,705,069 4,415,142 Non-controlling interests 323,322 309,435 Total Equity 5,028,391 4,724,577 P=7,131,313 P=6,038,390 See accompanying Notes to Consolidated Financial Statements.
CEBU HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, except Earnings Per Share) Years Ended December 31 2011 2010 2009 REVENUE Real estate (Note 16) P=246,235 P=448,868 P=413,945 Rental income (Notes 11 and 27) 838,133 746,781 697,950 Theater income 80,257 77,866 72,747 Equity in net earnings of associates (Note 10) 28,505 29,020 19,687 Interest and other income (Note 17) 155,760 144,650 83,955 1,348,890 1,447,185 1,288,284 COSTS AND EXPENSES Real estate, rental and theater expenses (Note 18) 525,503 662,733 671,029 General and administrative (Notes 16, 19 and 21) 193,016 176,469 161,732 Interest and other charges (Notes 14, 15 and 20) 22,240 27,171 22,060 740,759 866,373 854,821 INCOME BEFORE INCOME TAX 608,131 580,812 433,463 PROVISION FOR INCOME TAX (Note 22) 143,117 135,549 103,920 NET INCOME P=465,014 P=445,263 P=329,543 Net Income Attributable to: Equity holders of Cebu Holdings, Inc. P=424,333 P=406,200 P=302,192 Non-controlling interests 40,681 39,063 27,351 P=465,014 P=445,263 P=329,543 Basic/Diluted Earnings Per Share (Note 23) P=0.22 P=0.21 P=0.16 See accompanying Notes to Consolidated Financial Statements.
CEBU HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands) Years Ended December 31 2011 2010 2009 NET INCOME FOR THE PERIOD P=465,014 P=445,263 P=329,543 OTHER COMPREHENSIVE INCOME TOTAL COMPREHENSIVE INCOME P=465,014 P=445,263 P=329,543 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Equity holders of Cebu Holdings, Inc. P=424,333 P=406,200 P=302,192 Non-controlling interests 40,681 39,063 27,351 P=465,014 P=445,263 P=329,543 See accompanying Notes to Consolidated Financial Statements.
CEBU HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in Thousands, except Cash Dividends Per Share) ATTRIBUTABLE TO EQUITY HOLDERS OF CEBU HOLDINGS, INC. Years Ended December 31 2011 2010 2009 Capital Stock (Note 25) P=1,920,073 P=1,920,073 P=1,920,073 Additional Paid-in Capital (Note 25) 856,685 856,685 856,685 Retained Earnings (Note 25) At beginning of year 1,638,384 1,366,590 1,198,804 Net income 424,333 406,200 302,192 Cash dividends - P=0.07 per share (134,406) (134,406) (134,406) At end of year 1,928,311 1,638,384 1,366,590 NON-CONTROLLING INTERESTS At beginning of year 309,435 297,183 292,170 Net income 40,681 39,063 27,351 Dividends paid to non-controlling interests (26,794) (26,811) (22,338) At end of year 323,322 309,435 297,183 P=5,028,391 P=4,724,577 P=4,440,531 See accompanying Notes to Consolidated Financial Statements.
CEBU HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Years Ended December 31 2011 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=608,131 P=580,812 P=433,463 Adjustments for: Depreciation and amortization (Notes 9, 11, 18 and 19) 137,198 130,509 135,801 Interest expense (Note 20) 21,778 24,755 17,647 Loss (gain) on disposal of property and equipment 156 (129) Equity in net earnings of associates (Note 10) (28,505) (29,020) (19,687) Interest income (Note 17) (55,478) (52,240) (51,648) Operating income before working capital changes 683,280 654,687 515,576 Decrease (increase) in: Receivables (95,732) (88,121) (68,918) Real estate inventories 6,702 (22,878) 52,177 Other current assets (4,608) 11,479 5,256 Increase (decrease) in: Accounts and other payables (19,891) 45,910 (39,922) Customers deposits and deferred credits 20,588 26,704 14,121 Net cash generated from operations 590,339 627,781 478,290 Interest received 54,414 39,773 37,796 Interest paid (21,387) (19,473) (16,689) Income taxes paid (139,412) (123,715) (87,767) Net cash provided by operating activities 483,954 524,366 411,630 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of: Investment properties (Note 11) (223,217) (100,916) (186,233) Property and equipment (Note 9) (11,626) (34,874) (5,200) Decrease (increase) in: Short-term cash investments 22,864 211,690 (153,347) Other noncurrent assets (288,519) (9,120) 55,633 Investments in associates (Note 10) (291,063) (90,454) Proceeds from sale of property and equipment 10 295 6,255 Net cash used in investing activities (791,551) (23,379) (282,892) (Forward)
- 2 - Years Ended December 31 2011 2010 2009 CASH FLOWS FROM FINANCING ACTIVITIES Payments of long-term debt (P=110,000) (P=110,000) (P=55,000) Availments of long-term debt 895,675 Dividends paid to: Non-controlling interests (26,794) (26,811) (22,338) Equity holders of Cebu Holdings, Inc. (134,406) (134,406) (134,406) Net cash provided by (used in) financing activities 624,475 (271,217) (211,744) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 316,878 229,770 (83,006) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 4) 897,353 667,583 750,589 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4) P=1,214,231 P=897,353 P=667,583 See accompanying Notes to Consolidated Financial Statements.
CEBU HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Group Information Cebu Holdings, Inc. (the Parent Company) was incorporated in the Republic of the Philippines on December 9, 1988 and is engaged in real estate development, sale of subdivided land, residential and office condominium units, sports club shares, and lease of commercial spaces. The registered office address of the Parent Company is at 7th Floor, Cebu Holdings Center, Cebu Business Park, Cebu City, Philippines. Cebu Property Ventures and Development Corporation (CPVDC), a subsidiary, is engaged in real estate development and sale of subdivision land and residential units. The registered office address of the CPVDC is at 7th Floor, Cebu Holdings Center, Cebu Business Park, Cebu City, Philippines. Asian I-Office Properties, Inc. (AiO) is 40%-owned by CPVDC starting in 2008 and 100%-owned in 2007. Its purpose is to engage in all aspects of real estate development and in leasing of corporate spaces. The registered office address of AiO is at 7th Floor, Cebu Holdings Center, Cebu Business Park, Cebu City, Philippines. AiO was incorporated on September 24, 2007 and has commenced its operations in May 2009. Cebu Leisure Company, Inc. (CLCI), a subsidiary, is engaged in subleasing of commercial spaces, food courts and entertainment facilities. The registered office address of CLCI is at 7/F Cebu Holdings Center, Cebu Business Park, Cebu City, Philippines. CBP Theatre Management Company, Inc. (CBP Theatre), a subsidiary, was registered with the Securities and Exchange Commission to engage in all aspects of the theatrical and cinematographic entertainment business, including theatre management and other related undertakings. The registered office address of CBP Theatre is at 7th Floor, Cebu Holdings Center, Cebu Business Park, Cebu City, Philippines. CBP Theatre has not yet started its operations. The consolidated financial statements of Cebu Holdings, Inc. and Subsidiaries (the Group) as of December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011 were authorized for issue by the Executive Committee of the Board of Directors (BOD) on March 2, 2012. 2. Summary of Significant Accounting Policies Basis of Preparation The accompanying consolidated financial statements of the Group have been prepared on a historical cost basis. The consolidated financial statements are presented in Philippine Peso, and all values are rounded to the nearest thousand (P=000) except when otherwise indicated. The Group s functional currency is Philippine Peso. Statement of Compliance The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).
- 2 - Basis of Consolidation The consolidated financial statements comprise the financial statements of the Parent Company and the following wholly owned and majority-owned subsidiaries (the Group): Effective Percentages of Ownership Cebu Leisure Company, Inc. 100% CBP Theatre Management Company, Inc. 100 Cebu Property Ventures & Development Corporation 76 The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company, using consistent accounting policies. All intercompany balances and transactions, including income, expenses and dividends, are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date such control ceases. The excess of the Parent Company s cost of investment in CPVDC over its proportionate share in the underlying net assets at date of acquisition was allocated to Real Estate Inventories and Investment properties accounts in the consolidated statement of financial position. The purchase premium is amortized in proportion to the area of lots (in square meters) sold by CPVDC. Non-controlling interests represent the portion of profit or loss and net assets in CPVDC not held by the Parent Company and are presented separately in the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and within equity in the consolidated statement of financial position, separately from the equity attributable to the Parent Company. Adoption of New and Amended Accounting Standards and Interpretations The accounting policies adopted in the preparation of the Group s financial statements are consistent with those of the previous financial year except for the adoption of the following new and amended PFRS and Philippine Interpretations of International Financial Reporting Interpretations Committee (IFRIC) interpretations which became effective January 1, 2011. PAS 24, Related Party Transactions (Amendment) The Amendment clarified the definitions of a related party. The new definitions emphasize a symmetrical view on related party relationships as well as clarifying in which circumstances persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements, for transactions with a government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group but the appropriate disclosures are included in Note 16.
- 3 - PAS 32, Financial Instruments: Presentation (Amendment) The Amendment alters the definition of a financial liability in PAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity s non-derivative equity instruments, to acquire a fixed number of the entity s own equity instruments for a fixed amount in any currency. The amendment has no effect on the financial position or performance of the Group because the Group does not have these types of instruments. Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement (Amendment) The Amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognized as a pension asset. The Group is not subject to minimum funding requirements, therefore the amendment of the interpretation has no effect on the financial position or performance of the Group. Improvements to PFRSs Improvements to PFRSs, an omnibus of amendments to standards, deal primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but, except indicated otherwise, did not have any impact on the financial position or performance of the Group. PFRS 3, Business Combinations (Amendment) This amendment clarifies that the Amendments to PFRS 7, Financial Instruments: Disclosures, PAS 32, Financial Instruments: Presentation and PAS 39, Financial Instruments: Recognition and Measurement, that eliminate the exemption for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of PFRS 3 (as revised in 2008). It also limits the scope of the measurement choices that only the components of non-controlling interest that are present ownership interests that entitle their holders to a proportionate share of the entity s net assets, in the event of liquidation, shall be measured either at fair value or at the present ownership instruments proportionate share of the acquiree s identifiable net assets. Other components of non-controlling interest are measured at their acquisition date fair value, unless another measurement basis is required by another PFRS. The amendment also requires an entity (in a business combination) to account for the replacement of the acquiree s share-based payment transactions (whether obliged or voluntarily), i.e., split between consideration and post-combination expenses. However, if the entity replaces the acquiree s awards that expire as a consequence of the business combination, these are recognized as post-combination expenses. It further specifies the accounting for share-based payment transactions that the acquirer does not exchange for its own awards: if vested - they are part of non-controlling interest and measured at their marketbased measure; if unvested - they are measured at market-based value as if granted at acquisition date, and allocated between non-controlling interest and post-combination expense.
- 4 - PFRS 7, Financial Instruments - Disclosures (Amendment) This amendment emphasizes the interaction between quantitative and qualitative disclosures and the nature and extent of risks associated with financial instruments. The amendments to quantitative and credit risk disclosures are as follows: a. Clarify that only financial asset whose carrying amounts do not reflect the maximum exposure to credit risk need to provide further disclosure of the amount that represents the maximum exposure to such risk. b. Requires, for all financial assets, to disclose the financial effect of collateral held as security and other credit enhancements regarding the amount that best represents the maximum exposure to credit risk (e.g., a description of the extent to which collateral mitigates credit risk). c. Removal of the disclosure of the collateral held as security, other credit enhancements and an estimate of their fair value for financial assets that are past due but not impaired, and financial assets that are individually determined to be impaired. d. Removal of the requirement to specifically disclose financial assets renegotiated to avoid becoming past due or impaired. e. Clarify that the additional disclosure required for financial assets obtained by taking possession of collateral or other credit enhancements are only applicable to assets still held at the reporting date. The Group reflects the revised requirements in Note 24. PAS 1, Presentation of Financial Statements (Amendment) The Amendment provides an option to present an analysis of each component of other comprehensive income maybe either in the statement of changes in equity or in the notes to the financial statements. PAS 27, Consolidated and Separate Financial Statements This Amendment clarifies that the consequential amendments from PAS 27 made to PAS 21, The Effect of Changes in Foreign Exchange Rates, PAS 28, Investments in Associates and PAS 31, Interests in Joint Ventures apply prospectively for annual periods beginning on or after July 1, 2009 or earlier when PAS 27 is applied earlier. Other amendments resulting from Improvements to PFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group: PAS 34, Interim Financial Statements The following interpretation and amendments to interpretations did not have any impact on the accounting policies, financial position or performance of the Group: Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (determining the fair value of award credits) Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments
- 5 - Future Changes in Accounting Policies The Group will adopt the following amended standards and Philippine Interpretations enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have significant impact on the financial statements. Effective 2012 PAS 1, Financial Statement Presentation - Presentation of Items of Other Comprehensive Income The Amendments to PAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or recycled ) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has therefore no impact on the Group s financial position or performance. The amendment becomes effective for annual periods beginning on or after July 1, 2012. PAS 12, Income Taxes - Recovery of Underlying Assets 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 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 always be measured on a sale basis of the asset. The amendment becomes effective for annual periods beginning on or after January 1, 2012. PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements The Amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Group s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity s continuing involvement in those derecognized assets. The amendment becomes effective for annual periods beginning on or after July 1, 2011. The amendment affects disclosures only and has no impact on the Group s financial position or performance. Effective 2013 PAS 19, Employee Benefits (Amendment) Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The Group is currently assessing the impact of the amendment to PAS 19. The amendment becomes effective for annual periods beginning on or after January 1, 2013. PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the new PFRS 10, Consolidated Financial Statement and PFRS 12, Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Group does not present separate financial statements. The amendment becomes effective for annual periods beginning on or after January 1, 2013.
- 6 - PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new PFRS 11, Joint Arrangements and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after January 1, 2013. PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above. The amendments to PFRS 7 are to be retrospectively applied for annual periods beginning on or after January 1, 2013. The amendment affects disclosures only and has no impact on the Group s financial position or performance. PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. This standard becomes effective for annual periods beginning on or after January 1, 2013. PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities - Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The application of this new standard will impact the financial position of the Group. This standard becomes effective for annual periods beginning on or after January 1, 2013.
- 7 - PFRS 12, Disclosure of Interests with Other Entities PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after January 1, 2013. PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance. This standard becomes effective for annual periods beginning on or after January 1, 2013. Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine ( production stripping costs ) and provides guidance on the recognition of production stripping costs as an asset and measurement of the stripping activity asset. This interpretation becomes effective for annual periods beginning on or after January 1, 2013. Effective 2014 PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial liabilities These amendments to PAS 32 clarify the meaning of currently has a legally enforceable right to set-off and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. While the amendment is expected not to have any impact on the net assets of the Group, any changes in offsetting is expected to impact leverage ratios and regulatory capital requirements. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014. The Group is currently assessing impact of the amendments to PAS 32. Effective 2015 PFRS 9, Financial Instruments: Classification and Measurement PFRS 9 as issued reflects the first phase on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project expected on the first half of 2012. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.
- 8 - The Group has decided not to early adopt either PFRS 9 (2009) or PFRS 9 (2010) for its 2011 annual financial reporting. The Group shall conduct in early 2012 another impact evaluation using outstanding balances of financial statements as of December 31, 2011. The Group s decision whether to early adopt either PFRS 9 (2009) of PFRS 9 (2010) for its 2012 financial reporting shall be disclosed in its interim financial statements as of March 31, 2012. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed.. The adoption of this Philippine Interpretation may significantly affect the determination of the revenue from real estate sales and the corresponding costs, and the related trade receivables, deferred tax liabilities and retained earnings accounts. The Group is in the process of quantifying the impact of adoption of this Interpretation. Cash and Cash Equivalents and Short-term Cash Investments Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amount of cash with original maturities of three (3) months or less from date of placement and that are subject to an insignificant risk of changes in value. Cash investments with original maturities beyond three months are classified as short-term cash investments. Financial Assets and Financial Liabilities Date of recognition The Group recognizes a financial asset or a financial liability in the consolidated statement of financial position when it becomes a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done using the settlement date accounting. Initial recognition Financial assets and financial liabilities are recognized initially at fair value. Transaction costs are included in the initial measurement of all financial assets and liabilities, except for financial instruments measured at fair value through profit or loss (FVPL). Financial assets within the scope of PAS 39 are classified as either financial assets at FVPL, loans and receivables, held-to-maturity financial assets, or available-for-sale (AFS) financial assets, as appropriate. Financial liabilities are classified as either financial liabilities at FVPL or other financial liabilities. The Group s financial assets and financial liabilities are of the nature of loans and receivables and other financial liabilities, respectively. The classification depends on the purpose for which the investments were acquired or liabilities were incurred and whether they are quoted in an active market. Management determines the classification of its financial instruments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.
- 9 - Determination of fair value The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 24. Day 1 profit Where the transaction price in a non-active market is different to the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 profit) in the consolidated statement of income unless it qualifies for recognition as some other type of asset. In cases where variables used are made of data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the Day 1 profit amount. Loans and receivables Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS financial assets or financial assets at FVPL. This accounting policy relates to the consolidated statement of financial position captions Cash and cash equivalents, Short-term cash investments and Receivables. After initial measurement, the loans and receivables are subsequently measured at amortized cost using the effective interest method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included in Interest and other income account in the consolidated statement of income. The losses arising from impairment of such loans and receivables are recognized under General and administrative expenses account in the consolidated statement of income. Loans and receivables are included in current assets if maturity is within twelve months from the reporting date. Otherwise, these are classified as noncurrent assets. Other financial liabilities Other financial liabilities are financial liabilities not designated as at FVPL where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash. After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the effective interest rate. The amortization is included in the Interest and other charges account in the consolidated statement of income.
- 10 - This accounting policy applies primarily to the Group s Accounts and other payables, Longterm debt and other obligations that meet the above definition (other than liabilities covered by other accounting standards, such as income tax payable). Derivative Financial Instruments Derivative instruments (including bifurcated embedded derivatives) are initially recognized at fair value on the date in which a derivative transaction is entered into or bifurcated, and are subsequently re-measured at fair value. Changes in fair value of derivative instruments not accounted for as hedges are recognized immediately in the consolidated statement of income. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Derivative financial instruments also include bifurcated embedded derivatives. An embedded derivative is separated from the hybrid or combined contract if all the following conditions are met: (a) the economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the host contract; (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and (c) the hybrid instrument is not recognized at FVPL. The Group assesses whether embedded derivatives are required to be separated from the host contracts when the Group first becomes a party to the contract. Reassessment of embedded derivatives is only done when there are changes in the contract that significantly modifies the contractual cash flows. Where derivatives are designated as effective hedging instruments, provisions of hedge accounting apply. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the year. The Group has no derivative financial instruments as of December 31, 2011 and 2010. Customers Deposits and Deferred Credits Customers deposits are measured initially at fair value. The difference between the cash received and the fair value of customers deposits is recognized as deferred credits (included in Customers deposit and deferred credits in the consolidated statement of financial position) and amortized using the straight-line method under the Rental income account in the consolidated statement of income. After initial recognition, customers deposits are subsequently measured at amortized cost using effective interest method. Accretion of discount is recognized under Interest and other charges in the consolidated statement of income. Derecognition of Financial Assets and Financial Liabilities Financial asset A financial asset (or, where applicable, a part of a group of financial assets) is derecognized when: (a) the right to receive cash flows from the assets has expired; (b) the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third-party under a pass-through arrangement; or (c) the Group has transferred its right to receive cash flows from the asset and either: (i) has transferred substantially all the risks and rewards of the asset; or (ii) has neither transferred nor retained the risks and rewards of the asset but has transferred control of the asset.
- 11 - Where the Group has transferred its right to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial liability A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income. Impairment of Financial Assets The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in economic conditions that correlate with defaults. Loans and receivables For loans and receivables carried at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The carrying amount of the asset is reduced through use of an allowance account and the amount of loss is charged to the consolidated statement of income. Interest income continues to be recognized based on the original effective interest rate of the asset. Loans and receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases
- 12 - or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as customer type, customer location, credit history, past-due status and term. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated statement of financial position. Real Estate Inventories Real estate inventories is valued at the lower of cost or net realizable value (NRV). NRV is the estimated selling price in the ordinary course of business, less estimated costs to complete and sell. Cost includes those incurred for the acquisition and development of the properties and is measured using the average cost method. Sports Club Shares for Sale These are assets held for sale in the ordinary course of business. Sports club shares for sale are valued at the lower of cost or NRV. Cost comprise of acquisition and development of the sports club facilities while NRV is the selling price in the ordinary course of business, less estimated cost to sell. Cost is determined using the average cost method. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and amortization and any impairment in value. The initial cost of property and equipment comprises its purchase price and any directly attributable costs of bringing the property and equipment to its intended location and working condition, including borrowing costs. Construction-in-progress is stated at cost. This includes cost of construction, equipment and other direct costs. Construction-in-progress is not depreciated until such time that the relevant assets are available for their intended use. Major repairs are capitalized as property and equipment only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the items can be measured reliably. All other repairs and maintenance are charged against current operations as incurred.